Withholding tax for non-residents

Tax on rental income

If you are a non-resident (ie. you live overseas) and have purchased an investment property in Japan, any rental income arising from property located in Japan will be subject to Japan’s withholding tax.

Rental income from real estate is reported on your Japanese income tax statement. It includes revenue from all types of real estate, such as residential apartments, land and carparks that you are renting out to tenants.

The withholding tax rate on rental income is 20.42%.

If the tenant is a corporation (eg. a company renting the apartment for their employee), the tenant must withhold 20.42% of the monthly rent and pay it to the tax office by the 10th day of the following month. A corporate tenant is considered more adept at accounting and taxation practices, so this responsibility is placed on them.

If the tenant is a private individual, they are not required to withhold any rent (it is considered bothersome for a private tenant to worry about this). This does not mean that you, as a landlord, can avoid paying any taxes as the income will still be classed as rental income from real estate and you will still be taxed as a non-resident. Instead, your rental management company or accountant should deduct 20.42% from the rent and pay the tax office each month.

Rental income includes:

  • Rent
  • Key money
  • Contract renewal fees

 

*It does not include money to be returned to the tenant, such as deposits.

Deductible expenses include:

  • Building management fees
  • Annual fixed asset taxes
  • Fire insurance
  • Repairs
  • Property management and brokerage fees
  • Building depreciation

Tax on sale of property

If you sell a property in Japan while a non-resident (eg. you are living overseas), the buyer must pay 10.21% of the purchase price to the tax office and the remaining 89.79% to you. If a capital gain is made, you will also be liable for capital gains tax (see here). Any excess can be refunded after submitting a tax return.

There may be situations where the withholding tax is not required upon sale. Please consult with a tax accountant for more information.

Filing a tax return

You will need to appoint a tax agent in Japan to file a tax return on your behalf with the tax office each year. If the withholding tax paid is higher than the amount liable, the excess can be refunded.

The National Tax Agency English guide to withholding tax can be viewed here and more information on taxes can be found here.

Owning property in a corporate name

While the income tax rate is applied to private non-resident owners of real estate, foreign corporations who rent out or sell real estate in Japan will be charged at Japan’s corporate tax rates.

The information contained on this page is intended as a general guide only and is not investment, taxation or financial advice. Readers are strongly advised to contact tax specialists both in Japan and in their home country to obtain accurate information before making any decision.