Taxes and fees

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Real estate-related taxes and fees in Japan

(Updated on February 27, 2018)

Total amount of expenses concerning real estate purchase and sales

Real estate transactions require not only the payment of the sales price but many other kinds of expenses. To acquire a real estate property, the revenue stamp fee, payment of property tax and city planning tax, real estate broker commissions, the judicial scrivener fee (ownership relocation, mortgage establishment), and others will be required, along with other taxes such as registration and license tax, real estate acquisition tax, stamp tax, and consumption tax. 
To sell a property, sales income tax and resident tax (when gain is earned), the revenue stamp fee, real estate broker commissions, a registration fee for change of name, a mortgage cancellation fee, and other payments will be required.
 

Taxes and fees concerning rent

The amount of real estate-transaction income, which is computed by subtracting the amount of expenses admitted to be necessary for the real estate renting from the earned amount, is subject to income tax and resident tax. The expenses admitted to be necessary include the property tax and city planning tax, consumption tax, tax accountant and lawyer fee (related to real estate renting), management costs, repair expenses, advertising expenses for recruiting tenants, and depreciation.
 

Deductible expenses

Apart from other income, income earned by real estate sales is subject to income tax and resident tax. The income earned by sales is calculated by deducting acquisition expenses and sales expenses from the total amount earned by real estate sales. Acquisition expenses are expenses arising from the acquisition of the real estate and sales expenses include brokerage commissions paid to real estate companies, revenue stamp fees for sales contracts, and costs of surveying.
 

Descriptions of real estate-related taxes in Japan

Statutory effective tax rate for rental income
When a corporation earns income from renting its real estate property, the rental income is included in the total amount of income subject to corporate tax, resident tax, and business tax. Thus corporate and other taxes are imposed on its rental income at approximately 35%, the statutory effective tax rate.
Income tax

 In the case of an individual residing in Japan, rental income from renting real estate is included in the total amount of income subject to income tax to calculate the amount of income tax. Tax rates subject to the total amount of taxable income are shown in the table below.

 

 Total amount of taxable income  Tax rate
Not more than 1,950,000 yen 5%
Over 1,950,000 yen and not more than 3,300,000 yen  10%
Over 3,300,000 yen and not more than 6,950,000 yen  20%
Over 6,950,000 yen and not more than 9,000,000 yen 23%
Over 9,000,000 yen and not more than 18,000,000 yen 33%
Over 18,000,000 yen 40%

 

 

Taxes on non-residents
In the case of a non-resident individual or a foreign corporation, income tax is withheld at the payment source when they earn domestic source income subject to a withholding tax in Japan. When payment to non-residents, etc. is made in foreign currency, tax withholding is done in an amount converted to Japanese yen. In the case where a non-resident sells a real estate property, a withholding tax is imposed at 10.21% on the sales price, whereas in a case where a non-resident rents a property, the withholding tax rate for rental income from the property is 20.42%.
Capital gains tax
The capital gains tax is imposed on gains from sales of real estate such as lands and buildings. In the case of an individual, apart from other calculations of income, 30% of income from the transfer of the real estate is imposed as a capital gains tax if it was possessed for five years or less before its transfer, while 15% of income from its transfer is imposed if it was possessed for more than five years. In the case of a corporation, the gain is included in taxable revenue to calculate the total amount of taxable income to determine the amount of corporate tax, for which an effective corporate tax rate of approximately 35% is applied.
Property tax and city planning tax
Property tax and city planning tax, imposed on owners of fixed assets such as land and buildings on January 1 of each year, are paid to the local municipalities where the assets are located. Amounts are calculated based on the value of the assets. The standard rate of property tax is 1.4% and the maximum rate of city planning tax is 0.3%.
Real estate acquisition tax
A real estate acquisition tax is imposed only once when real estate such as land and buildings is acquired. Acquisition of real estate is defined as acquisition of ownership of real estate through transactions such as buying and selling, donations, exchanges, and construction (for new buildings, extensions, or alterations). If real estate is acquired by inheritance, this tax need not be paid. A standard rate of 4% (although special provisions present 3% for land and housing [up to March 31, 2015] and 4% for buildings other than housing) is applied against the real estate value.
Registration and license tax
When land and buildings are constructed or bought, registration and license taxes are imposed mainly for registration of preservation and relocation of ownership. The following tax rates are imposed against the real estate value for registration and license taxes.
 Type of registration Standard tax rate

Tax rate as provided in special provisions*

Registration of preservation of ownership 0.4%  0.15%
Registration of relocation of ownership  2.0% 0.3%
Registration of establishment of mortgage 0.4% 0.1%

 *Reduction measures up to March 31, 2020)

 

Consumption tax
A consumption tax is imposed on transactions such as the sale of goods and the supply of services in Japan. The consumption tax rate was raised to 8% on April 1, 2014. Whereas specific real estate transactions are subject to the consumption tax, others are not, as shown below.

[Subject to consumption tax]

-Purchase price of buildings, construction sales price
-Brokerage commissions (for sales and leasing)
-Housing loan administration fees
-Rent for offices, stores, etc.
-Judicial scrivener fees, registered land and building investigator fees

[Not Subject to consumption tax]

-Purchase price of land

-Interest and guarantee fee for housing loan

-Fire and life insurance premiums

-Land rent, residential rent

-Security deposits, tenant leaseholds

Stamp tax

When documents such as contracts and receipts are prepared, revenue stamps are required to be purchased and pasted on the documents and then postmarks need to be stamped on them. The following are the amounts of stamp tax required for documents related to real estate transactions.

[Receipts, etc. (for example, real estate rent receipt)] 

Receipt amount stated  Stamp tax amount
Less than 50,000 yen Tax exempt
Not more than 1 million yen  200 yen
Over 1 million yen and not more than 2 million yen 400 yen
Over 2 million yen and not more than 3 million yen 600 yen
Over 3 million yen and not more than 5 million yen 1,000 yen
Over 5 million yen and not more than 10 million yen 2,000 yen
Over 10 million yen and not more than 20 million yen 4,000 yen
Over 20 million yen and not more than 30 million yen 6,000 yen
Over 30 million yen and not more than 50 million yen 10,000 yen
Over 50 million yen and not more than 100 million yen 20,000 yen
Over 100 million yen and not more than 200 million yen 40,000 yen
Over 200 million yen and not more than 300 million yen 60,000 yen
Over 300 million yen and not more than 500 million yen 100,000 yen
Over 500 million yen and not more than 1 billion yen 150,000 yen
Over 1 billion yen 200,000 yen
Amount not stated 200 yen

 

 

[Sales contract of real estate]

Contract amount  Stamp tax amount*
Less than 10,000 yen Tax exempt
Over 0.1 million yen and not more than 0.5 million yen  200 yen
Over 0.5 million yen and not more than 1 million yen 500 yen
Over 1 million yen and not more than 5 million yen 1,000 yen
Over 5 million yen and not more than 10 million yen 5,000 yen
Over 10 million yen and not more than 50 million yen 10,000 yen
Over 50 million yen and not more than 100 million yen 30,000 yen
Over 100 million yen and not more than 500 million yen 60,000 yen
Over 500 million yen and not more than 1 billion yen 160,000 yen
Over 1 billion yen and not more than 5 billion yen 320,000 yen
Over 5 billion yen 480,000 yen
Amount not stated 200 yen

 *Reduction measures applied from April 1,2014 to March 31, 2018

 

Gift tax

Gift tax is imposed on the recipient of gifted assets. In cases where real estate such as land and buildings is obtained free of charge, and cases where the purchase money for real estate is donated, payment of the gift tax is required.

 

The amount of gift tax is calculated as follows:

Taxable amount=Gifted asset value-1,100,000 yen (basic deduction)

Tax amount=Taxable amount × Tax rate-Amount of deduction

 

The tax rate for gift tax will be changed to the following rate starting January 1, 2015 because of a tax reform.

[Donation to a child of the age of 20 years or over from the parents or grandparents]

Taxable amount  Tax rate  Amount of deduction
Not more than 2 million yen  10% None
Over 2 million yen and not more than 4 million yen  15% 100,000 yen
Over 4 million yen and not more than 6 million yen  20% 300,000 yen
Over 6 million yen and not more than 10 million yen  30% 900,000 yen
Over 10 million yen and not more than 15 million yen  40% 1,900,000 yen
Over 15 million yen and not more than 30 million yen  45% 2,650,000 yen
Over 30 million yen and not more than 45 million yen  50% 4,150,000 yen
Over 45 million yen  55% 6,400,000 yen

 

 

[Ordinary case of donation other than the above]

Taxable amount  Tax rate  Amount of deduction
Not more than 2 million yen  10% None
Over 2 million yen and not more than 3 million yen  15% 100,000 yen
Over 3 million yen and not more than 4 million yen  20% 250,000 yen
Over 4 million yen and not more than 6 million yen  30% 650,000 yen
Over 6 million yen and not more than 10 million yen  40% 1,250,000 yen
Over 10 million yen and not more than 15 million yen  45% 1,750,000 yen
Over 15 million yen and not more than 30 million yen  50% 2,500,000 yen
Over 30 million yen  55% 4,000,000 yen

 

 

Inheritance tax

Inheritance tax is imposed when real estate such as land and buildings is acquired through inheritance. The taxable amount of total inheritance subject to the inheritance tax is calculated by deducting the basic deduction amount etc. from the total amount of inheritance. The basic deduction amount will be changed to the following starting January 1, 2015 because of a tax reform.

 

Basic deduction amount=30 million yen+6 million yen×number of successors by law

 

The legally inherited amount out of the taxable amount of total inheritance for each successor is determined according to law, and the tax rate is applied to calculate the tax amount for each successor by law.

The tax rate for inheritance tax is as follows:

Legally inherited amount of the inherited real estate  Tax rate  Amount of deduction
Not more than 10 million yen  10% None
Over 10 million yen and not more than 30 million yen  15% 0.5 million yen
Over 30 million yen and not more than 50 million yen  20% 2 million yen
Over 50 million yen and not more than 100 million yen  30% 7 million yen
Over 100 million yen and not more than 300 million yen  40% 17 million yen
Over 300 million yen  50% 47 million yen

 

 

Descriptions of real estate-related fees in Japan

Real estate broker commissions
When sales and leasing of real estate are performed through a real estate broker, brokerage commission is paid to the real estate company. The commission’s upper limit is regulated by the Buildings Transaction Business Act.

[Sales of real estate]

Sales price  Commission’s upper limit
Not more than 2 million yen 5%+Consumption tax 8%
Over 2 million yen and not more than 4 million yen  4%+Consumption tax 8%
Over 4 million yen 3%+Consumption tax 8%

 

[Leasing of real estate]

The total amount of commissions received from both clients (lessor and lessee) is equivalent to the sum of monthly amount of rent and consumption tax.
Judicial scrivener fees

Without any unified standard, judicial scrivener fees are freely determined and the amount differs materially depending upon the judicial scrivener.

 

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