Selling of real estate in Japan and tax withholding
In the case that Ms.Nancy (Non resident of Japan) 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 of Japan
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.
“In the case a company has made capital gain by sale of real estate➡”
“You also need to pay Resident 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.