Capital Gains Tax
The information below is provided as a general guide only. For details on capital gains tax, please contact an accountant or tax specialist.
A capital gain is the profit realised on the sale of a property. Capital gains tax is charged on the taxable portion of the gain. Any gain is declared on your income tax statement as ‘other income‘ and is taxed separately to your own income.
Both residents and non-residents (eg. those living overseas) are liable to pay this tax, although non-residents are not required to pay the municipal tax.
Also, both foreign and domestic investors may be liable to pay consumption tax to the Japanese tax office upon the sale of Japanese property. This may include private individuals who were renting out their property to a tenant.
If you are a resident of Japan for tax purposes, you may also be liable to pay capital gains tax on the sale of property overseas.
| TAX RATE: |
For residents of Japan (those working and living in Japan):
- If held less than 5 years: 30% income tax + 9% municipal tax*¹ + 2.1% Tohoku reconstruction tax*²
- If held for more than 5 years: 15% income tax + 5% municipal tax + 2.1% Tohoku reconstruction tax
For non-residents (those living overseas):
- If held less than 5 years: 30% income tax + 2.1% Tohoku reconstruction tax
- If held for more than 5 years: 15% income tax + 2.1% Tohoku reconstruction tax
*1 If you are not a resident of Japan, in principle you are not required to pay municipal tax (juminzei). If you recently left Japan but held residence on January 1, then you may still be liable. Please check with a tax advisor.
*2 The special Tohoku reconstruction tax was introduced in 2013 and will be in effect until 2037. It applies to both residents and non-residents and is taxed based on the income tax amount of the sale rather than the total taxable capital gain value. See the examples below.
| How to calculate the holding period: |
The 5-year rule is not counted from the day you purchased the property until the day you sold it. Instead, it is based on how long you have owned the property as at January 1 of the year you sold it.
For example, if you purchased a property anytime in 2013, you will only be eligible for the lower, long-term tax rate if you sell the property from January 1, 2019 onwards.
For off-the-plan purchases and brand-new construction, the acquisition date is the day the property is delivered to the buyer. For example, if you signed the contract of sale with the developer on August 15, 2013, but received delivery of the property on January 15, 2014, the holding period for calculating short-term or long-term capital gains would start from January 15, 2014.
When you sell the property, the disposal date can be either the day the contract of sale is signed with the buyer, or the day the property is handed over to the buyer (please note that this different to buying off-the-plan).
| How to calculate the capital gain: |
| Capital Gain = Revenue received from the sale*¹ – (Acquisition fees*² and conveyancing fees*³) |
*¹: The revenue received from the transaction of the land and building, the adjusted fixed asset and city taxes.
*²: There are two methods to calculate the acquisition fees or costs (use the one which gives you the largest figure):
1. Actual amount method: The building’s depreciation is subtracted from the purchase price and costs incurred at time of purchase (brokerage fees, etc).
2. Approximation method: 5% of the revenue from sale.
*³: Fees directly related to the transfer of the property. Eg. brokerage fees, land survey fees, demolition fees if a house is demolished prior to sale of land.
| Taxable capital gain = Capital gain – Deductions |
*¹: If the property was your primary residence, the deduction is ¥30,000,000 (see below).
Eg. if you purchased your home for ¥50 million Yen, and later resold it for ¥80 million Yen, after subtracting the ¥30 million Yen deduction, you would theoretically not have any taxable capital gain and will not be required to pay capital gains tax. The deduction can only be used once every 3 years (eg. you cannot use it if you have already used it on a sale in the previous year or the year prior to that). It is strongly advised to consult a tax specialist to get an accurate figure as building depreciation and other factors can affect this number.
| How to calculate the tax payable: |
| Tax = Taxable capital gain x Tax rate |
The capital gain is reported as ‘other income’ on your income tax return. It is taxed at a separate tax rate which varies depending on the property use and the length of time held.
If the property was owned for more than 5 years, the gain is a ‘long-term capital gain.’ If it was owned for less than 5 years, it is a ‘short term capital gain.’
| Tax rates: |
| Personal residence |
|---|
| Held less than 5 years: 30% + 9% municipal tax + 2.1% Tohoku reconstruction tax |
| Held more than 5 years: 15% + 5% municipal tax + 2.1% Tohoku reconstruction tax |
| Held more than 10 years: 14% on amount under 60,000,000 Yen and 20% on amount over 60,000,000 Yen |
| If it was not your personal residence |
| Held less than 5 years: 30% + 9% municipal tax + 2.1% Tohoku reconstruction tax |
| Held more than 5 years: 15% + 5% municipal tax + 2.1% Tohoku reconstruction tax |
| Examples: |
| Short-term capital gain | ||
|---|---|---|
| Capital Gain of 8,000,000 Yen | ||
| Income tax: | 8,000,000 Yen x 30% | 2,400,000 Yen |
| Municipal tax: | 8,000,000 Yen x 9% | 720,000 Yen |
| Tohoku reconstruction tax: | 2,400,000 Yen x 2.1% | 50,400 Yen |
| Total capital gain tax: | 3,170,400 Yen | |
| Long-term capital gain | ||
|---|---|---|
| Capital Gain of 8,000,000 Yen | ||
| Income tax: | 8,000,000 Yen x 15% | 1,200,000 Yen |
| Municipal tax: | 8,000,000 Yen x 4% | 400,000 Yen |
| Tohoku reconstruction tax: | 1,200,000 Yen x 2.1% | 25,200 Yen |
| Total capital gain tax: | 1,625,200 Yen | |
| Tax deductions: |
If the property was your personal residence, you may be eligible for a ¥30,000,000 deduction.
| When to pay: |
The capital gain must be reported on your final income tax return which is submitted between February 16 to March 15 each year.
| For non-residents: |
If you are living overseas and sell your property in Japan, you will be taxed by the Japanese taxation office upon the sale of property and any capital gain must be reported in a final income tax return. You are required to appoint a tax representative in Japan to file your tax return on your behalf.
Disclaimer:
The information contained on this page is intended as a general guide only. Readers are strongly advised not to act upon this information without seeking the advice of a professional tax and/or financial planner.
