Is It Really More Advantageous to Invest in Japanese Real Estate Through a Company?

In recent years, as overseas real estate investment and cross-border asset allocation have become increasingly common, one of the first questions many investors ask when planning to invest in Japan is: “Should I first set up a company in Japan?”

From a procedural standpoint, establishing a company in Japan is not particularly difficult. With the assistance of a judicial scrivener, company registration, preparation of articles of incorporation, and even bank account opening can generally be completed within a manageable timeframe, provided the necessary conditions are met. However, “being able to set up a company” does not mean that one “should” do so. The real key lies in the investor's actual objectives and long-term planning. Therefore, the focus should be on whether it is appropriate, rather than simply whether it is possible.

In practice, the decision of whether to establish a Japanese company usually depends on several core objectives:

• Is the purpose to hold or lease Japanese real estate?

Many people have heard that purchasing property through a company is better, but this is an oversimplified view. Holding real estate under an individual's name generally results in a simpler tax structure, lower compliance costs, and a more straightforward calculation of capital gains tax upon sale.

However, if the individual already falls into a high personal income tax bracket, the potential increase in tax burden must also be considered. On the other hand, holding property through a company may allow for certain expense deductions or operational planning advantages in some cases, but this comes with additional costs, including bookkeeping, accounting, and corporate tax filings.

There are also fixed annual costs to consider, such as office rent. Furthermore, if the Japanese company generates profits, investors must take into account potential taxes on retained earnings, as well as the additional personal tax burden that may arise when profits are distributed to individuals. If the investment involves purchasing only one property for long-term rental and the scale is relatively small, establishing a company may not be the most efficient option.

• Is the purpose tax planning?

Tax considerations are indeed one of the main reasons investors think about setting up a company. However, tax planning is never as simple as concluding that "a company is always more tax-efficient." Corporate income tax, local inhabitant tax, and enterprise tax—combined with taxation upon profit distribution—must all be evaluated from a long-term perspective.

Conversely, while personal ownership may involve higher marginal tax rates for high-income individuals, the structure is simpler and the overall compliance cost is lower. In addition, Taiwan's tax system provides certain exemption thresholds for individuals' overseas income. That said, investors must also consider the tax relationship between Taiwan and Japan, whether the income is classified as foreign-source income, and whether funds will be repatriated in the future. Looking at only one aspect in isolation often leads to incorrect conclusions.

• Is the purpose future residency or business development?

If the purpose of establishing a company is to actually operate a business, apply for a Business Manager visa, or pursue long-term development in Japan, then company formation itself has a clear and legitimate purpose. Even in such cases, however, decisions regarding company type (such as a Kabushiki Kaisha or Godo Kaisha), capital structure, and business scope should be aligned from the outset with residency and tax objectives, rather than simply setting up a company first and figuring it out later.

A Practical Case

Take Mr. A, a Taiwanese investor, as an example. He initially planned to purchase two small rental apartment units in Tokyo, with a total budget of approximately JPY 200 million. At first, based on advice from friends, Mr. A believed that setting up a Japanese company was a must and would be more cost-effective, so he intended to establish a Kabushiki Kaisha to acquire the properties.

However, after we conducted a comprehensive evaluation, we found that holding the properties through a company would require him to bear ongoing accounting, tax filing, and corporate maintenance costs each year. Moreover, any capital gains upon sale would be taxed at the corporate level, and if profits were later distributed to him personally, a second layer of taxation would apply.

After running a full comparison and simulation, Mr. A ultimately chose to hold the properties under his personal name while retaining the flexibility to convert to a corporate structure in the future. This approach reduced initial costs and allowed for better control over cash flow and tax risks.

What Is Your Objective?

When planning an investment in Japan, should you invest as an individual or through a Japanese company? Should you establish a Japanese entity directly, or hold the investment through a Taiwanese company? There is no one-size-fits-all answer. These decisions must be based on your overall circumstances, including your capital scale, investment model, tax residency status, exit strategy, and whether you plan to obtain Japanese residency in the future. If you are considering Japanese real estate investment, company formation, or cross-border tax planning but are unsure which path is most suitable, it is highly recommended to seek professional advice before taking action.

We can help you start from your objectives, integrate real estate investment with corporate structuring and tax planning, and design a solution that is both optimal and flexible for your specific needs.