Taxation in Japan for Non-resident
For “Non-Resident”, only Japanese sourced income is taxable in Japan.
As the income from Japanese real property is Japanese sourced income, it’s taxable in Japan.
This means that when you (Non-resident individual) earn capital gain / rental income from Japanese real estate, you have to basically submit Japanese individual income tax return to Japanese tax office.
Rental income from Japanese real estate
After you purchase Japanese real estate, you will earn rental income from it by leasing.
In this case, you need to appoint the tax agent to file tax return and to pay tax. Basically every one who lives in Japan can be tax agent, but in most cases, non-resident appoint “Japanese certified public tax account (Zeirishi)” as tax agent, because they have right to prepare and file tax return on behalf of tax payers (Non-resident).
Rental (Lease) income is calculated by deducting necessary expenses from income.
Necessary expenses can include property taxes, insurance and depreciation etc.
And, please be careful that income includes deposit and guarantee money which does NOT need to be returned.
If it has to be returned, you don’t have to include such deposit in income.
Capital gain tax on Japanese real estate
If Non-resident (Individual) sells Japanese real estate and earns capital gain, capital gain tax is levied, since this gain is Japanese sourced income.
But anyway, same as lease income, you need to file individual income tax return for capital gain on Japanese real estate. And for that, appointment of tax agent is required as well as above lease income case.
How to calculate Capital gain
Capital gains income is calculated as below.
Capital gains income from Real estate = “Proceeds from sales” – “Costs (acquisition cost and transaction cost etc.)” – “Special deduction”
Transaction costs includes property agent commissions, registration fees and stamp duty etc.
For sales of personal residence and other some cases, there are special deductions, if certain conditions are met.
Tax rate on Capital gain
Tax rate on Capital gain depends on how long you held the real estate.
・Long-term capital gain (if held for 5 years or less) x 15.315%
・Short-term capital gain (if held for more than 5 years) x 30.63%
Withholding tax for Non-resident owner
When Non-resident owners receive lease income or 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 lease income】
When a tenant make payment for leasing to Non-resident owner, the tenant needs to deduct withholding tax 20.42% of leasing fee.
In case leasing amount is JPY100,000, you might receive JPY79,580 (after deducting withholding tax).
But if the tenant is individual, and he/she uses it for his/her own (or for their relatives) residence, the tenant is not required to deduct withholding 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 JPY10,000,000, you might receive JPY8,979,000 (after deducting withholding tax).
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.
Please refer to below article for how to get income tax refund for non-resident foreigners in Japan
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.