VAT on real estate transactions in Japan
Japanese consumption tax is sales based tax applied on supplies on certain goods and services within Japan, and it is similar to VAT/GST in AUS. The sale or lease of an asset located in Japan is a taxable transaction, however there are some transactions which are specifically excluded from being taxable, such as the sale or lease of land. The current consumption tax rate is 8%, and this will increase to 10% on 1 October 2019.
If you have an investment property in Japan, or use a property in running a business, there might be implications for income tax (including capital gains tax), consumption tax, and other related taxes. Japanese taxation can be difficult to handle especially for foreigners. Click here for more information about Japanese real estate taxation. The following will further explain Japanese consumption tax on real estate in Japan.
Buying a property in Japan
There is an increasing number of foreigners purchasing real estate here in Hakuba, Japan, ever since Hakuba became well-known for one of the greatest ski resorts in Asia. In the past, the most common investments are from Australia, but nowadays investments coming from Asia, such as China, Taiwan, Singapore are rapidly increasing.
The sale of land is excluded from being taxable for consumption tax purposes, however, when you buy a house or flat, or when build, it is subject to consumption tax.
For example:
Price of a house：JPY40,000,00
Consumption tax ：JPY3,200,000 (JPY40,000,000×8%)
Commission to an agent：JPY1,200,000
Consumption tax： JPY96,000（JPY1,200,000×8%）
Rent out a property in Japan
Some of foreign investors acquire a property for investment purposes, and such non-resident owners consider leasing their properties. Also, non-Japanese living in Japan look for ski resorts as investment opportunities, or purchase properties as their second home. Such Japanese resident owners may consider leasing their properties during their absence as well.
When you rent out a property, the following transactions are non-taxable for cumsumption tax purposes:
-Leases of land
-Rental of housing (residential purpose)
If you rent out a property for residential purposes, you should not receive consumption tax from lessee. If you receive rental income from a rental cottage, flat, hotel, office tenant etc., it is subject to consumption tax.
In principle, consumption taxpayer status is determined depending on the amount of domestic taxable sales in the past. If your domestic taxable sales is over JPY10M a year, you are required to file a consumption tax return to the tax office. The amount of consumption tax payable is calculated based on the net of (i) consumption tax received on domestic taxable sales minus (ii) consumption tax suffered on domestic taxable purchase. There is a possibility that you will receive a consumption tax refund if the purchase price is high.
The taxable period is the respective fiscal year for a corporate taxable person, and the calendar year for an individual taxable person. If you need more information regarding your tax obligation in Japan, please feel free to contact us. If you need our tax advice before asking tax preparation services, we would be glad to offer an e-mail consultation.
How to file income tax returns in Japan for non-resident
Even if your taxpayer status is non-resident and you don’t have a residential address in Japan, you are still subject to relevant tax procedures. For example, if your domestic taxable income other than salary is more than JPY380,000, you are required to file an income tax return. Even if you make a loss in your business or real estate investment, it would be advisable to file a tax return still, as a loss can be used to reduce taxable income or you can carry it forward and set it against profits in a future year, when certain conditions are met.
In case you are a non-resident but need to handle relevant tax matters in Japan, you must appoint a tax agent (tax representative) who is a resident in Japan. You are required to submit application form to the District Director of the tax office which has jurisdiction over your place of business or real estate. You can personally comply requirements stated above but it is most advisable that your tax accountant should prepare and deal with the tax procedures for you. Your tax agent can be a Japanese corporation or an individual who resides in Japan.
K.S. Accounting has the expertise and vast experience in the international tax field, and we have the right people to handle your income tax needs. We can do everything for you starting from filing the form until income tax preparation. Click here for more information about our taxation services.
Tax agent for local taxes in Japan – Real estate acquisition tax / Fixed assets tax
If you are subject to local taxes described below, you need to submit a notification of a tax agent to the relevant local tax offices as well. For example, if you purchase a property in ski resorts, such as Niseko and Hakuba, you are liable to pay real estate acquisition tax and fixed assets tax for your property, even if you haven’t started your real estate business yet.
Local Taxes:
Inhabitant tax
Enterprise tax
Real estate acquisition tax
Fixed assets tax
Automobile tax etc.
Please note that you need to appoint a tax agent of national tax such as income tax, corporation tax and consumption to the national tax office.
Tax agent / Tax representative for an individual who will leave Japan
If you are a resident who must file the tax return for the year in which you leave Japan, the due date for filing the tax return and paying the tax is as follows:
(1) If you appoint a tax agent before departure, the due date for filing the tax return and tax payment for the year is March 15 of the following year.
(2) If you leave Japan without filing a notification of a tax agent, you must file the tax return and pay the tax before departure.
If there’s no income other than salary, and your employer carries out a year-end adjustment procedure, you don’t need to file a tax return. However, if you have certain taxable income other than salary, you need to appoint a tax agent and file an income tax return. If you have any concerns about your tax liability, we’d be glad to offer e-mail consultation service.