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Basic tax rules for purchasing and renting property in Japan
Basic tax rules for purchasing and renting property in Japan are the same for foreigners and Japanese. Variant rules apply only for non-residents in terms of income tax and capital gains tax.
Basic information can be reviewed below:
Tax for purchase and hold
Note: Some tax rates differ, dependent upon location, structure, age of the building and owner occupancy or not. Land and improvements are registered, assessed and taxed separately in Japan.
1) Registration tax for land (purchased): 2% of the assessed value.
2) Registration tax for improvements (purchased): 2% of the assessed value.
3) Accession tax for land: 3% of the assessed value.
4) Accession tax for improvements: 3% of the assessed value.
5) Property Tax (annually) for land: 1.4% x 1/6 of the assessed value.
6) Property Tax (annually) for improvements: 1.4% x 1/2 of the assessed value.
7) City Planning Tax (annually) for land: 0.3% x 1/3 of the assessed value.
8) City Planning Tax (annually) for improvements: 0.3% of the assessed value.
* In most case assessed tax values are lower than market value.
To rent-out
Tax for Rental income
Rental income must be filed as income tax. The basic rate for income tax is 10-40%, dependent upon total annual income. Expenses for rent and duplication of improvements are deductable.
*Non resident owner's property: If the tenant is a registered company, the company is obligated to withhold 20% of gross rent.
*If you have other income sources in Japan, you need to file a combined tax return. If rental income is negative, or if you sell property at a loss, it can be deducted from the other income sources.
To sell
Capital Gain Tax
If property is held less than 5 years: The net profit needs to be filed as Income tax.
If property is held more than 5 years: 20% of net profit is taxed. (Not filed under income tax, rather under a special separate tax rate)
*Non resident owner's property: If the buyer is a company, the company is obligated to withhold 10% of gross sales price.
If you need further assistance with Japanese tax issues, please obtain consultation from a professional accountant familiar with Japanese tax regulations.
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