Tag Archive Japan consumption tax

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.