Japan Property Tax And More: An Easy Guide For Foreigners

Did you know foreigners and non-residents can buy property in Japan? I didn't know either. But what's the catch?

Things can get quickly complicated—from property tax to different types of stamp duties. However, knowing about taxes in Japan is a must when buying real estate or property in Japan.

This comprehensive guide breaks down the taxes and fees you pay into simple terms.

When buying property in Japan

There will be two types of payments when you are signing a contract.

Real estate acquisition tax (不動産取得税, fudōsan shutoku zei)

Also known as acquisition property tax, this tax is imposed when a property is officially purchased. You should expect this one-time fee when receiving property in Japan.

The tax rate will vary, but the government will assess and determine the property's market value. The rate is about 3% for residential land and buildings but is reduced for newly built houses or land purchased for residential use.

The tax bill document will be sent to you within six months to a year after purchasing the property.

Registry license tax (登録免許税, touroku mankyozei)

Also known as a registration tax, this tax is for transferring or changing property ownership when registering the land or building. This registration and license tax broadly applies to property ownership registration and is imposed when registering or transferring the property.

Both the buyer and seller pay the stamp.

The amount is based on the assessed property value or mortgage amount. The fee is about 2% of the assessed property value for both the land and the building.

However, tax reductions can apply for certain cases, such as newly built or acquired residential properties, land transactions, and mortgage registration.

Stamp duty (印紙税, injizei)

Stamp duty is a tax on property transactions in Japan. 

Both the buyer and the seller pay the stamp duty based on the market value of the property or the amount in the contract, which is part of formalizing the property transaction.

The amount will vary depending on the transaction value. Typically, the stamp duty will cost: 

• Up to 10,000 JPY for a property valued between 10 million to 50 million JPY

• Up to 60,000 JPY for a property valued between 100 million to 500 million JPY

The payment is required when finalizing the contract.

Consumption tax (消費税, shōhizei)

Consumption tax in Japan is applied to certain aspects of Japanese property purchases. It’s about 10% of the property's sales price, excluding the land.

Buyers can reclaim the tax if the property is being rented out following the purchase, specifically for short-term holiday rentals.

Additionally, it only applies to newly built properties, not land. So, buying a property that is a few years old or an Akiya house will not have this tax.

Taxes for when owning property in Japan

Fixed asset tax (固定資産税, kotei shisan zei)

This tax is imposed on any property owners every year on January 1st. The tax rate is about 1.4% of the property’s value based on its location, size, condition, and outside market trends.

Every three years, the fixed asset tax is recalculated.

If the property is received halfway through the year, the tax amount will be calculated for the time you owned that property.

City planning tax (都市計画税, toshi keikaku zei)

This type of tax is to support any city planning incentives.

The amount is 0.2%-0.4% of the property’s value.

Tax payment when selling property in Japan 

Capital gain tax (資本利得税, shihonritoku zei)

Capital gain tax applies when a profit is made from selling a property. Both income and residential taxes contribute to the overall capital gain tax rate. 

The rate depends on how long the property was owned for:

• Short-term capital gain tax: the tax rate is 39% (30% income tax and 9% residential tax) if the property was held for less than 5 years.

• Long-term capital gain tax: the tax rate is 20% (15% income tax and 5% residential tax) if the property was held for more than 5 years.

Other Japanese property taxes to be aware of

Inheritance, estate, and gift taxes

In Japan, inheritance, estate, and gift taxes are national taxes imposed on those who receive them. The system will consider factors such as your visa type, residency status, and relationship with the donor if you are a foreigner.

Certain transfers of overseas assets between specific categories outside of Japan may be exempt under certain conditions.

However, the basic exemption for inheritance tax is 30 million JPY plus JPY 6 million JPY per statutory heir. For gift tax, the annual exemption per recipient is 1.1 million JPY.

Withholding tax

This type of tax is when you receive the property, particularly targeting non-resident sellers. The tax rate is about 10% of the total property price, and it is the buyer’s responsibility to deduct and remit the tax to the Japanese tax office.

For overseas sellers, the process involves having the buyer pay the withholding tax to the tax office and having the seller handle the remaining percentage. Real estate agents will handle this process on behalf of the buyer.

Income tax

Income tax applies if there is income generated from the property, such as it being a rental.

For individuals, a progressive tax rate is applied based on an income bracket, with expense deductions for the rental property, such as maintenance, management fees, and loan interest.

Corporations' tax rate depends on the company’s revenue and holdings.

Frequency asked questions

How much is residence tax in Japan?

Residence tax in Japan is about 10% of your income from the previous year. 

What is the property gain tax in Japan?

Also known as capital gain tax, this tax is imposed after selling your property. In summary, if the property was owned for 5 years or less, the tax rate is about 39%. If it was held for more than 5 years, then the rate is about  20%.

In closing 

Property taxes and fees in Japan don’t have to be complex. With a better understanding, you’ll better handle the various finances surrounding buying, selling, and renting properties in Japan.

Be sure to consult a financial tax expert for more details.