In Japan, real estate is subject to annual property taxes called kotei-shisan-zei (fixed asset tax, 固定資産税), and toshi-keikaku-zei (city tax, 都市計画税).
Tax bills are usually sent out around April or May each year, depending on the city, and are paid to the city where the property is located.
- Fixed asset tax: 1.4% of the taxable value
- City planning tax: 0.3% of the taxable value
These taxes are based on the base taxation amount (課税標準額), not the market value of the property. In many cases this tax value is a lot lower than the market value, although there may be exceptions in rural areas where market values are lower than tax values. However, it is tied to changes in property values, so the taxable value of the land portion may rise if the property market is improving. The taxable value of the building portion is more likely to decrease as the building ages, following a depreciation schedule.
The amount is adjusted every three years. Any large jumps in property values are usually offset with a special reduction to reduce any immediate impact on the property owner.
The taxes are usually halved for the first three to five years after the construction of a new home or apartment, so be aware of the potential for your tax bill to increase if you have purchased a new or near-new home or apartment.
Before buying property, find out what the most recent tax bill was so you have an idea of what to expect as the next owner.
Paying the tax
You will receive a letter from the city government with the tax payment slips. You can either pay the annual amount in one lump sum, or pay it in four installments. The deadline for the lump sum or first payment is typically in early May, but please check the deadline that is indicated on the tax bill as it may differ. Penalties apply for late payment.
Payment instructions are included with the tax slips. Payment options can include paying at a bank branch, at a convenience store*, or using a credit card on the city tax payment website*.
If you live overseas, your tax bill will be sent to the tax agent you have appointed. Haven’t appointed a proxy? It’s essential that you do so as soon as possible. It can be a friend, accounting firm, or property management firm. We recommend our buyers appoint tax agents to ensure they do not run the risk of having their property seized by the local government for non-payment of taxes.
The tax bill is sent to the owner of the property as of January 1 of each year. If you sold your property on January 5, for example, the tax bill for that year will still be sent to you and you will be liable for payment, even though you are not the current owner. To remedy this, the custom at the time of sale is for the buyer to pay the seller a pro-rated amount based on the previous year’s or current year’s tax at the time of sale.
If you have made changes to your property, eg. you have converted a retail space into a house, a house into a minpaku-style accommodation property, or made extensions, the tax may change accordingly. You may need to inform the city tax department to have a re-assessment made on the property.
Multiple property owners
With the exception of apartments, taxes cannot be billed to each owner based on their share of ownership. Eg, if Person A and Person B each have 50% ownership in a house and land and the annual tax bill is 100,000 Yen, both A and B are responsible for making sure the amount is paid. Person A cannot request to the tax office that they only pay 50,000 Yen. If Person B pays the entire 100,000 Yen, the tax liability for both Person A and B is cleared.
City taxes don’t always apply
City taxes are usually only applicable for buildings and land located within Urbanization Promotion Areas in city planning districts, but can also apply in districts outside of these areas.
City tax rates may vary depending on the city, town or village, but are capped at 0.3% of the base taxation amount.
*Convenience Store payments are not possible for tax payments exceeding 300,000 Yen.