Goodwill - features of calculating its amount and accounting - BV
Home Knowledge base Corporate Banking Goodwill - features of races ...

Private individuals

School holidays 2024-2025 Tax relief for working people (Arbeidskorting) How to calculate tax on Box 3 tax return Tax deductions for gifts and charity General tax relief (algemene heffingskorting) Calculate your medical reimbursement threshold Local (municipal) taxes Deduction for medical expenses (aftrek zorgkosten) 2023 Combined Tax Credit for Parents of Children Under 12 (IACK) Do you have to pay tax if you rent out a room in your house? Opgaaf wereldinkomen - Worldwide income statement Weekends and holidays 2024 Minimum wage 2024 How to notify the tax office about your bank account number yourself? My tax return has been in the tax office for a long time, but there is no answer. What to do? Instructions: How to apply for a subsidy at Holiday rules in the Netherlands Taxation of foreign income in the Netherlands Tax return. Form M Letters with machtigingen from the tax What is jaaropgaaf What is a Zvw contribution? Instructions: How to file a tax return Tax deductions for mortgages and maintenance of your own home How to save on utility bills in the Netherlands (subsidies for improved thermal insulation) About the fare. Receipts and discounts (VIDEO) I want to help: Charity and taxes Box 3 / Box 3 - a book with a description of all webinars Advance calculation (voorlopige aanslag) - an option for those who want to pay taxes or receive tax deductions not at once, but on a monthly basis Fiscal partners Top 9 Tax Return Questions Answered Property transfer tax - basics and innovations from 2021 Health insurance in the Netherlands (part 2) Health insurance in the Netherlands (part 1) "30% ruling" and conditions for its receipt Registration of inheritance and gifts Additional maternity leave What is allowed and what is forbidden to import into the Netherlands Taxes on imported goods How to provide a foreign account number to the tax office Airport Tax Refund (Schiphol) How to get a grace period for filing your tax return The main types of taxes in the Netherlands Dutch taxpayer Where do I go with my problem?

Goodwill - features of calculating its amount and accounting


Recently, more and more questions have arisen from our readers about the concept of goodwill (goodwill – English). What is it, how to calculate its value in theory and using a numerical example, how to depreciate it and what happens if it is sold without taking into account the cost, etc. About all this in our article today

What is goodwill?

Goodwill (goodwill – English) is business reputation, that is, the added value of your company, in addition to the value of assets and liabilities. Let's look at the situation using an example.

You have a pastry shop known throughout the region for its delicious pastries and beautiful wedding cakes. Three hundred meters down the street, there is a second bakery that sells nothing but eclairs and apple pies. When sold, your pastry shop will undoubtedly have a higher added value due to a better reputation.


How is goodwill calculated?

There are several factors that can be relevant when calculating goodwill, for example:

Field of activity

A consumer electronics company, due to the higher pressure on profitability, may receive a lower level of goodwill;


If the reputation of a restaurant is based entirely on that of a renowned chef, goodwill at the time of sale will be determined based on whether the chef is still associated with the restaurant;


A store in a less sales-friendly area will have lower goodwill;

Market development

It is possible that a company will need significant investments to defend its position in the market;

Future prospects

A company with its own know-how, which is of high value, will receive more goodwill. An example is biotech companies, which, despite the fact that they are not yet profitable, change hands for a lot of money.


Theoretical method for calculating goodwill

Goodwill is often determined using a theoretical calculation method. The profitability of the company is made up of the profit indicators of previous years.

Profit for the last three fiscal years is taken as the starting point for determining goodwill. Profits for these years are adjusted for unforeseen expenses and income from business activities. Then the profit is reduced by the remuneration that the entrepreneur pays himself for his work.

Finally, interest on equity is deducted from profits. The final amount is excess profit. Excess profit multiplied by a factor from two to six gives an idea of ​​business reputation. The final multiplier is determined by the earnings forecast, the outcome of negotiations and the above factors.


Example of calculating goodwill

Patrick has a car painting shop. In the first year he made a profit of €45, in the second year he made a loss of €378, and in the third year he made a profit of €11.

In the first year, he completely renovated his paint shop and adapted it to the most stringent environmental and industry requirements - at a cost of €68. Excluding contingencies for renovations, the average annual profit over three years was €067.

Patrick pays himself an annual salary of € 36 for his work. The company's equity capital is 302 euros.

The excess profit will be:

gross profit € 56 – wages € 722 – equity compensation (36%) € 302 € = € 10.

It is possible that the forecast for the profit of the car paint shop has increased due to investments in the first year. In this case, goodwill can be valued quite high. But if paint technology is already obsolete due to new environmental regulations, or the location of a car paint shop no longer meets government zoning plans, the amount of goodwill will decrease significantly.


Amortization of goodwill

If you bought a company, you probably want to write off the value of the goodwill you paid as soon as possible. Good business reputation should be amortized over its expected useful life. This service life is assumed to be finite, but in the range of 10 to 20 years.

The recognition of negative goodwill that arises when the purchase price is below the fair value of the assets and liabilities acquired depends on the reason for that assessment.

If negative goodwill is related to expected future losses and expenses, goodwill should be added to the bottom line as the estimated losses and expenses arise. In other cases, negative goodwill should be included in the revaluation reserve, followed by a progressive write-off or write-off of a lump sum.


Selling goodwill without cost is a gift

The Dutch tax authority pays special attention to determining the amount of goodwill in transactions between affiliated parties.

In particular, in the case of a family business transfer, goodwill is sometimes disregarded or measured at the lowest possible value. The tax authorities themselves can calculate goodwill in suspicious cases. To do this, the tax authority independently determines the excess profit and multiplies it by 2,5-3 times.

In the example of painting a car, the excess profit was € 18. In a "bad" scenario, when buying a company, you will have to pay tax on the gift on the amount of 151 euros.

To sell your company without unpleasant consequences, it is advisable to seek help from a specialist. It is important not only to determine the real selling price, but also the final amount that you have to pay to the tax authorities. The team will help you both with calculating the value of goodwill and with all the organizational aspects of selling a company in the Netherlands.

The information posted in the article is current at the time of its publication.


Olga Lukasheva
+ 31(0) 85 54 00 200
Ask a question to a specialist



Fill out the form or contact us in a way convenient for you. Our experts will help you resolve the issue.

  • Hidden
  • ✓ Valid number ✕ Invalid number
  • Fill in if available. If you don't know what it is, don't fill it out.
  • Drop files here or
    Accepted file types: jpg, jpeg, png, pdf, doc, docx, xls, xlsx, Max. file size: 120 MB.
    • This field is for validation and Purposes Should Be UNCHANGED left.

    logo nalog

    Several of our topics

    You can find more topics on our home page or on the menu.

    logo nalog

    What do you think of this site? *

    The purpose of your appeal?

    Do not enter any personal information such as name, social security number, or phone number. We do not respond to questions, comments and complaints that come through this form.