When foreigners (non-resident in Japan) sold Japanese property
If Non-resident, who lives outside Japan, sells Japanese real estate property and earns capital gain, capital gain tax is levied, since this gain is Japanese sourced income.
Firstly, when you sales Japanese property, withholding tax 10.21% might be deducted from your sales income (although there is exceptional case).
If withholding tax is deducted, you “should” submit individual income tax return to Japanese tax office, so that you can get some tax refund.
※Please be careful that you basically need to submit tax return in Japan, when you sales Japanese property, even if withholding tax is Not deducted, since anyway it’s Japanese sourced income.
Please see here for the detail of income tax system for Japanese property
Why withholding tax is deducted in some cases?
For foreigners, Japanese tax authority might miss to collect individual tax from capital gain on Japanese property sold by non-resident in Japan (foreigners), as they lives outside Japan. That’s why large amount of withholding tax is deducted from sales amount.
But never give up.
Even if withholding tax is levied, by submitting individual tax return, you may be able to get some refund (in almost all cases, foreigners can get refund, since actual tax is smaller than withholding tax amount).
First of all, you need to check whether withholding tax is levied or not, for your case.
When withholding tax is levied？
When Non-resident owners receive sales income, withholding tax might be deducted.
If withholding tax is deducted, it will be settled when you file individual income tax return, because the nature of withholding tax is prepaid tax.
Withholding tax on capital gain from real estate
When a buyer make payment for purchase of real estate to Non-resident owner (seller), the buyer needs to deduct withholding tax 10.21% of sales amount.
In case sales amount is JPY150,000,000, you might receive JPY134,685,000 (after deducting withholding tax 10.21%). Withholding tax is JPY15,315,000 is quite large amount.
In case withholding tax is exempted
But if the buyer is individual, and he/she uses it for his/her own (or for their relatives) residence, and total of sales amount is JPY 100,000,000 or less, the buyer is Not required to deduct withholding tax.
Hence, sales amount is JPY100,000,000 or less, withholding tax is not levied. If so you won’t need to reed below anymore.
What if withholding tax was deducted?
If withholding tax was deducted from sales amount of Japanese property, you should be prepare and submit tax return.
How actual tax of capital gain on Sales of Japanese property?
In tax return, actual tax is calculated, and the difference between actual tax and withholding tax will be refunded later.
Actual tax rate on capital gain on Japanese property
Tax rate on Capital gain (Sales amount minus acquisition cost after depreciation & fee for sales) depends on how long you held the real estate.
・Long-term capital gain (if held for more than 5 years) x 15.315%
・Short-term capital gain (if held for 5 years or less) x 30.63%
Example
Foreginer who lives in Singapore sold Japanese property.
Conditions are as below
- Sales amount : JPY200,000,000 (Fees for sales : JPY1,500,000)
- Acquisition cost after depreciation : JPY170,000,000
- Withholding tax : JPY20,420,000
- It was purchased in 2012 and sold in 2018 (it’s long term capital gain)
A) Withholding tax amount : JPY20,420,000
B) Actual tax amount by submitting tax return : JPY4,306,500（※）
C) Expected Refund : JPY16,113,500
（※ Calculation for B）
(a) Income : JPY28,500,000 = JPY200,000,000 – (170,000,000 + 1,500,000)
(b) Taxable income : JPY28,120,000 = a) – JPY380,000 (basic income deduction)
(c) Tax : JPY4,306,500 = ((b) x 15.315%
Please be noted that it’s very simple case, so actually it should be better to consult with Japanese public tax accountant.
Our services for Non-resident owner of Japanese property
For Non-resident owner of property such as real estate in Japan, we provide one-stop solution for such owners. We support the necessary procedures in Japan at each phase from purchase to sale.
At purchase phase, we provide the professional advice about the appropriate scheme for investments, that is, whether owner should directly purchase the real estate in Japan, or should purchase through company incorporated in Japan.
For rent income after purchase, we provide local tax compliance services, such as tax agent, preparation and filing of necessary tax returns in Japan.
We also support tax filing at the point of sale to get refund of withholding tax.
Please feel free to contact us from our “Web contact form”.