Guide to Property Taxes in Japan

Non-resident individuals are generally subject to Japanese taxation on income derived from Japanese sources, including rental income and taxable gains arising from Japanese real estate. Married individuals are generally assessed separately for Japanese income tax purposes.

Rental Income Tax

Rental income derived by a non-resident from Japanese real estate is taxable in Japan.

A 20.42% withholding tax generally applies to gross rental payments made to a non-resident. However, this withholding is not necessarily the final tax liability. The non-resident landlord generally files a Japanese income tax return, calculates taxable rental income after allowable deductions, and credits the tax already withheld against the final liability.

Taxable rental income is broadly calculated as:

Gross rental income − allowable expenses − depreciation = taxable rental income

Deductible expenses may include property management fees, repairs and maintenance, insurance, property taxes, qualifying interest expenses and depreciation.

The resulting net rental income is generally subject to Japan's progressive national income tax rates, ranging from 5% to 45%, together with the applicable surtax.

Assuming deductible rental expenses equal to 30% of gross rent and applying the available non-resident basic deduction, estimated Japanese income tax is approximately €467 on €18,000 of annual rent, €7,412 on €72,000, and €24,073 on €144,000, corresponding to effective tax burdens of approximately 2.6%, 10.3%, and 16.7% of gross rental income, respectively.

Capital Gains Tax

Capital gains from the sale of Japanese land and buildings are taxed separately from ordinary income. The applicable rate depends on how long the property has been owned as of 1 January of the year of disposal.

A property held for five years or less is treated as a short-term holding. The combined tax rate is generally 39.63%, consisting of 30% national income tax, the reconstruction surtax and 9% local inhabitant tax.

A property held for more than five years is generally treated as a long-term holding and is subject to a combined rate of approximately 20.315%, consisting of 15% national income tax, the reconstruction surtax and 5% local inhabitant tax.

The taxable capital gain is broadly calculated by deducting the property's acquisition cost, qualifying acquisition and improvement costs, disposal expenses and any applicable special deductions from the sale proceeds.

Certain qualifying disposals of a taxpayer's principal residence may benefit from a JPY 30 million special deduction, subject to the applicable conditions.

For non-resident sellers, the purchaser may also be required to withhold 10.21% of the gross purchase price. This withholding is generally creditable against the seller's final Japanese tax liability and should not be confused with the final capital gains tax rate.

Corporate Taxation

The standard Japanese national corporate income tax rate is 23.2%.

Qualifying small and medium-sized companies may benefit from a reduced 15% national corporate tax rate on the first JPY 8 million of annual taxable income, subject to eligibility requirements. For certain high-income SMEs, the preferential rate on this portion is 17% for fiscal years beginning on or after 1 April 2026.

However, national corporate income tax does not represent the entire corporate tax burden in Japan. Companies may also be subject to local corporate tax, inhabitants' tax, enterprise tax and special corporate business tax.

For fiscal years beginning on or after 1 April 2026, a new special corporation tax related to defence funding may also apply.

Consequently, the effective corporate tax burden can be substantially higher than the headline 23.2% national corporate tax rate and varies according to factors such as company size, taxable income and location.

Rental income and capital gains from Japanese real estate held by a company are generally included in taxable corporate income, with qualifying business expenses and depreciation deductible under the applicable rules.

Property Buying and Selling Taxes/Costs

Property Taxation in Japan

Fixed Asset Tax

Owners of land and buildings in Japan are generally subject to an annual municipal Fixed Asset Tax (Kotei Shisan Zei).

The standard tax rate is 1.4% of the property's assessed taxable value, although municipalities have authority to establish different rates within the applicable legal framework.

The tax is calculated broadly as:

Assessed taxable value × applicable municipal rate = annual Fixed Asset Tax

The assessed value used for tax purposes is determined by the relevant municipality and is generally reassessed every three years. It should not be confused with the property's actual market or purchase price.

Special reductions may apply to residential land and qualifying newly constructed residential buildings, which can significantly reduce the effective annual tax burden.

City Planning Tax

Properties located within designated urban planning areas may also be subject to an annual City Planning Tax.

The applicable rate is determined by the municipality and is subject to a statutory maximum of 0.3% of the assessed taxable value. The tax is generally collected together with the Fixed Asset Tax.

Both Fixed Asset Tax and City Planning Tax are generally imposed on the person registered as the owner of the land or building as of 1 January of the relevant year.

Residential land may benefit from preferential taxable-base reductions, which can substantially reduce the amount of both taxes payable.