Goodwill according to the German Commercial Code (HGB): How to Optimize the 10-Year Depreciation in the Real Estate Industry
A company value of over 1 million euros on your balance sheet – just a burden for the next 10 years? It doesn't have to be if you strategically manage the regular depreciation according to the German Commercial Code (HGB) and avoid pitfalls.
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The topic briefly and concisely
According to the German Commercial Code (HGB), acquired goodwill is usually amortized over ten years, which directly reduces the profit.
The tax law prescribes a different depreciation period of 15 years, leading to the formation of deferred taxes.
A detailed purchase price allocation (PPA) is the most important strategy to reduce capitalised goodwill from the outset.
Have you ever wondered how a high purchase price during a company acquisition can affect the profits of your real estate company for years to come? The key lies in goodwill, also known as business or company value. According to the German Commercial Code (HGB), this value is typically amortised over ten years, directly reducing your profit. This regulation presents both risks and opportunities. This article will show you how to correctly handle goodwill amortisation according to the HGB in the real estate industry, avoid tax disadvantages, and establish a solid foundation for future success through precise valuation from the outset.
Fundamentals of Goodwill Accounting in the Real Estate Industry
Goodwill arises when the purchase price for a company exceeds its tangible asset value. In the real estate sector, this often occurs in share deals where entire real estate companies are acquired. Goodwill represents intangible values such as reputation, tenant structure, or management know-how. According to § 246 paragraph 1 sentence 4 HGB, this acquired, so-called derivative goodwill must be capitalized. However, self-created (original) goodwill should not appear on the balance sheet. Accurately determining this value is the first step to minimizing future burdens. A detailed HGB valuation of land and buildings as part of the purchase price allocation is essential for this. This precise allocation of the purchase price to individual assets reduces the remaining goodwill and thus the future depreciation burden.
Correctly applying the 10-year depreciation as standard
The HGB prescribes scheduled depreciation for goodwill, as its benefits are considered limited in time. If the useful life cannot be reliably estimated, a standard depreciation period of ten years applies (§ 253 para. 3 HGB). For a real estate company with a capitalized goodwill of 5 million euros, this means an annual charge to profits of 500,000 euros. This non-cash expense significantly reduces the reported profit. This regulation is in clear contrast to international standards (IFRS), which do not provide for scheduled depreciation. Instead, an annual impairment test is conducted there. For companies reporting under HGB, the ten-year period is a fixed entity that requires long-term financial planning. An understanding of the differences between IFRS and HGB is crucial for internationally operating investors.
Tax Pitfalls: The Deviation Over 15 Years
A significant complexity arises from the differing requirements in tax law. While the HGB prescribes depreciation over 10 years, tax law mandates a fixed useful life of 15 years (§ 7 Abs. 1 EStG). This discrepancy leads to a divergence between commercial and tax balance sheets. In the first ten years, commercial depreciation is higher than tax depreciation, resulting in a higher taxable profit. This necessitates the creation of deferred tax assets. These represent a future tax benefit that reverses after the tenth year. Correct treatment is essential for accurate accounting. Having precise knowledge of deferred taxes in real estate is highly advantageous here.
An overview of the differences:
Commercial Law (HGB): Scheduled depreciation over the useful life, usually 10 years.
Tax Law (EStG): Fixed depreciation period of 15 years, no exceptions.
Consequence: Higher taxable profit in years 1-10.
Accounting: Creation of deferred tax assets in the commercial balance sheet.
This tax discrepancy must be taken into account in every acquisition decision and subsequent financial planning.
Risk Factor Impairment: When an Unsuspected Write-Down Looms
Alongside the regular depreciation, you must assess goodwill for its recoverability at each balance sheet date. If there are indications of a likely permanent impairment, an extraordinary write-down is mandatory (§ 253 para. 3 sentence 5 HGB). In the real estate sector, such indications can be varied. Even a significant rise in interest rates can reduce the value of an entire real estate division. Such an impairment test for real estate is complex and requires a thorough evaluation of future cash flows. Reversing a write-down on goodwill, should the value recover later, is prohibited under HGB. This makes an extraordinary write-down a final and often painful correction.
Typical triggers for an impairment test in the real estate sector are:
Loss of an anchor tenant in a key property.
Negative development of the regional real estate market.
Significantly increased capital costs affecting the income valuation calculation.
Poorer-than-expected performance of the acquired portfolio.
Geopolitical crises leading to market uncertainties.
Proactive monitoring of these factors is essential for any management.
Strategic Optimisation: Minimise goodwill from the outset
The most effective strategy is to keep the goodwill requiring activation as low as possible from the outset. This is achieved through careful purchase price allocation (PPA) directly after the acquisition. Instead of broadly declaring a large residual amount as goodwill, a detailed analysis can identify other intangible assets that can be separately valued. These include, for example, lease agreements with above-average returns or a particularly strong brand name. A precise, AI-supported valuation can reduce the proportion of goodwill by up to 15%. Do you need a quick and impartial assessment in the context of a transaction? The Auctoa ImmoGPT chat provides you with initial data-driven recommendations. A detailed analysis according to the acquisition cost model under HGB forms the basis for an optimized balance sheet. This turns an accounting burden into a strategically sound decision.
Conclusion: Use goodwill impairment as a strategic tool
The goodwill amortisation under HGB of 10 years in the real estate industry is far more than just an accounting exercise. It is a central factor that shapes your company's profitability and tax burden over a whole decade. The rigid rules of the HGB and the differing tax treatment require foresight and precise planning from the initial acquisition analysis onwards. Through professional purchase price allocation and continuous monitoring of asset sustainability, you can transform accounting risks into strategic advantages. A solid real estate valuation is your strongest lever for an optimised balance sheet.
goodwill-amortisation-hgb-10-years-real-estate-industry
Additional useful links
Gesetze im Internet provides the full text of § 253 of the Commercial Code (HGB), which governs the valuation of assets and depreciation.
Federal Ministry of Finance provides the official depreciation tables (AfA tables), which are relevant for the tax depreciation periods of fixed assets.
Federal Gazette is the central platform for official announcements and corporate register information in Germany.
Institute of Public Auditors in Germany (IDW) offers a statement on business valuation (IDW S1), which contains important principles for determining company values.
KPMG publishes a brochure that provides detailed insights into accounting for real estate under IFRS and HGB.
Rödl & Partner explains in a professional article the term 'Goodwill' in the context of M&A transactions and its significance.
Haufe offers a specialist article on the depreciation of goodwill that highlights the relevant aspects.
FAQ
How does the goodwill amortisation affect my balance sheet?
The scheduled amortisation of goodwill reduces its carrying amount on the asset side of the balance sheet. At the same time, an expense is recorded in the profit and loss statement, which decreases the annual surplus and thus reduces equity.
What happens if the value of my goodwill permanently decreases?
If there is a permanent impairment, for example due to a market crisis, you must make an extraordinary depreciation according to HGB. The book value of the goodwill is reduced to the lower fair value. A subsequent reversal of impairment is excluded.
How are goodwill and purchase price allocation related?
Goodwill is the result of purchase price allocation. It is the residual amount that remains after the purchase price has been distributed across all identifiable assets (such as buildings, land) and liabilities. A careful allocation can minimize goodwill.
Is VAT applied in the case of a goodwill write-down?
No, the amortisation of goodwill is purely an accounting procedure within the company and does not constitute a supply or any other service within the meaning of the VAT Act. Therefore, no VAT is payable in this case.
