Property in Japan: a Japanese traditional house and a garden

Capital gains tax is paid on profits received through selling assets or investments, e.g. a house, a ski resort property, bonds, etc. Capital gains should be added to regular income and they should be declared in a tax return. This guide explains how to calculate and submit the capital gains tax on property in Japan correctly.

How to Calculate Capital Gains Tax?

Capital gain tax comprises revenue from the property (both land and building) sale price minus acquisition and transfer fees (e.g. brokerage, demolition, land surveys, etc.). The tax itself consists of:

  1. National income tax
  2. Tohoku reconstruction tax of 2.1%, which was adopted in 2013 and will stay in force until 2037
  3. Municipal tax (juminzei) that is imposed only on residents of Japan.

The fees may be calculated in two ways. The first one is to deduct depreciation costs and transfer fees from the purchase price. The second one is called approximation and taxes are charged at 5% of the sales revenue.

Moreover, the duration of the ownership and the residential status will affect the amount of the capital gains tax on property in Japan. Taxes on the property that was in the ownership for more than 5 years is usually 2 times higher than for property that was in the ownership for less than 5 years.

 Held for more than 5 yearsHeld for less than 5 years
Residents of JapanIncome tax 30%
+
Tohoku reconstruction tax 2.1%
+
Municipal tax
Income tax 15%
+
Tohoku reconstruction tax 2.1%
+
Municipal tax
Non-residents of JapanIncome tax 30%
+
Tohoku reconstruction tax 2.1%
Income tax 15%
+
Tohoku reconstruction tax 2.1%

If the purpose of the purchase of a property is residential and the total sales value does not exceed JPY100 million, withholding tax will not be included.

How to File Capital Gains Tax?

Under the Japanese tax law, the capital gains tax will be charged on the gain’s (properties) taxable portion. All gains should be declared on your income tax statement as “other income.” This will be taxed separately from your personal income.

When selling property in Japan, domestic and foreign investors alike are liable to render payment to the Japanese tax office for the consumption tax. The payment of this tax also includes private individuals who have tenants for their properties. Moreover, residents of Japan need to pay capital gains tax for properties that are located outside Japan.

The status of an individual’s Japanese residency, further determines whether the tax is to be paid for a foreign income or not. When an individual living in Japan sells properties, the capital gains that is calculated from the assets must be reflected in his or her income tax return.

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Capital Gains From Property Transfer of the Foreign Companies

The corporation tax, on the other hand, is imposed on a company’s taxable income. The corporation’s taxable income is the net of deducting costs, losses, and expenses from the gross revenue. A Japanese company that has worldwide earnings can apply for a foreign tax credit to avoid double income taxation.

When a foreign company makes capital gains through a property transfer, both the local corporation tax and corporation tax are calculated. If the income tax is withheld because of a real estate transfer by a foreign company, the final tax liability settlement must be done through the corporation tax return. In such case the withheld income tax is creditable against their final tax liability.

IndividualCorporate (off shore)
Tax YearCalendarAligned to Home country
Income / Corporate TaxBusiness income 5% ~ 40%

Capital Gains:

Less than 5 years – 30%

More than 5 years – 15%

15% of profit ~ 8mn yen

23.2 % on profit over 8 mn yen

4.4% of Corporate tax as “local Tax

* No separate rate of tax for capital gains

Reconstruction tax2.1% of income tax duenone
Interim tax paymentNeeded if previous tax exceeded 150,000 yenNeeded if previous tax exceeded 200,000 yen

Summary

When selling property in Japan, make sure to file your capital gains tax correctly. This tax is compulsory for both residents and non-residents if they are dealing with the property on the Japanese land as well as the land itself.

Simply put, capital gains are taxed as an ordinary income. However, the total amount of the capital gain tax may vary depending on the period of ownership and the residentioal status of the owner. Other taxes to consider include property aquisition tax, fixed assets tax, consumption tax, withholding and income tax.

Japanese Capital Gains FAQ

Can a foreign national purchase a property in Japan?

Yes, a foreign national can do so. No restrictions have been stipulated yet. The transfer of the property’s title is also straightforward and relatively simple.

How are tax-payers classified in Japan?

There are 3 categories:

  • Permanent residents
  • Non-permanent residents (people who have stayed in the country for no more than five years)
  • Non-residents

When is the filing of income tax return?

The annual national income taxes should be filed every March 15 of the year after and mid April if the payment is made through automatic bank transfers.

I moved out of Japan in the middle of the year. Do I have to pay municipal tax?

Generally speaking, municipal taxes are applicable to people who were registered residents as of January 1st. Thus, if you have moved out before this date, you are non-resident. If you have moved out on January 2nd, you are technically still may be considered as a resident. Be sure to consult your accountant regarding your residential status to find out if you are liable for a municipal tax.

What is the Tohoku reconstruction tax?

This tax is a temporary measure needed to cover the recovery of Tohoku region that was severly damaged by the earthquake.