How Much??? – Japan Real Estate Property Investment Taxes

13 Aug, 2019 –

Japan Real Estate

Japan Investment Properties

The following is a brief and general outline of taxes applicable to property investors in Japan.

Please Note – this information is for general reference only. The author is NOT a professional accounting services provider, and cannot assume responsibility for your particular taxation circumstances. It is highly advisable to hire the services of a Japanese accountant, to educate yourself more thoroughly and accurately, and to assist in submitting your tax statements, claim any expense deductions, and maximise your profits.

Income Tax

Income tax thresholds in Japan are the same for individual residents and non-residents alike. Non-residents, or residents who have lived in Japan for a period of less than five years, are not required to report their income in other countries to Japanese tax authorities.

The Japanese financial year end on 31 December, and tax statements and payments are to be concluded by 31 March the next year.

It’s important to note the following –

a) Many countries, and definitely most developed countries, have a tax treaty with Japan, to prevent double taxation – you should confirm the existence of such a treaty between Japan and your country of residence prior to deciding whether a Japanese investment property portfolio would be profitable for you. Depending on your personal financial circumstances and whether any claims/deductions are applicable in your case, however, you may have to pay the difference in taxation levels.

For example, if you are taxed at 5% in Japan, and 6.3% in your country of residence, your local tax department will require you to report your income locally as well, and then pay the remaining 1.3%. Consult with your local accountant to find out which taxation scenario applies for your particular circumstances.

b) Once you reach the minimum reporting threshold (below), it his highly advisable to source the services of a Japanese accountant, in order to file tax return statements, claim expense deductions & depreciations, etc. Bear in mind, however, that in Japan, property purchase costs can generally be claimed in full, and also carried forward for several years, so if you’ve purchased a small multi-family apartment building, or individual apartments, for instance – you would normally not be required to pay any income tax for the first few years at least – as long as that portfolio is your only source of income in Japan.

The property purchase does need to be declared to the tax office and the deductions claiming process kicked off within the first year after the purchase, however, so if you believe you may be purchasing more properties over the course of the next few years, it is, again, highly advisable to consult with an accountant from the very first purchase, or even prior to that, in order to implement the most tax-efficient strategy well in advance of any income tax payment due.

c) Whenever you reach a higher income tax threshold, the new level is only applicable to income exceeding that of the previous level- meaning, for example, that once your income exceeds 380,000 JPY, you will only be paying 5% on EVERY JPY beyond that sum, and not on the entire amount. Here are the thresholds currently in place –

* Under 380,000 JPY per-annum – 0% (non-taxable income)

* 380,001 – 1.95 Million JPY – 5%

* 1,950,001 – 3.3 Million JPY – 10% + 97,500 JPY

* 3,300,001 – 6.95 Million JPY – 20% + 232,500 JPY

* 6,950,001 – 9 Million JPY – 23% + 962,500 JPY

* 9,000,001 – 18 Million JPY – 33% + 1,434,000 JPY

* Over 18,000,000 JPY – 40% + 4,404,000 JPY

Property (Fixed Assets) Tax

Property tax in Japan is approximately 1.4% of the official taxable estimated value of the property per-annum, with slight variations possible due to the age of the property, its designated purpose, location and size.

Properties under 200 sqm in size enjoy a large discount in property tax payable – which brings the tax down to 0.75-1.25% of the purchase price per-annum, on average.

Unfortunately, the exact property tax cannot be calculated in advance, as it varies based on the factors mentioned above, and also based on market conditions, which in turn affect value estimates, official and otherwise – the last evaluation and property tax paid on any particular property is normally made available to buyers close to settlement day, as the property’s complete information package is provided by the seller.

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Purchase Tax

Property purchase tax is, again, based on the official evaluation of the property – but generally averages approximately 2.6% of the property purchase price as a one-time payment. Purchase tax statements are received and paid anywhere from 6-24 months post-settlement.

Capital Gains Tax

(Please note: capital gains tax is calculated based on the NET income on the difference between the property’s purchase and sale prices – purchase and sale costs can and should be deducted from the gross difference between these prices)

For residents of Japan (those working and living in Japan):

  • If held less than 5 years: 30% income tax + 9% municipal tax + 2.1% Tohoku reconstruction tax
  • If held for more than 5 years: 15% income tax + 5% municipal tax + 2.1% Tohoku reconstruction tax

For non-residents (those living overseas):

  • If held less than 5 years: 30% income tax + 2.1% Tohoku reconstruction tax
  • If held for more than 5 years: 15% income tax + 2.1% Tohoku reconstruction tax

Consumption Tax

Consumption tax, or goods and services tax (GST)/value added tax (VAT), as it is known in other countries, while not directly related to property investments, is included in all quotes and invoices received from Japanese shops, companies, or service providers. The tax has gone up from 5% to current 8% on 1 April, 2014, and is scheduled to rise again, to 10%, by the end of 2019. Any quote or invoice issued by a business (as opposed to a private individual) for goods or services rendered in Japan includes this tax, even if it is not mentioned specifically.

Other Japanese taxes, which are mostly corporate or prefectural/municipal in nature, do not apply to individuals who are non-residents of Japan. For detailed tax information, advantages, disadvantage, and specific planning regarding Japanese or foreign corporate entities, please consult with a Japanese accountant.

Gift/Inheritance Tax

Inheritance tax in Japan is calculated per person, and is levied based on all assets the ancestor had at the time of bequeathing. For foreign residents, only Japanese assets are taxable. The tax is based on the value of the assets, and not on the income derived from them.

Inheritance tax rates vary between 15-55%, depending on taxable amount.

(Inheritance tax in Japan – video)

(Source – Ziv Nakajima-Magen, Nippon Tradings International”, Pic – NipponTradingsInternational)

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