What Kind of Property is Taxable?
Fixed assets tax is paid on three categories of property:
- Land, e.g. farms or rice fields, mineral springs, ponds and swamps, forest areas, etc.
- Buildings, e.g. residential or office buildings, factories and warehouses, etc.
- Depreciable assets, e.g. equipment and tools, machinery, etc. These must be declared by January 31 for valuation.
How to Calculate the Fixed Assets Tax?
The rate for this tax is 1.4% of one’s fixed assets value recorded in the ledger. Every 3 years the property gets re-evaluation and usually stays the same for all of those three years. Some factors that may influence the property price are the land plot area, its location in relation to roads and other infrastructure objects, its condition, etc. However, the taxable value is usually somewhere around 70% of the selling price.
The maximum rate for the urban planning tax, also called the city planning tax, is 0.3% of the land and/or building assessed value depending on the local regulations.
It is recommended to consult the real estate expert to get the exact numbers.
How to File Fixed Assets Tax?
Tax notices are sent in April. Payments are made by the property owner annually or quarterly using one of many available payment options, from bank transfer to payments through a convenience store (for bills with a barcode). An owner is a person who was officially registered as such on January 1.
If the property is in the joint ownership, taxes are levied on the whole property altogether regardless of the share each owner has. The sum must be paid in full to be cleared for all the parties. Thus, for example, if one of the owners has a 30% share it does not mean that this person has to pay only 30% of the total tax sum. The way payments are shared within the circle of owners has to be set between themselves.
The final beneficiary of the tax is the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). It will also make the final calculations and decisions about the taxable assets value. However, payments must be made to the local tax office that has jurisdiction over the property. Such property must be within the city planning areas as prescribed by the zoning rules in Japan.
Tax exemptions are made for the owners of:
- The land with the total value under JPY 300,000.
- The residential building with the total value under JPY 200,000.
- The depreciable assets with the total value under JPY 1.5 million.
- Some other dwellings that meet special requirements.
Newly built residential property usually gets about 50% tax reductions for the first 3-5 years after the completion. There are several other cases when the fixed assets tax may be reduced for the property owners. Let’s take a look at some examples.
Example 1. There is a 50% discount for new residential buildings where the floor area of the residential space comprises at least half of the whole floor area, and the taxable floor area is between 50 sq. m. and 280 sq. m.
Example 2. There are discounted rates for 5 fiscal years for residential buildings that are equipped with fire or quasi-fire resistance systems.
Example 3. There is a 50% discount for quality residential building (with the long term certification starting on or after June 4, 2009) for 5 fiscal years, counting from the year when it became taxable when they meet certain requirements.
Example 4. There is a tax reduction by 1/3 for the following fiscal year for houses with a residential area less than 120 sq. m. and that have energy-saving measures installed by March of the current year, e.g. heat insulation. The total cost of such improvements was equal or more than 500,000 yen as set by the special regulations of 2008 that aim to encourage small businesses to save energy.
Moreover, in accordance with the tax reforms of recent years, some tax became lower to encourage investment into the regional small and middle enterprises.
Fixed assets tax in Japan is 1.4% of the fixed property value and must be paid along with the urban planning tax of no more than 0.3% depending on the property location. There are several cases for tax exemption or significant tax reductions. Namely, for newly built residential buildings and buildings with the energy-saving improvements. Please consult your accountant or a real estate expert to fins out the exact amount of taxes to be paid. Payments are made quarterly to the local tax office. Other taxes to consider include property aquisition tax, withholding and income tax, consumption tax, capital gains tax.
Fixed Assets Tax in Japan FAQ
What locations in Japan are good for property investments?
The Northern regions of Japan, namely Hokkaido, are popular for their powder snow and wonderful ski resorts. There are many real estate agencies and management companiesthat can help you find real estate options to suit your interests and taste.
Can I buy land and houses separately?
Yes, you can. The land and the constructions above and under it are treated separately.
What are other taxes that I need to pay when purchasing a property?
Where can I find more information on property taxes in Japan?
You can find out more about property taxation from the Tax Office of Japan, The Ministry of Land, Infrastructure and Transport, or from our experts.
Can I file my taxes in English?
Unfortunately, no. However, you may banefit from services of the appointed bilingual accountants who will handle your taxes and help you language-wise.