🏠 Taxes When Buying Real Estate in Japan (Full Breakdown)— Part １

From Purchase to Ownership: Understanding Japan’s Real Estate Tax System

Introduction: Why Understanding Taxes Matters

Buying property in Japan can be one of the most secure and transparent investments in Asia. However, while the transaction process is generally straightforward, many foreign buyers underestimate the complexity of Japan’s tax system.

Unlike in many Western countries where tax procedures are consolidated into one or two major steps, Japan’s real estate taxation is spread across three stages:

1. When you buy property.
2. While you own property.
3. When you sell or transfer property.

In this first part, we’ll cover everything from purchase-related taxes to annual property taxes, helping you understand exactly what to expect financially — and how to prepare for it.

1. Taxes at the Time of Purchase

When buying property in Japan, you’ll face several one-time taxes. These include Stamp Duty, Registration and License Tax, and Real Estate Acquisition Tax. Let’s look at each one in detail.

1.1 Stamp Duty (印紙税)

Stamp Duty is a small but unavoidable tax applied to legally binding documents such as the sales contract or loan agreement.

• What it is: A government tax confirming the authenticity of the contract.
• When it’s paid: When signing the purchase agreement.
• Who pays it: Typically, the buyer.
• How it’s paid: By attaching a revenue stamp (印紙 / inshi) to the contract.

💴 Example:

The stamp must be purchased at a convenience store or post office, affixed to the contract, and canceled with your seal (hanko) to show payment.

Tip: If you’re buying through a real estate agent, they usually handle this for you.

1.2 Registration and License Tax (登録免許税)

Once you’ve bought the property, ownership must be registered at the Legal Affairs Bureau (法務局). This process proves legal ownership and requires a Registration and License Tax.

• What it covers:
  • Registration of ownership transfer (買主 → 新しい所有者)
  • Registration of a mortgage (if applicable)
• Who pays it: The buyer (and lender, in case of mortgage registration)

💴 Tax Rate:

• Ownership Transfer: 2.0% of the assessed property value (固定資産評価額), not the purchase price.
  (Temporarily reduced to 1.5% in some cases for residential properties.)
• Mortgage Registration: 0.4% of the loan amount.

Example:

If the assessed value of the property is ¥30 million:

• Registration Tax = ¥30,000,000 × 1.5% = ¥450,000

This tax is usually paid through your judicial scrivener (司法書士), who handles the registration paperwork.

1.3 Real Estate Acquisition Tax (不動産取得税)

This tax is levied by the prefectural government a few months after you acquire the property. You’ll receive a tax notice by mail — usually around 4–6 months after registration.

• Tax Base: The property’s assessed value (固定資産評価額)
• Tax Rate:
  • Land: 3%
  • Building: 4%
    (These rates are often temporarily reduced for residential properties.)

Example:

If you buy a condominium with a land and building value totaling ¥40 million:

• Land Tax = ¥20,000,000 × 3% = ¥600,000
• Building Tax = ¥20,000,000 × 4% = ¥800,000
• Total = ¥1,400,000

However, exemptions often apply for primary residences, new buildings, or small land plots. Always check with your local prefectural tax office.

2. Taxes During Ownership

Once you’ve completed the purchase, there are two ongoing taxes you’ll need to budget for every year: Fixed Asset Tax (固定資産税) and City Planning Tax (都市計画税).

2.1 Fixed Asset Tax (固定資産税)

This is Japan’s version of property tax. It’s charged annually by the local municipality to every property owner.

• Tax Rate: 1.4% of the property’s assessed value
• Assessment: Based on the local government’s valuation, typically lower than market price (about 60–70% of it).
• Payment: Once a year (April–June), often split into four installments.

Example:

If your property’s assessed value is ¥50 million:

• Fixed Asset Tax = ¥50,000,000 × 1.4% = ¥700,000 per year

Notes:

• For newly built residential buildings, there’s often a 50% reduction for the first 3 years.
• Condominiums share the land portion proportionally with other unit owners.

2.2 City Planning Tax (都市計画税)

In addition to the fixed asset tax, properties in designated urban areas (市街化区域) are subject to the City Planning Tax, which helps fund infrastructure and development projects.

• Tax Rate: 0.3% (maximum allowed by law)
• Assessed Value: Same as Fixed Asset Tax
• Payment: Collected together with Fixed Asset Tax.

Example:

If your property’s assessed value is ¥50 million:

• City Planning Tax = ¥50,000,000 × 0.3% = ¥150,000 per year

So, your total annual tax burden could be around ¥850,000 per year on a property assessed at ¥50 million.

2.3 How Taxes Are Billed and Paid

You’ll receive a tax bill (納税通知書) from your city office every spring. Payment can be made via:

• Bank transfer
• Credit card (in some municipalities)
• Convenience store (コンビニ払い)
• Automatic withdrawal from a Japanese bank account

If you’re a non-resident owner, you must appoint a tax representative (納税管理人) in Japan — usually your property manager or accountant — to handle these payments on your behalf.

3. Consumption Tax (消費税) and Property Purchases

Japan’s Consumption Tax (VAT) currently stands at 10%, but its application depends on what you’re buying.

3.1 When It Applies:

• New properties sold by developers → subject to 10% consumption tax on the building portion only.
• Used properties sold by individuals → typically exempt from consumption tax.
• Land purchases → always exempt from consumption tax.

Example:

New condominium (building value ¥30 million, land ¥20 million):

• Tax = ¥30,000,000 × 10% = ¥3,000,000

3.2 Real Estate Agent Fees and Consumption Tax

If you use a licensed real estate agent, their commission fee is also subject to 10% consumption tax.

Typical commission formula:

(Property price × 3% + ¥60,000) + 10% tax

Example for ¥50 million property:

• Fee: (¥50,000,000 × 3% + ¥60,000) = ¥1,560,000
• With tax: ¥1,560,000 × 1.1 = ¥1,716,000

4. Non-Resident Buyer Tax Considerations

Foreigners are generally taxed the same as Japanese residents when buying property. However, if you live overseas, there are some additional administrative requirements.

4.1 Tax Representative (納税管理人)

A tax agent must be appointed in Japan to receive notices and pay taxes on your behalf.
This is mandatory if you don’t have a registered address in Japan.

4.2 Reporting Rental Income

If you rent out your property, the tenant or management company must withhold 20.42% of the rent for income tax.
This withheld amount is sent to the tax office directly.

4.3 Double Taxation Treaties

Japan has tax treaties with over 60 countries, including the U.S., U.K., Australia, and most of the EU, allowing foreign investors to avoid being taxed twice on the same income.
Always consult with a bilingual tax accountant to confirm your country’s treaty benefits.

5. Real Example: Tax Breakdown on a ¥50 Million Purchase

Let’s put it all together.

This example shows that taxes can add roughly 10% on top of your purchase cost — a crucial factor to include in your investment plan.

6. How to Reduce Your Tax Burden (Legally)

While Japan’s property taxes are relatively low compared to other global cities, there are still several ways to minimize them:

• Buy used property (exempt from consumption tax).
• Choose residential use over investment use (lower rates).
• Apply for Fixed Asset Tax reduction for new homes.
• Register ownership promptly to avoid penalties.
• Consult a licensed judicial scrivener or tax accountant familiar with foreign ownership.

💰 Taxes When Buying Real Estate in Japan (Full Breakdown) — Part 2

Selling, Inheriting, and Minimizing Your Tax Burden

1. Taxes When Selling Property in Japan

When it’s time to sell your property, Japan imposes a Capital Gains Tax on the profit you make.
This tax can be significant, but understanding how it’s calculated — and how to reduce it — is crucial.

1.1 What Is Capital Gains Tax (譲渡所得税)?

Capital Gains Tax is charged on the difference between your selling price and your purchase price after deducting allowable expenses.

Formula:

Capital Gain = Sale Price − (Purchase Price + Related Costs)

Taxable Income Example:

If you bought a property for ¥50 million and sold it for ¥70 million:

• Gross Gain = ¥20 million
• Deduct expenses (agent fees, registration, renovation, etc.) of ¥2 million
• Taxable Gain = ¥18 million

1.2 Long-Term vs. Short-Term Capital Gains

The tax rate depends on how long you’ve owned the property before selling.

The 5-year period is counted from January 1 of the year after purchase until the date of sale.

Example:

If you bought property in June 2020 and sell in February 2025,
the ownership period is less than 5 years (since it starts from Jan 1, 2021),
→ Tax rate = 39%.

1.3 Deductible Expenses When Selling

You can deduct various legitimate expenses from your sale profit, such as:

• Real estate agent commissions
• Judicial scrivener and registration fees
• Renovation or repair costs
• Stamp duties
• Loan cancellation fees
• Advertising or brokerage fees

Proper documentation is essential — keep all invoices and receipts for proof.

1.4 30 Million Yen Special Exemption (特別控除)

If you sell your primary residence, you can apply for a ¥30 million exemption on the gain.

Example:

• Selling gain = ¥25 million
  → Taxable income = 0 (since ¥25 million < ¥30 million exemption)

Even if your gain exceeds ¥30 million, you only pay tax on the excess amount.

Eligibility conditions:

• The property must be your main home.
• You must have lived there before selling.
• You must not have used the exemption within the past 3 years.

2. Taxes on Rental Income (for Investors)

If you rent out your property, your rental income is taxable in Japan.
This applies to both residents and non-residents.

2.1 Rental Income Tax Rate

Rental income is treated as ordinary income, combined with other income for the year.
Rates are progressive, ranging from 5% to 45%, plus 10% local tax.

2.2 Allowable Deductions for Landlords

You can deduct various costs from rental income before calculating taxes:

• Property management fees
• Repair and maintenance costs
• Depreciation (減価償却)
• Mortgage interest
• Insurance premiums
• Utilities paid by the owner
• Agent commissions

These deductions can significantly lower your taxable income, especially depreciation.

2.3 Withholding Tax for Non-Residents

If you live outside Japan and rent out property, your tenant or property manager must withhold 20.42% of the rent and remit it to the tax office.

However, if you have a tax representative (納税管理人) and file annual returns, you can often reclaim part of this taxif deductions exceed your income.

3. Taxes on Inheritance and Gifts

Japan has relatively high inheritance and gift taxes, but also detailed exemptions and treaties for foreign residents.

3.1 Inheritance Tax (相続税)

When property is inherited in Japan, the heir pays inheritance tax based on the value of assets received.

Basic Rule:

Inheritance Tax = (Inherited Asset Value − Basic Deduction) × Tax Rate

Basic Deduction:

¥30 million + (¥6 million × number of heirs)

3.2 Tax Rates (Progressive)

The system is progressive — large estates face steep rates.

3.3 Scope for Non-Residents

If both the deceased and heirs are non-residents, only Japanese assets (e.g., property in Japan) are taxed.

If either the deceased or the heir is a Japanese resident (even temporarily), worldwide assets may be taxable — so residency status matters.

3.4 Gift Tax (贈与税)

Gift tax applies when property or money is given while the giver is alive.
It follows similar progressive rates (10%–55%) but with smaller exemptions.

Exemption for annual gifts: ¥1.1 million per year.
For family gifts (parents to children): special reduced rates may apply under housing or education programs.

4. Depreciation and Cost Recovery (for Investors)

Depreciation (減価償却) allows investors to recover property costs over time through annual deductions.

4.1 Depreciation Period

The older the building, the shorter its remaining useful life — meaning faster depreciation for used properties.

4.2 Calculation Example

If you buy a 10-year-old RC apartment (47-year life):

• Remaining life = 47 − 10 = 37 years
• Annual Depreciation = Building Value ÷ 37

For a ¥30 million building portion:
¥30,000,000 ÷ 37 = ¥810,000 per year in tax-deductible depreciation.

5. Double Taxation & International Considerations

Many foreign investors worry about being taxed both in Japan and their home country.
Fortunately, Japan maintains Double Taxation Treaties (DTTs) with most major economies.

5.1 Countries Covered

Japan has DTTs with the U.S., U.K., Canada, Australia, Singapore, France, Germany, and many others.
These treaties prevent income (like rent or sale profit) from being taxed twice.

5.2 Practical Impact

• You pay Japanese tax on income from Japanese property.
• You may declare it in your home country but receive a foreign tax credit.
• For Americans, Japanese tax can be credited against U.S. federal tax.

Always confirm details with a bilingual accountant familiar with both systems.

6. Filing and Paying Taxes in Japan

Whether resident or not, property owners must file taxes correctly to remain compliant.

6.1 When to File

The tax year runs from January 1 to December 31, and returns must be filed between February 16 and March 15 of the following year.

6.2 Required Documents

• Purchase and sale contracts
• Registration certificate (登記簿謄本)
• Receipts for all related expenses
• Annual rent statements
• Proof of mortgage interest and insurance

6.3 Payment Methods

• Bank transfer
• Credit card (available in some cities)
• At local tax office
• Through your tax representative

7. Tax Planning Tips for Foreign Investors

To reduce your tax burden legally and effectively:

1. Hold property long-term → lower capital gains rate (20% instead of 39%).
2. Use depreciation to offset rental income.
3. Buy used property (no consumption tax on building).
4. Register ownership correctly to qualify for residence-based deductions.
5. Use a Japanese tax agent to handle paperwork and avoid penalties.
6. Consider corporate ownership if holding multiple properties.

8. Common Mistakes to Avoid

1. Ignoring Real Estate Acquisition Tax — it arrives months later and surprises many buyers.
2. Not appointing a tax representative — required for non-residents.
3. Overlooking depreciation schedules — leads to overpayment.
4. Selling too soon (under 5 years) — results in double tax rate.
5. Assuming home-country exemptions apply — Japan’s rules are independent.

9. Example: Full Life Cycle of Property Taxes

Let’s simulate a foreign investor’s 10-year journey.

Purchase:

• ¥60M property
• Total purchase-related taxes = ¥6M

Ownership (10 years):

• Annual Fixed + City Taxes = ¥900,000 × 10 = ¥9M
• Rental income taxed annually after deductions

Sale:

• Sold at ¥80M → Gain = ¥20M
• Long-term capital gains = 20% → ¥4M tax

Total paid over 10 years:
≈ ¥19M in taxes (initial + annual + sale)
Effective rate ≈ 19% of total property value.

10. The Bottom Line: Japan’s Real Estate Tax Structure Is Predictable

While Japan’s tax system may appear complex, it’s remarkably consistent and transparent once you understand the structure.
Every step — from purchase to ownership to sale — follows clear rules, and most taxes can be planned for in advance.

Key Takeaways:

• Expect roughly 5–10% in upfront taxes at purchase.
• Budget 1.5–2% annually for property taxes.
• Plan for 20% tax on long-term capital gains.
• Keep all documentation — Japan’s tax offices are detail-oriented but fair.
• Always consult bilingual professionals (税理士・司法書士) for non-resident cases.

Conclusion

Buying property in Japan offers strong legal protection, stable markets, and clear ownership rights — but understanding the tax implications is vital for financial success.

Foreign buyers who plan ahead, maintain documentation, and work with trusted professionals can enjoy both peace of mind and profitability in one of the world’s most stable property markets.