Taxes In Japan

Following is a brief and general outline of taxes applicable to foreign property investors in Japan.

Please Note – Nippon Tradings International (NTI) is NOT a professional accounting services provider, and cannot assume responsibility for your particular taxation circumstances. Once you reach the income tax payment minimum threshold (see below), you will be required to hire the services of a local accountant to submit your tax statements, claim any deductions, etc.

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 under 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) Most western 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 may require you to pay the remaining 1.3% EVEN IF THERE IS A TAX TREATY IN PLACE. 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), Japanese accounting services would be required, in order to file tax return statements, claim expense deductions & depreciations, etc. Ask us for our recommended accountant contact details. Bear in mind, however, that in Japan, property purchase costs can generally be claimed in full, and also carried forward for several years, so a smallish 1-5 small, second-hand units portfolio would normally not be required to pay any income tax or use an accountant’s services for the first four or five years – if your portfolio is your only source of income in Japan, NTI staff will always advise you when you are liable for income tax payments, based on your portfolio income, and recommend an accountant’s services at the appropriate time.

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 (see thresholds below).

* 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.

NTI sourced properties are normally under 200 sqm in size, and as such, 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 amount of property tax 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.

Purchase Tax

Property purchase tax is a one-off payment which is, again, based on the official evaluation of the property – but generally averages approximately 2.6% of the property purchase price. 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 (such as NTI, real-estate agencies, property managers and property lawyers). The tax has gone up from 5% to the current 8% on 1 April, 2014, and is anticipated to rise 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. An estimation of this tax is included, when relevant, in all quoted prices as advertised on this website.

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 contact your accountant, or ask us for our recommended accountant contact details.

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 explanation)

Please feel free to contact us directly for any further clarifications or questions, or visit our Frequently Asked Questions Page to familiarize yourself with our services, and other common procedures involved in the process of property investing in Japan.