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. Drop us a line if you’d like to be introduced to our recommended accountant for specific advice relevant to your individual circumstances.
Income tax thresholds in Japan are the same for individual residents and non-residents alike.
The Japanese financial year ends on 31 December, and tax statements and payments are to be concluded by 15 March the following 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 before deciding whether a Japanese investment property portfolio would be profitable for you.
b) Once you reach the minimum reporting threshold (below), you would be required to file tax return statements, claim expense deductions & depreciation, etc. To be able to claim these deductions, however, you would need to file the property purchase within the first year after purchase.
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% only on income 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 is a complex calculation, based on the official evaluation of the property, which can differ significantly from its market value. Properties that are under 200 sqm in size enjoy a sizeable discount in property tax payable, and would normally be anywhere from 0.75-1.5% of the purchase price annually, on average.
Property purchase tax is a one-off payment which is, again, based on the official evaluation of the property – but generally averages approximately 2.5% 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 profit made on the sale of a property – purchase and sale costs can and should be deducted from the gross disparity 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 five years: 30% income tax + 2.1% Tohoku reconstruction tax
- If held for more than five years: 15% income tax + 2.1% Tohoku reconstruction 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). This tax is currently 10%. Most quotes or invoices issued by various businesses for goods or services rendered in Japan include this tax, even if not explicitly mentioned.
Other Japanese taxes, which are primarily corporate or prefectural/municipal in nature, do not apply to non-residents of Japan.
Inheritance tax in Japan is calculated per person, and is levied based on all assets bequeathed to the benefactor. For foreign residents, only Japanese assets are taxable in this manner. 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 the taxable amount.