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Income tax and resident tax for Real Estate Investment in Japan

Income tax and resident tax for Real Estate Investment in Japan

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.

Resident or Non-resident in tax ➡”

Example.
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

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