Benefits of buying real estate in Japan in the name of your company
Sale of Real Estate and Withholding Taxes
Why withholding tax is conducted ?
To receive a refund of withheld money
Do you want to avoid tax withholding ?
At first Conclusion : In order to avoid tax withholding, Non-resident of Japan can incorporate a company in Japan. And the company purchases Real Estate.
Benefits of buying real estate in Japan in the name of your company
With the recent depreciation of the yen, it may be a good time to buy things in Japan.
So you (a non-resident of Japan) decide to buy real estate in Japan.
You contact a Japanese real estate company and ask them to introduce you to a good property.
However, there is some information you should know before you sign the sales contract.
The question is whether you buy the real estate in your own name (individual) or in the name of your company.
Sale of Real Estate and Withholding Taxes
Assumed that you buy the property for 7 million yen and sell it to Mr. Yamada for 7 million yen five years later.
Mr. Yamada buys the property for investment. Mr. Yamada does not live in the real estate. He will rent it to someone else and receive rent income.
In this case, even if you sell this real property at 7 million yen, you can not receive 7,000,000 yen from Mr. Yamada right away.
This is because 10.21% of the 7 million yen will be withheld by Mr. Yamada.
The formula is 7 million yen x 10.21% = 71 4,700 yen
Mr. Yamada deducts 714,700 yen from the purchase price to be paid to you and pays it to the tax office on your behalf.
Why withholding tax is conducted ?
When a profit is earned from the sale of real estate, the person who earned the profit is required to pay income tax to Japan.
What if the person who sold the real estate did not pay the tax even though he/she sold the real estate and earned a profit in Japan?
The Japanese government cannot chase him/her to a foreign country to receive the tax.
So, if a non-resident sells real estate, the tax will be collected first as if he/she earned 10.21% of the profit on the sold real estate.
To receive a refund of withheld money
Here is how you can get back the 714,700 yen that was withheld by Mr. Yamada in the above example.
If you sold the real estate for a loss (you bought the real estate for 7,000,000 yen and sold it for 5,000,000 yen), you will receive 714,700 yen if you file a tax return.
If you sell the property on October 16, 2022, you will will be able to file your tax return on or after January 1, 2023.
You will report to the tax office how much you paid for the property (7 million yen) and how much you paid (fee for licensed broker, scrivener, depreciation cost) to buy or sell the property (fee for licensed broker etc.).
Your tax return will prove that you lost money on the sale of this property. You have incurred a loss. Therefore you do not have to pay taxes. So, you can get back the income tax withheld by Mr. Yamada.
Do you want to avoid tax withholding ?
However, you may not want to have taxes withheld from the sale of your real estate.
In such a case, you can become a resident of Japan and the resident purchase the real estate in Japan.
Since you do not live in Japan, you yourself cannot be a resident. However, you can set up a company in Japan and purchase the property in the name of that company.
If your company sells the property, you will receive 7,000,000 yen from Mr. Yamada. Because when a resident sells the property, tax withholding is not required.
