Withholding tax for Non-Resident owners of properties in Japan

September 19, 2018
withholding tax calculation for property in japan

If a non-resident buys a property in Japan, any income generated from it, in terms of rental or capital gain when the property is sold will be subject to the country’s withholding tax.

Rental income

This is inclusive of all income originating from leasing residential properties, parking lots or land. The tax is applicable only for income greater than 380,000 yen.

A tenant who represents a corporate entity must hold back 20.42% of the monthly rent and submit it with the tax office before the 10th of the subsequent month of the payment. An individual occupant, if he/she is using the property as business use but not residential use, then also obligated to deduct and submit the 20.42% of the rent to the tax office.

The tax calendar in Japan is followed from January 1st to December 31st, with the returns to be filed between February 16 and March 15. The final tax return to the District Director of Income Tax office has to be filed by the non-resident during this period and the total amount of exact income tax is calculated then. If paid withholding tax amount is higher than income tax, the overpaid amount is refunded to the property owner. When filing the final returns, a non-resident is required to nominate a tax representative (who is a resident of Japan) by submitting a declaration citing his name with the tax office. The tax representative initiates all official formalities on the foreigner’s behalf.

Capital Gain

If a non-resident sells his property, the buyer is obligated to pay 10.21% of the purchase price as withholding tax and pay it to the tax office unless the buyer is buying the property for the purpose to live in there.. If a capital gain is made, then a relevant tax is applicable on the taxable amount. If exact capital gain tax amount is lower than the withholding tax amount, non-resident can report capital gain tax in the next year and get the overpaid amount back. For non-residents the tax rate for those who’ve been residing in Japan for less than 5 years is 30% (income tax) in addition to the 2.1% Tohoku reconstruction tax (based on the tax amount of the sale and not the total taxable capital gain); for those who’ve been living in Japan over 5 years, the rate is 15% (income tax) and 2.1% Tohoku reconstruction tax.

Foreign tenants who are looking for apartments for rent in Tokyo or other areas in Japan and want to make the lease agreement under own company name should also notice if the landlord is non-resident or living in Japan. Also, when foreign buyers look for properties for sale in Japan should figure out if the seller is non-resident or not. Attention: A Japanese also can be non-resident.

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