August 10, 2021
What are the taxes and fees on real estate in Japan? Explaining the pattern of purchase, ownership, and sale.
This article provides an itemized explanation of the taxes and fees involved when foreigners buy, hold, or sell real estate in Japan.
In this article, you will learn the following,
・Taxes and fees for acquiring and maintaining real estate in Japan.
・Income taxes on rental income and gains from the sale of real estate.
Let’s get started!
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Taxes and fees for acquisition and maintenance.
There are various taxes and fees involved in acquiring and maintaining real estate in Japan.
This is required when signing a real estate purchase agreement, a construction contract, or a loan agreement.
The amount of tax on the contract is determined in stages, and according to the Japanese tax authorities, the following tax reduction measures are available until March 31, 2022.
The reduction does not apply to loan agreements.
|Contract amount||Regular tax rate||Reduced tax rate|
|Over 100,000 yen and under 500,000 yen||400 yen||200 yen|
|Over 500,000 yen and under 1 million yen||1,000 yen||500 yen|
|Over 1 million yen and under 5 million yen||2,000 yen||1,000 yen|
|Over 5 million yen and under 10 million yen||10,000 yen||5,000 yen|
|Over 10 million yen and under 50 million yen||20,000 yen||10,000 yen|
|Over 50 million yen but under 100 million yen||60,000 yen||30,000 yen|
|Over 100 million yen but under 500 million yen||100,000 yen||60,000 yen|
|Over 500 million yen and under 1 billion yen||200,000 yen||160,000 yen|
|Over 1 billion yen and under 5 billion yen||400,000 yen||320,000 yen|
|Over 5 billion yen||600,000 yen||480,000 yen|
For example, if you purchase a building with land worth 80 million yen with a full loan, the stamp tax will be 30,000 yen for the land and building transfer agreement and 30,000 yen for the loan agreement.
Real estate acquisition tax
As a general rule, 3% of the property tax assessed value is levied, but there is a reduction for residential properties.
The municipality will send you a payment slip a few months after the purchase.
The assessed value of the property is determined by the municipality where the property is located and is approximately 70% of the actual value.
Registration tax and judicial scrivener’s fee
This tax is applied to both land and buildings when registering a change of name at the Legal Affairs Bureau.
The tax rate is 2% of the property tax assessed value in principle, or 1.5% with a reduction until March 31, 2023.
The rate is reduced to 0.3% for buildings used for personal residence.
If the building is newly constructed, the rate is 0.4%, and for new buildings for personal use, the rate is 0.15%.
Registration will need to be done by a professional judicial scrivener.
The fee varies from several tens of thousands of yen to several hundred thousand yen depending on the case and the judicial scrivener’s office.
For a typical house in an urban area, the fee will range from 50,000 yen to 100,000 yen.
Value-added tax. It is a 10% tax on the purchase price of a building or the construction cost of a new building or renovation.
It does not apply to land or used buildings and land sold between individuals.
The tax is levied on the owner of the property as of January 1.
The tax rate is 1.4% of the assessed value of the property.
The tax rate is 1.4% of the assessed value of the property.
Considering that the assessed value of a property is about 70% of its actual value, the market rate is less than 1% of the value of the property.
As a business customer in real estate transactions, it is common for the buyer to pay the seller the property tax for the period up to the end of the year daily.
For example, if the property tax on land and buildings bought on July 1 is 100,000 yen, 50,000 yen is added to the real estate price and paid.
City planning tax
It has the same characteristics as the fixed asset tax, but it is applied only to real estate that falls within the city planning area defined by the local government.
The tax rate varies from municipality to municipality, but it is generally 0.3% of the assessed value of the property.
In Japan, escrow transactions like those in the United States are rarely conducted.
Basically, real estate transactions are relative transactions between buyers and sellers, with licensed real estate agents acting as “intermediaries”.
Mediation includes miscellaneous work such as the introduction of housing, the attendance of a preview, and the preparation of a contract.
The upper limit of a mediating fee is fixed by law, and when the sales price exceeds 4 million yen, it is “sales price x 3% + consumption tax 10%”.
When purchasing directly from a real estate agent, a mediating fee is not charged. The vendor’s profit is included in the sales price.
I will describe the commission for lease management.
The concept of an intermediary is the same for renting as well, and the maximum amount of an intermediary fee is “one month’s rent plus consumption tax (10%)”.
In some cases, the commission is split 50/50, and in other cases, the owner bears the entire amount as a service to avoid vacancies.
There is no specific legal requirement for rental management fees, such as cash management and handling of tenant complaints, but the market rate is 5% of the rental income.
Taxes on income and capital gains
In the above, we introduced the common taxes on real estate ownership, both for personal use and for rental properties.
In the following, we will discuss the income tax on rental income and profit from the sale of rental properties.
Tax on rental income (real estate income)
In Japan, personal income tax is divided into 10 categories, and rental income is classified as real estate income.
Real estate income is taxed on the remaining profit after deducting expenses from the rent.
Expenses include not only the aforementioned property tax, city planning tax, brokerage fee, and rental management fee, but also depreciation, insurance premiums, the interest portion of loans, transportation costs, and other expenses incurred in the rental business.
Although the total amount of expenses is difficult to say in general, the figure of 20% of the rental income is often used as a guide.
Real estate income is added up with any salary income or business income in Japan.
Tax rates and deductions are determined in stages for the amount of income calculated in this way.
The tax amount is calculated based on this progressive taxation system.
|Amount of income to be taxed||Tax rates||Deduction amount|
|1,000 yen up to 1,949,000 yen||5％||0 yen|
|1,950,000 yen up to 3,299,000 yen||10％||97,500 yen|
|3,300,000 yen up to 6,949,000 yen||20％||427,500 yen|
|6,950,000 yen up to 8,999,000 yen||23％||636,000 yen|
|9,000,000 yen up to 17,999,000 yen||33％||1,536,000 yen|
|18,000,000 yen up to 39,999,000 yen||40％||2,796,000 yen|
|40,000,000 yen or more||45％||4,796,000 yen|
Tax on income from the sale (transfer income)
If you sell real estate and the income exceeds the acquisition cost, you will be subject to transfer income tax, which is not included in the total income amount of real estate income or business income mentioned above but is handled separately.
The tax rate is also different and is determined by the number of years the property has been held, not by a progressive tax system.
Acquisition costs include real estate acquisition tax, brokerage commission, stamp duty, etc. Brokerage fees and eviction fees incurred in the sale can also be deducted from the profit.
Buildings are valued after depreciation.
The tax rates are as follows,
|Holding period||Acquisition tax rate|
|Over 5 years||15.315％|
|Less than 5 years||30.63％|
Note that the holding period is not the number of full years, but the number of years as of January 1 of the year in which you sold.
Withholding tax and tax returns
The above income tax rates are the same for foreigners like you.
If you do not reside in Japan, there is basically no inhabitant tax.
If you do not reside in Japan, you are basically not subject to inhabitant tax.
If you become a resident of Japan, in addition to the above, you will be subject to a 10% inhabitant tax on your annual income, a 5% inhabitant tax on transfer income over 5 years, and a 9% inhabitant tax on transfer income under 5 years.
In principle, income gains and capital gains earned by non-residents are subject to withholding tax.
For income gains, the tax rate is 20.42% of the rent.
If the tenant is a corporation or an individual, the tax must be withheld.
Capital gains are 10.21% of the sale price.
No withholding tax is required here if the property is used for personal residence and is less than 100 million yen.
You must file a tax return between February 16 and March 15 of the following year.
This is when the final profit and cash flow of the rental business are determined.
To file and pay taxes, you must appoint a tax accountant in Japan as your tax filing agent.
The same applies to the management of fixed asset taxes.
The purchase costs, which summarize the above, range from 3% to 10%, depending on the property.
While you own the property, you will be charged a property tax of less than 1% of the property value.
For rental properties, the expenses including property tax are approximately 20%.
Income tax on profits after deducting expenses from sales is progressive, for example, if the profit is $50,000, the tax rate is 20%.
The tax rate on the gain depends on the length of time you have held the stock, from about 15% if the stock is held for more than 5 years to about 30% if the stock is held for less than 5 years.
The Japanese tax system is very complicated.
Please ask a real estate agent or tax accountant for detailed simulations.