Tax Withholding (Gensen choshu)
In the case a non-resident of Japan (“Nancy”) does not live in Japan and she receives money according to real estate Transaction of Japan, depending on situation, tax withholding is necessary.
If she sales her real estate or receive rental fee from tenant of her real estate, she will receive money according to Real estate transaction.
Tax rate of withholding
If Nancy lives outside of Japan, 10.21 or 20.24% of income is withheld.
Because, if Nancy receives all her income from purchaser or tenant and does not pay tax, it is difficult to collect tax from her.
So, in the case of following situations, withholding is necessary.
Case １ Renting out of real estate in Japan
When Nancy rents out her real estate and monthly rental fee is 100 yen, renter pays 79.76 yen to Nancy.
100 yen x 20.24% = 20.24 yen.
100 yen – 20.24 yen = 79.76 yen
And renter pays 20.24 yen to tax agency on behalf of her.
The renter needs to pay withheld tax by 10th of next month
When a renter withholds 20.24 yen, this renter has to pay this 20.24 yen to tax agency until 10th of next Month.
For example, renter pays rental fee at 31th April, this renter has to pay 20.24 yen to tax agency by 10th May .
When a renter pays rental fee at outside of Japan and this renter has registered domicile ( Jusho = 住所 ) or address （ Kyosho = 居所 ） in Japan, this renter has to pay 20.24 yen to tax agency by end of May .
In the case tax withholding is not required
However, when a person rents this apartment for his residence or for his relative’s residence, this renter does not need to withhold.
When a renter is company and employee of this company lives in this apartment, withholding is necessary.
Non resident needs to file Final Tax Return in Japan
During period of tax filing, Nancy files tax return and may receive some reimburse from tax office.
In the case of income emerged in 2019, Nancy has to file tax return from 15th in February to 15th in March of 2020.
When Nancy files tax return, she can deduct the amount of property tax ( Kotei shisan zei = 固定資産税), depreciation cost ( Genka shokyaku hi = 減価償却費 ), maintenance cost, bank interest, etc, fee for lawyer.
And she can deduct 100,000 yen or 650,000 yen from her income, if she is blue return tax payer ( Aoiro shinkoku sha ).
In the case you want to be blue return tax payer and save income tax, I am willingly provide necessary knowledge to to do so.
Monthly rental fee is 200,000 yen. So, Annual rental fee is 2,400,000 yen.
Amount of Taxable income : 2,220,000 yen.
Because, you can apply for some tax deduction.
Calculation formula is
2,220,000 yen × 10 % – 97,500 yen = 124,500 yen.
This 124,500 yen is Income tax.
Noted, 10 % is rate of income tax
And 124,500 yen × 2.1 % =2,614 yen.
2.1 % is tax rate of Special Reconstruction Income Tax.
So, 124,500 yen + 2,614 yen = 127,114 yen.
Amount of income tax and special income tax is 127,100 yen.
But, income tax and special reconstruction tax were already withheld by renter.
Because Renter withheld 485,760 yen .
Calculation is 200,000 yen × 20.24 % × 12 months = 485,760 yen.
It means that Nancy overpaid income tax and special reconstruction tax by tax withholding.
The amount of her overpayment is 485,760 yen – 127,100 yen = 358,660 yen.
So, when Nancy files tax return, she can receive 358,660 yen from tax agency.
Selling of real estate in Japan and tax withholding
In the case that Nancy bought her real estate at 100 yen and sells it to Mr Jack at 100 yen, she does not get any profit.
However, if I take account of depreciation cost, there is possibility that Nancy gets capital gains.
For example, in the case of old wooden house.
But, Mr Jack needed to withhold 10.21 yen from trading price. So, Mr Jack pays 89.79 yen to Nancy and pays 10.21 yen to tax agency.
However, when trading price is below 100 million yen and Mr Jack buys this real estate for his or his relative’s residence, such withholding is not necessary.
Then during period of tax filing, Nancy files tax return and may receive some tax return.
When Nancy files tax return, she can apply basic deduction of 380,000 yen.
( It is called Kiso Kojo = 基礎控除. Basic deduction )
When Nancy sells her real estate in Japan, she has to calculate income tax separate from other income like employment income, business income.
It is called “separate taxation = Shinkoku bunri kazei = 申告分離課税”.
On the other hand, in the case of earnings received from renter, Nancy can calculate real estate income and employment income and business income together.
It is named consolidated tax = Sogo kazei = 総合課税. You can reduce tax amount by using consolidated tax system. i.e. Aggregation of profit and loss ).
In Japan, rate of income tax differs depending on the amount of taxable income.
Rate of income tax in Japan
|Amount of taxable income||rate||deduction|
|1,000 yen to 1,949,000 yen||5 ％||0円|
|1,950,000 yen to
|10 ％||97,500 yen|
|3,300,000 yen to
|20 ％||427,500 yen|
|6,950,000 yen to
|23 ％||636,000 yen|
|9,000,000 yen to
|33 ％||1,536,000 yen|
to 39,999,000 yen
|40 ％||2,796,000 yen|
|40,000,000 yen or more||45 ％||4,796,000 yen|
This rate applies to income tax of property rental business.
But, this rate DOES NOT apply to capital gains income.
Rate of capital gain tax
But in the case that Nancy sells her property and gets profit, rate of tax is as below.
When Nancy has owned this property for more than 5 year as of January 1st of selling year, rate of income tax is 15 %.
When Nancy has owned this property for 5 years or less as of January 1st of selling year, rate of income 30 %.
And She also needs to pay special reconstruction tax.
Tax rate of special reconstruction tax is 2.1 % of income tax.
Example of calculation of capital gain tax
Assumed that taxable income of capital gains is 1,000,000 yen and you sell property after 10 years from your purchase.
calculation formula is 1,000,000 yen × 15% = 150,000 yen.
This 150,000 yen is Income tax.
In Japanese language, it is named “sho to ku ze i”.
Then, calculation formula of special reconstruction tax is like this.
150,000 yen × 2.1 % = 3,150 yen.)
Capital gain tax according to long term or short term
Japanese tax agency decide if Nancy has owned her real estate for long term or short term by as of January 1st.
Let’s say Nancy bought her property at November 11th, 2011 and sells her property at January 2nd 2017.
Nancy was not owner as of January 1st 2011.
Nancy was owner as of January 1st of 2012, 2013, 2014, 2015, 2016, 2017.
So, she has owned the property more than 5 years.
So, when she sells her property and gets profit, income tax rate is 15 %.
Let’s say Nancy sells her property at December 31st 2016.
Nancy was owner as of January 1st of 2012, 2013, 2014, 2015, 2016.
So, she has NOT owned the property more than 5 years.
So, when she sells her property and get profit, income tax rate is 30 %.
When Nancy lives outside of Japan and she buys real estate in Japan, she has to appoint agent for tax payment ( Nozei Kanri nin = 納税管理人 ).
Because, Nancy can not receive bill of acquisition tax and property tax from tax office.
Agent for tax payment can file tax return and pay tax on behalf of Nancy.
When you purchase real estate with my assist, you can nominate me as your tax payment agent.
If Nancy lives in Japan, she does not need to appoint an agent.
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