Ascertaining and using an appropriate valuation is important and necessary to avoid future tax problems when selling private company stock to relatives or to another company that you own. If you sell the stock to cheaply the buyer of the stock could face having to pay a gift tax.
A variety of valuation methods are used including the net asset method, an income approach using the discounted cash flow (DCF) method, or a market approach using a price to earnings ration (PER).
The method you select will depend on the relevant tax law and which will provide you with the most preferential price. Also, keep in mind there are many things you can do to align the valuation with your needs.
Net Asset Method
Each asset on the balance sheet is to be assessed separately. Land and building valuations can be very different from market value.
A plot of land that is owned by a company whose shares are subject to valuation is assessed by the valuations by the National Tax Agency to price by “road price.”
The price is presented as “2,940B” in a circle. The number represents the value in thousand yen by one square meter. The alphabet represents percentage of tenant right on land. “A” means 90%, “B” means 80%, and so on, as you can see in the map.
If the land is empty and there is no building on it, the land is assessed at 100% of the road price. (It may be interesting for some that land is more expensive for tax purposes if it does not have any building on it that generates income). If a plot of land has a building on it which has tenants, it is assessed by subtracting the value of tenant from the road price. The percentage of tenant right is “B”, which is 80%, in the example in the map in Minato-ku Tokyo, the unit price of the land with building on it is 20% of the road price.
The local tax office has its valuation for asset tax. They send tax bills every year. Valuation of the building/house is detailed on the bill. If it is rented out, 30% is subtracted from the valuation.