Tax on property income in Japan
Taxation Researcher | January 13, 2023
Effective Tax Rate on Rental Income
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Global Property Guide research
Nonresidents are taxed on their Japanese-sourced income. Nonresidents are taxed differently, depending on their classification as a taxpayer for tax purposes. Married couples are assessed and taxed separately.
INCOME TAX ON RENTAL INCOME
Nonresident individuals earning rental income from Japanese property are taxed at 20.42%. Taxable income is gross rent less income-generating expenses and depreciation.
CAPITAL GAINS TAX
Gains realized from selling short-term real properties (i.e., properties held for less than five years) are taxed at 39.6% of the net gains. If the property is the taxpayer’s personal residence, JPY30 million (US$275,230) can be deducted from the gross sales price, if certain conditions are met.
The taxable gain is computed by deducting the acquisition costs and related expenses, improvement costs, and transfer costs from the gross sales price.
Net gains from the sale of properties held for more than five years will be taxed at 20.3%.
Municipal tax is levied at 1.7% on the assessed value of the land or building. For land used for a residential purpose, one third of the assessed value is excluded from taxation. For residential land up to 200 square meters, one sixth of the assessed value is deducted from the taxable amount.
To be excluded from property tax, the assessed value of the land must be not more than JPY300,000 (US$2,752), whereas for a house, the threshold is JPY200,000 (US$1,835).
City Planning Tax
City planning tax is levied at a flat rate of 0.3% on the assessed value of the land or building. The property is exempt if its value is less than certain thresholds. City planning tax is levied together with the property tax. For both taxes, the owner of the land or building is liable.