The Sapporo Regional Taxation Bureau has identified several domestic and foreign real estate companies and investors for failing to declare income made on real estate transactions in Niseko. Some say this recent bust may just be the tip of the iceberg.
The Bureau found around ten cases where land for holiday homes had been sold without the income from the sale reported in required tax filings. The total undeclared income amounts to around 3 billion Yen (approx. 28 million USD), with 600 million Yen in additional taxes.
For many years now Niseko has drawn the attention of both foreign investors and foreign tourists attracted to its idyllic skiing conditions and easy access from other Asian countries. It has also been making local headlines for seeing the highest rate of growth in land values.
With transactions heating up, some foreign investors may not be aware that even if they live overseas, transactions involving real estate in Japan may still be subject to taxation. This still applies even if the entire transaction takes place overseas between two foreigners.
A joint operation between the Sapporo and Tokyo tax bureaus found five companies registered in Hong Kong, Samoa and the British Virgin Islands that had failed to declare 1.5 billion Yen in corporate income.
Furthermore, the investigation discovered that an investment company registered in Hong Kong in 2007 had sold 10 hectares of land to a Singapore company in 2017 for 300 million Yen – the same price the seller had originally paid for it. At the same time, the two shareholders of the Hong Kong-based investment company sold their shares in the company to the Singaporean buyer for another several hundred million Yen. The Sapporo Taxation Bureau has determined that the sale of shares was to disguise the true profit from the sale of the land, resulting in 1.2 billion Yen in undeclared income and 200 million Yen in additional taxes.
If the shares in a company that owns real estate are sold the real estate title itself does not change, making it difficult for the tax office to assess some transactions.
Several other foreign companies were identified for failing to file withholding taxes. If an overseas resident or foreign corporation (including some with branches in Japan) sells real estate in Japan, and certain conditions are met, the buyer is required to withhold around 10% of the purchase price and pay it to the tax office.
According to the Forestry Agency, there were 223 cases of acquisitions of forestry by foreign funds between 2006 and 2018, covering a total of 2,076 hectares. Almost 80% of those transactions were for forestry in Hokkaido. It is likely that the tax bureaus are going to pay closer attention to transactions by offshore funds and investors from now on.
Source: The Asahi Shimbun, August 8, 2019.
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