Income tax and resident tax in the case a foreigner has real estate in Japan, ( Shotoku zei and Jumin zei )

When, you purchase real estate in Japan, you need to receive information from professionals.
Unfortunately, some of realtors do not have enough knowledge about tax in Japan.
So, In this page, I will explain taxation in the case a foreigner ( hereinafter referred to Nancy ) has real estate in Japan.

Precisely speaking, Nancy is assumed Non resident ( Hikyoju sha = 非居住者 ) of Japan.
( If Nancy has a domicile=jusho=住所 in Japan or have a residence = Kyosho = 居所 in Japan continuously for one year or more, she is considered a resident in Japan for tax purposes.
When Nancy has base and center of her life in Japan, she is considered as resident in Japan. )

At first, regarding income tax ( shotoku zei = 所得税 ) and Special Reconstruction Income Tax (復興特別所得税).

( By the way, Income tax ( shotoku zei = 所得税 ) and Special Reconstruction Income Tax are national tax. )

In general, tax is levied on income. As for income tax, even if Nancy has real estate in Japan, and does not have any profit, she does not need to pay tax.

1 When Nancy sells her real estate and gets selling profit
2 When Nancy rents out her real estate and receives rental fee and gets profit through her business.

In these cases, she has to pay tax in Japan.

■Regarding withholding tax .
If Nancy lives in foreign country, 10.21 or 20.24% of income is withheld.

Because, if Nancy receives all her income 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 (100 yen – 20.24 yen )yen to Nancy and renter pays 20.24 yen to tax agency on behalf of her.

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 .

(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. )

And during period of tax filing ( In the case of income emerged in 2015, Nancy has to file tax return from 15th in February to 15th in March of 2016. ), Nancy files tax return and may receive some reimburse.

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,

And she can deduct 100,000 yen or 650,000 yen from her income, if she is blue return tax payer ( Aoiro shinkoku sha ).
( Of course, I am willingly provide necessary knowledge to file blue return tax = 青色申告.)

😮 Example.
Monthly rental fee : 200,000 yen
Annual rental fee : 2,400,000 yen
Amount of Taxable income : 2,220,000 yen.

2,220,000 yen × 10 % ( rate of income tax ) – 97,500 yen = 124,500 yen.( Income tax )
124,500 yen × 2.1 % =2,614 yen. ( Special Reconstruction Income Tax )

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.
( Renter withheld : 200,000 yen × 20.24 % × 12 months = 485,760 yen ).

Nancy overpaid income tax and special reconstruction tax.
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.

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🙂 Case 2 Selling of real estate in Japan
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 has to withhold 10.21 yen from trading price. 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.
( Kiso Kojo = 基礎控除 ).

When Nancy ( Non resident of Japan ) sells her real estate in Japan, she has to calculate income tax separate from other income like employment income, business income. ( separate taxation = Shinkoku bunri kazei = 申告分離課税 )

😳 In the case of earnings caused by property rental business, Nancy can calculate real estate income and employment income and business income together ( 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
3,299,000 yen
10 % 97,500 yen
3,300,000 yen to
6,949,000 yen
20 % 427,500 yen
6,950,000 yen to
8,999,000 yen
23 % 636,000 yen
9,000,000 yen to
17,999,000 yen
33 % 1,536,000 yen
18,000,000 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.

But in the case that Nancy sells her property and gets profit, rate of tax is as below.

Long-term capital gains ( When Nancy has owned this property for more than 5 year as of January 1st of selling year. ) : 15 % ( as for Income tax  )
Short-term capital gains : 30 % ( as for Income tax )
And you also need to pay special reconstruction tax.
Tax rate of special reconstruction tax is 2.1 % of income tax.
Assumed that taxable income of capital gains is 1,000,000 yen and you sell property after 10 years from your purchase.
1,000,000 yen × 15% = 150,000 yen.( Income tax )
150,000 yen × 2.1 % = 3,150 yen. ( special reconstruction tax )

long term and short term capital gain of real estate

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 get 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.

:mrgreen: As for resident tax ( Juminzei = 住民税 ).

There are 2 kinds in resident tax in Japan.
One is taxation on income basis ( shotoku wari = 所得割 ) and another is taxation on per capita  basis ( kinto wari = 均等割 ).

Taxation on income basis is levied on person who lives in Japan as of January 1st. So, if Nancy does not live in Japan as of January 1st, she does not have to pay resident tax as for real estate income ( Hudosan shotoku ).
( Precisely speaking, I have to find out whether she is resident or no resident in Japan. In this page, I assume that Nancy does not live in Japan and she does not have residence. )

However, if she does not live in Japan, but she stays ( Kyoju = 居住 ) in Japan more than 1 year as of January 1st, she is presumed to live in Japan, and taxation on income basis is levied.

And even if she stays in Japan less than 1 year, if she engage in occupation that generally requires stay in Japan more than 1 year, or she has Japanese citizenship or status of permanent residency, and she has husband in Japan, Shotoku wari is levied on her.

Taxation on per capita basis ( kinto wari = 均等割 ) is levied even if Nancy does not live in Japan as of January 1st as long as she has real estate for residence.

As for property tax

This tax is levied on person who owns the real estate as of January 1st. So, even if Nancy does not live in Japan, she still has to pay this tax.

When Nancy owns real estate in Japan and does not live in Japan, she has to appoint tax agent ( administrator of tax payment = Nouzei kanri nin = 納税管理人 ). This person receives tax bill and pays tax on behalf of Nancy.

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