Buying Property in Japan as a Landlord – Taxes from Rental to Sale

Japan's rental market is booming, and with the weak yen, investing in Japanese real estate has become a growing trend. For investors looking to become landlords in Japan, it’s crucial to consider taxes when calculating return on investment. 

Taxes When Purchasing Property 

When purchasing rental property in Japan as an individual, four main taxes apply: 

• Real Estate Acquisition Tax(不動產取得稅) and Registration and License Tax(登錄免許税) 

Both taxes are calculated based on the government-assessed fixed asset value. The Real Estate Acquisition Tax rate currently ranges from 3% to 4%, while the Registration and License Tax rate is 1.5% to 2%. 

• Stamp Duty(印花稅)

If the purchase agreement is registered in paper form, a stamp duty (similar to Taiwan’s stamp tax) applies. The tax amount depends on the contract value. For example, a property worth 150 million yen incurs a stamp duty of 100,000 yen. 

• Consumption Tax(消費稅)

Consumption tax applies only to the building value, not including the land portion. The current consumption tax rate in Japan is 10%. 

Taxes When Renting Out Property 

During the period of property ownership and rental, landlords are responsible for both local taxes(地方稅) and national taxes(國稅). 

• Local taxes contains two parts: Fixed Asset Tax(固定資產稅) and City Planning Tax(都市計畫稅)

These are calculated based on the property’s assessed value and vary by location. In Tokyo, for example, the Fixed Asset Tax rate is 1.4%, while the City Planning Tax rate is 0.3%. These taxes are similar to Taiwan’s Housing Tax(房屋稅) and Land Value Tax(地價稅) and must be paid to the local government. If a landlord does not live in Japan for long-term, they must appoint a Japanese tax representative to receive tax bills and handle tax payments. 

• National Tax: Income tax (所得稅) on rental income 

Rental income is subject to income tax, which is a national tax. In Japan, rental income must be calculated using an itemized deduction method to determine taxable net income. 

Deductible expenses include: 

• Depreciation

• Property taxes

• Property insurance fees

• Mortgage interest payments

• Property management fees

• Repair costs

Japan's income tax rates range from 5% to 45%. In practice, rental income for Taiwanese landlords is subject to a withholding tax of approximately 20.85%. When filing income tax the following year, landlords can deduct the previously paid withholding tax from the total income tax due and pay the remaining balance. 

Additionally, if the rental property is used for commercial purposes(e.g., offices, retail stores, paid parking lots, etc.), tenants are required to pay consumption tax. The landlord must then report and remit the collected consumption tax to the Japanese tax office. 

Since Japan's new consumption tax registration system came into effect in October 2023, there are updated regulations regarding tax reporting for landlords and tax deductions for tenants. Taiwanese landlords should consult an accountant for the latest requirements. 

Taxes When Selling Property

If a property is sold at a profit, capital gains tax applies. The tax rate depends on the holding period: 

Long-term ownership (more than 5 years):15.315%

Short-term ownership (5 years or less):30.63% 

The holding period is determined based on whether the property has been owned for more than five years. Properties held for five years or less are taxed at a higher short-term rate, while those owned for more than five years qualify for the lower long-term rate. 

Similar to rental income, capital gains tax is subject to withholding tax at the time of sale. When filing the following year, landlords can deduct the previously withheld tax from their total tax liability and pay any remaining balance. 

Becoming a landlord in Japan involves more than just calculating rental income—it also requires understanding various tax obligations. To ensure compliance, investors are advised to consult a professional accountant for guidance on the latest tax regulations.