Do You Need a Residence Status to Buy a House in Japan? A Complete Analysis of Non-Resident Property Purchases

Do You Need a Residence Status to Buy a House in Japan? A Complete Analysis of Non-Resident Property Purchases - AIAIG - AIAIG

Question

3.1 What taxes are involved in purchasing and holding real estate?

AIAIGAnswer

Mainly include:

- Fixed Asset Tax: Based on 1.4% annually, with local governments possibly adding a City Planning Tax of 0.3%.
- Acquisition Tax: A one-time tax levied at the time of purchase, with a rate of about 4% of the assessed value.
- Registration & License Tax: Used for property registration procedures, typically 1% of the assessed value.

These taxes apply to all property owners, including foreigners. However, note that the tax base is mostly the 'assessed value', not the actual purchase price.

Question

3.2 Rental phase: What taxes do non-resident landlords face?

AIAIGAnswer

If a non-Japanese tax resident rents out property:

- If the tenant is a Japanese company or corporation, 20.42% of the rent must be withheld as withholding tax (rent × 20.42% is withheld by the tenant or their agent and paid to the tax authorities).
- If the tenant is an individual and the property is for their own or their relative's residence, it is generally exempt from withholding of rent tax.
- The landlord must also file a tax return for 'Japan-sourced income' with the competent tax office between February 16 and March 15 of the following year.
It is advisable to confirm the lease contract parties and withholding tax responsibilities before renting to avoid subsequent compliance issues.

Question

3.3 Sale phase: How are capital gains tax and withholding mechanisms structured?

AIAIGAnswer

For non-residents selling property, Japan has withholding obligations and a capital gains tax system:

- If the seller is a non-Japanese tax resident, the buyer must withhold 10.21% of the sale price and remit it to the tax authorities.
- Capital gains tax rate: If held for ≤5 years, approximately 30% income tax + 9% local tax; if >5 years, approximately 15% + 5%.
- Non-residents typically need to appoint a Japanese tax agent ('Tax Agent') to handle declarations and refunds.

Therefore, before selling, fully estimate the tax burden, withholding ratio, and whether a refund is possible.

Question

4.1 What are the key points to pay attention to when operating a rental?

AIAIGAnswer

Key points include:

- Location Priority: Core cities like Tokyo's 23 wards, Osaka City, and Kyoto City have high rental demand; be cautious of rising vacancy rates in second-tier cities.
- Lease Contract Types: Long-term lease vs. short-term (e.g., serviced apartments for travel), with short-term having higher compliance risks and management costs but potentially stronger returns.
- Tax Compliance: Before signing a contract, confirm if the tenant is a corporation and whether 20.42% withholding is required; ensure rental income is included in accounting declarations.
- Maintenance and Management Fees: Foreign investors should set aside at least 5%–10% of annual rent as a maintenance reserve.
- Exchange Rate Risk: If you receive rent in RMB/USD, consider the impact of yen exchange rate fluctuations on net income.

Question

4.2 What strategies should be developed when exiting through a sale?

AIAIGAnswer

Recommendations are as follows:

- Holding Period Planning: If the target is less than 5 years, the capital gains tax rate is high (about 39%), with significant costs; it is recommended to hold for >5 years to enjoy a lower tax rate (about 20%).
- Prepare Withholding Procedures in Advance: Notify the buyer to prepare for 10.21% withholding to avoid transaction delays.
- Consider a Tax Agent: Non-residents selling property must have a Japanese tax agent for declaration and can apply for refunds or adjustments.
- Market Analysis: Monitor yen trends, local real estate market trends, and urban renewal policies to determine the best exit timing.

Question

4.3 Core Conclusion: What are the opportunities and limitations for non-residents buying property in Japan?

AIAIGAnswer

Opportunities:

- No residency status required for purchase, with low barriers.
- Japan's mature legal system is transparent, with high property right security.
- Core cities have stable rental demand, suitable for asset allocation.

Limitations:

- Loan channels are almost closed, requiring full payment or a large down payment.
- Tax processes are complex, involving withholding at source, agent declarations, and high capital gains tax rates.
- Holding costs (taxes, maintenance, management) cannot be ignored.
- Sale profits are significantly affected by tax rates and exchange rates.

Conclusion: If your core goal is 'asset allocation + medium to long-term holding + stable rental returns', Japan is a viable option; but if you expect quick doubling through property or 'buying property for immigration', caution is needed.

WeChat

WeChat Service