Purchasing a new property is a happy occasion, but before you start celebrating make sure all your taxes are paid. Shortage of knowledge on tax system always brings a lot of troubles, so you may wonder what are the taxes you are to pay when acquiring Real Estate in Japan?
First, please note that we are going to cover only the taxes you must pay in case of direct acquisition of property in Japan. Second, some cases can be qualified for tax reductions or exceptions so make sure you have your deal overlooked by a Japanese tax accountant.
Same as anywhere in the World, a purchase can't go without a consumption tax. In Japan the consumption tax is being charged when you are selling a building, but not the land. The main point here is that according to the Japanese Law, ownership right for a property and ownership right for the land it sits on are separate rights to be registered individually. So, if you purchase a building alone, the land under it may belong to another owner. Still, if you purchase the building together with the land, the consumption tax is applied to the building only. Legally, the property seller is charged with the consumtion tax equal to 8%. But as a rule, the property buyer takes up this responsibility, so the consumption tax is usually included into the property total price. Mind that if you decided to sell your propety in Japan, no matter if you are a resident or a foreign investor, you would be charged with the consumption tax. Still, you are eligible for a consumption tax exception if you had a qualifying revenue equal to more than
10, 000, 000 yen (over 70, 000 $) in the 2 prior fiscal years before the transfer.
When you are already a registered property owner, you are charged with the two particular taxes each year. The property owner as of January 1st would recieve the fixed asset tax and city planning tax bills around Springtime with the two payment alternatives available. You either pay the whole sum within the time stated in the bill, or pay the it broken into quarters by set deadlines. There are some more details to consider, though.
First, let's remember the rates. The fixed asset tax is being calculated according to the property value indicated in the Fixed Asset Tax Book and is equal to 1.4%. Same is true for the city plannig tax, which is equal to 0.3% of the property value.
Second, let's keep in mind that the city planning tax is charged only if your property is located within the designated city planning area which can be checked at the map posted by the local authorities.
And finally, if the deal took place during the calendar year, the buyer may be generally charged with the fixed asset tax and city planning tax share corresponding to the time when the buyer would already be the property owner. For instance, if you purchase the property in Summer, you are usually charged with the 50% of the annual fixed asset tax and city planning tax as well as the consumption tax.
As one would expect, the owner right legal registration process prompts that you'd be charged with some more taxes . There are three of them and each corresponds to a certain legal procedure.
No matter if the property ownership transfer undergoes official registration in the Real Estate Registry or not, and regardless of the property value, the buyer would be charged with the real estate acquisition tax. The real estate acquisition tax is is equal to the 4% of the property value listed in the Fixed Asset Tax Book.
Another important point is the stamp tax. Any legal agreement concerning purchase, sale, lease, construction etc. must be sealed with the stamp which cost may vary according to the value or the face amount of the deal. From this point, it's the same thing any country's legal system has. Note that the party who drafts the text of the legal agreement is responsible for the stamp purchase and probably would have to stick them to the physical copy of the document. When negotiating on the deal, we usually recommend to duscuss this particular detail with the other party.
The highest priority tax from the three above mentioned is the registration tax which literally applies to the legal registration of property or land ownership, transfer or any other legal interests. You may wonder, what kind of "registration" is it all about. A Japanese Legal Affairs Bureau at the region where your property sits would have your legal interest recorder in the official Real Estate Registry to secure that the property is subject to the rights indicated in the abobe mentioned registry. Sounds really complicated, so let's put it like this: after paying the registration tax and having all the paper work settled, you get officially recognized as the property owner by the Japanese Law.
But here comes the most tricky part! The registration tax is calculated according to the property value listed in the Fix Asset Tax Book, but the rate is varried depending on what type of legal interest you wish to have registered. If you register the initial ownerhip for the property the rate is equal to 0.4%. From the first further ownership transfer on the rate would be 2%. As for the mortgage, the registration tax would be equal to 0.4% of your loan amount.
You may think that being a non-resident investor can spare you from the local income tax, but unfortunately that's a delusion. Note that your income from the sale of Japanese property is a subject for the income tax as the source of your income is set on the Japanese ground.
If you are a non-resident with no permanent establishment in Japan, the tax rate on the real estate income will vary according to whether you act as a foreign individual or a foreign corporate body. Depending on the period within which you held the asset (more or less than 5 years) the tax rate would either be equal to 15% or 30%.
Also, being a non-resident owning some property in Japan would make you charged with the withholding tax generally equal to 10.21% of the property value. Note that the actual rate varies according to your citizenship: Japan has tax treaties signed with nearly 100 countries all over the world! Morever, non-resident individual buyers are charged with the Japanese capital gains tax and withholding tax equal to 20.42% prior to abroad remittance in case of renting out.
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