Taxes & Costs | Investment Guide

OVERVIEW

When each tax arises

The taxes on Japanese real estate differ at each stage: on acquisition, during ownership and on sale.
Beyond that, the way you are taxed also changes according to whether you hold the property in your own name or through a Japanese company.

Where the property is held in an individual's name

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Type of tax	On acquisition	During ownership	On sale	Administering authority
Registration and licence tax	〇	―	―	Legal Affairs Bureau / tax office
Real estate acquisition tax	〇	―	―	Prefectural tax office
Stamp duty	〇	―	〇	Tax office
Consumption tax	〇	▲	〇	Tax office
Fixed asset tax and city planning tax	―	〇	―	Municipality (the Metropolitan Tax Office for Tokyo's 23 wards)
Income tax	―	〇	〇	Tax office
Resident tax	―	▲	▲	Municipality
Inheritance tax and gift tax	〇	―	―	Tax office

〇 = taxed　▲ = taxed depending on the circumstances　― = not taxed
*　Resident tax is levied on residents of Japan and is not levied on non-residents.
*　Inheritance tax and gift tax are levied where real estate is acquired by inheritance, bequest or gift.

Where the property is held in the name of a Japanese company

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Type of tax	On acquisition	During ownership	On sale	Administering authority
Registration and licence tax	〇	―	―	Legal Affairs Bureau / tax office
Real estate acquisition tax	〇	―	―	Prefectural tax office
Stamp duty	〇	―	〇	Tax office
Consumption tax	〇	▲	〇	Tax office
Corporate tax	―	〇	〇	Tax office
Local taxes (corporate enterprise tax, corporate resident tax and the like)	―	△	△	Prefectural tax office / municipality
Fixed asset tax and city planning tax	―	〇	―	Municipality (the Metropolitan Tax Office for Tokyo's 23 wards)

〇 = taxed　▲ = taxed depending on the circumstances　△ = levied on companies with a permanent establishment in Japan　― = not taxed

About the figures on this page

Tax rates, relief measures and the conditions for applying them are changed by amendments to laws and regulations. This page concentrates on how the system works and the thinking behind it, and does not state specific tax rates for items that have been amended repeatedly. For the calculation of the actual tax, whether a filing is required, and whether any special measure applies, please always confirm the position with a tax accountant. We can introduce you to a tax accountant we work with.

ACQUISITION

Taxes on acquisition

Registration and licence tax	When you acquire land or a building, a registration of preservation or transfer of ownership is made. The tax levied on that registration is the registration and licence tax. Tax = tax base (assessed value for fixed asset tax purposes) × tax rate The statutory rate for registration of a transfer of ownership is 2.0%. For registration of a transfer of ownership on the sale of land, and for residential buildings meeting certain requirements, time-limited relief measures have been introduced repeatedly. Please check with the judicial scrivener handling the registration whether any relief measure is available to you.
Real estate acquisition tax	A local tax levied by the prefecture when real estate is acquired, newly built or extended. Because the tax notice arrives some time after acquisition, it is easily omitted from a funding plan. Tax = assessed value for fixed asset tax purposes × 4% (standard rate) For housing and residential land, time-limited measures have been introduced that reduce the rate to 3% and that set the tax base for residential land at one half of the assessed value. These measures are often extended, but they do carry expiry dates. Please check with the prefectural tax office or a tax accountant whether they apply at the time of your acquisition.
Stamp duty	A tax levied on the taxable documents specified in the Stamp Tax Act. Real estate sale and purchase agreements, building construction contracts and loan agreements are among the documents covered, and the tax is paid by affixing revenue stamps of an amount corresponding to the sum stated in the document. Tax = a fixed amount according to the sum stated in the document For contracts relating to the transfer of real estate, time-limited relief measures have been introduced.
Consumption tax	A tax levied on transactions carried out within Japan. In a real estate transaction, the consideration for the building and items such as brokerage commission are taxable. The transfer of land and the leasing of land are exempt. In addition, where an individual is the seller of residential real estate, consumption tax may not apply to the building portion either. The standard rate has been 10% since October 2019 (of which local consumption tax accounts for 2.2%). Because rates may be amended, please confirm the rate applying at the time of your transaction.

HOLDING

Taxes during ownership

Fixed asset tax City planning tax	The person who owns the property as at 1 January each year is the taxpayer. Both taxes are calculated using the assessed value for fixed asset tax purposes as the tax base, and that assessed value is revised every three years. Fixed asset tax = tax base × 1.4% (standard rate) City planning tax = tax base × a rate capped at 0.3% A special measure reduces the tax base for residential land. Where a property is sold part-way through the year, it is usual for the seller and buyer to apportion the tax on a daily basis.
Income tax (where held by an individual)	The rental income less necessary expenses constitutes "real estate income" and is subject to income tax. Non-residents who do not live in Japan must also file and pay tax in Japan on income arising from real estate located in Japan. Where a non-resident files a final tax return, a "tax agent" in Japan must be appointed and notified to the tax office. We can introduce you to a tax accountant we work with.
Withholding tax on rent (for non-residents)	Where a non-resident lets real estate located in Japan and receives rent for it, the party paying the rent has an obligation to withhold tax. As a rule 20.42% of the payment is withheld, and this is settled later through the final tax return. However, withholding does not apply where the tenant is an individual renting the property as a residence for themselves or a relative.
Resident tax	A local tax levied on residents of Japan. It is not levied on non-residents who have no address in Japan.
Corporate tax and local taxes (where held by a company)	Where the property is held by a Japanese company, the rental income is aggregated with the company's other income and is subject to corporate tax. Corporate tax is banded according to the amount of income, and a reduced rate applies to small and medium-sized companies. In addition, companies with a permanent establishment in Japan are subject to local taxes such as corporate enterprise tax and corporate resident tax. Where a foreign company invests in real estate only, without a permanent establishment in Japan, these local taxes are treated differently. Because corporate tax rates and effective tax rates have been amended repeatedly, this page does not state specific figures. If you are considering incorporating, please always ask a tax accountant to run the calculations for you.

DISPOSAL

Taxes on sale

Income tax on capital gains (where held by an individual)	A tax levied on the profit realised on a sale (the capital gain). It is taxed separately from other income, and the rate varies with the period of ownership. - Where the period of ownership exceeds five years as at 1 January of the year of transfer (long-term capital gain) … 15% - Where the period of ownership is five years or less on the same basis (short-term capital gain) … 30% In either case the special income tax for reconstruction (2.1% of the income tax amount) is added. Residents of Japan are additionally subject to resident tax (5% long-term / 9% short-term), but resident tax is not levied on non-residents. Capital gain = sale price －(acquisition cost ＋ transfer expenses) The acquisition cost includes not only the purchase price but also items such as the brokerage commission and registration costs paid at purchase. For the building portion, the calculation deducts an amount corresponding to depreciation over the period of ownership.
Withholding tax on the sale price (for non-residents)	Where real estate is purchased from a non-resident, the buyer has an obligation to withhold tax. As a rule 10.21% of the sale price is withheld, and the non-resident seller settles the position later through a final tax return. However, withholding does not apply where the buyer is an individual acquiring the property as a residence for themselves or a relative, and the consideration is 100 million yen or less.
Stamp duty	The sale and purchase agreement signed on a sale is also a taxable document, so revenue stamps corresponding to the sum stated in it must be affixed.
Consumption tax	The consideration for the building portion and the brokerage commission are taxable. The land portion is exempt. Where an individual sells residential real estate otherwise than in the course of business, consumption tax may not apply to the building portion either.
Corporate tax (where held by a company)	Where a company sells real estate, the gain is not taxed separately as it is for an individual; it is aggregated with the company's other income for that business year and subject to corporate tax. There is no difference in rate according to the period of ownership.

SUCCESSION

Inheritance and gift tax

Inheritance tax	A tax levied on a person who inherits property on a death, or who acquires property by bequest. Real estate held in Japan by a non-resident of Japan is also subject to inheritance tax. Furthermore, where real estate is held through a Japanese company, the shares issued by that Japanese company are also subject to inheritance tax. Incorporating does not take the assets outside the scope of the tax. The rates are progressive according to the value of the property acquired, and a basic deduction is available.
Gift tax	A tax levied on a person who acquires property by gift. It applies where Japanese real estate is transferred to you without consideration, and also where you receive a gift of funds with which to purchase real estate. Non-residents are within its scope. The rates are progressive according to the value of the property received, and an annual basic deduction is available.
The position in your country of residence	Inheritance tax and gift tax may involve both the rules of your country of residence and those of Japan. The treatment may also differ according to the terms of the tax treaties Japan has concluded. If you are planning for the succession of your assets, we recommend consulting at an early stage a specialist versed in the tax rules of both Japan and your country of residence.

COST

Costs other than tax

Costs at purchase

Brokerage commission	The commission payable where you engage a real estate company as broker. An upper limit is set by the Real Estate Brokerage Act, and where the sale price exceeds 4 million yen the cap is "sale price × 3% ＋ 60,000 yen" plus consumption tax. No brokerage commission is payable on properties for which we are the seller.
Judicial scrivener's fee	The fee for instructing a judicial scrivener to file the registration of transfer of ownership. Where financing is used, the cost of registering the mortgage is payable separately.
Financing costs	These include the arrangement fee payable to the financial institution, the guarantee fee, and the stamp duty affixed to the loan agreement. The amounts differ between institutions and products.
Apportionment of fixed asset tax and the like	Where handover takes place part-way through the year, it is usual to reimburse the seller on a daily basis for the portion of that year's fixed asset tax and city planning tax falling on and after the handover date.
Fire and earthquake insurance premiums	The amount varies with the construction and location of the building, the scope of cover and the policy term. Where financing is used, taking out fire insurance is generally a condition of the loan.

Costs during ownership

Management fee	A monthly charge applied to the cleaning and inspection of the common areas of a sectional-ownership condominium and to the wages of the building caretaker.
Repair reserve fund	A monthly contribution set aside for major repair works such as external wall repairs and pipework renewal. It is common for the contribution to be increased as the building ages, and where the reserve is insufficient owners may be asked for a one-off payment. Please check the state of the management association's reserve fund before you buy.
Rental management fee	The cost of entrusting tenant recruitment, rent collection and remittance, and move-in and move-out handling to a management company. It is usually set as a fixed percentage of the rent.
Restoration costs and advertising fees	The cost of repairing and cleaning the interior when a tenant moves out, and the fee paid to a broker to find the next tenant. These arise each time the tenant changes.
Tax filing costs	The fee where you instruct a tax accountant to prepare your final tax return. Because non-residents must appoint a tax agent, it is usual to engage a tax accountant on a continuing basis.

*　This page explains the general framework of the tax rules applying to Japanese real estate and does not determine the tax payable or whether a filing obligation arises in any individual case. Tax rates, relief measures and the conditions for applying them are changed by amendments to laws and regulations. In addition, the treatment may differ according to the terms of the tax treaty between your country of residence and Japan. When making an actual decision, please always consult a tax accountant.

We can also advise on tax matters

Together with the tax accountants we work with, we can prepare a simulation for the property you are considering
covering the tax burden from acquisition through to sale.

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