If you own real estate in Japan and have rental income, you must pay the following taxes.
Fixed Asset Tax
Fixed asset tax is a tax paid by the owner of real estate. It is paid to the municipality by the person who owns the property on January 1st of the year. The tax can be paid in a lump sum or in four installments per year.
The formula for calculating property tax is as follows;
Fixed asset tax = Fixed asset tax assessed value x 1.4%
In principle, Fixed asset tax assessed value is reassessed once every three years, but burden adjustment measures have been established to alleviate the sudden increase in burden due to fluctuations in assessment during that period.
There are preferential measures for the land and buildings of one’s own home. The reduction for residential land is as follows;
*For the land of one’s own home (residential land), there is a special exception whereby the tax base for portions up to 200sqm is calculated at 1/6 (1/3 for portions over 200sqm and up to 10 times the floor area).
*There are also special provisions that reduce the fixed asset tax by half for the building portion of newly constructed housing for three years (five years for newly constructed condominiums, etc.), and for five years for certified excellent long-term housing (seven years for newly constructed condominiums, etc.), up to the equivalent of 120sqm.
City Planning Tax
The city planning tax is a purpose-built tax levied by the municipality or the metropolitan government to cover the costs of city planning projects or land readjustment projects. Like fixed asset tax, it is paid by those who own land or houses in the urbanization area on January 1st of each year.
The city planning tax is calculated as follows;
City planning tax = Fixed asset tax assessed value x 0.3%
City planning tax is reduced for land, but not for buildings in principle.
*Land for small-scale housing is residential land with an area of up to 200 sqm per exclusive dwelling unit. In this case, a rental house is also included in the residential use. The tax base for small-scale residential land shall be 1/3.
*The tax base for residential land other than small-scale residential land shall be 2/3.
Income tax and inhabitant tax
Income tax and inhabitant tax are imposed on income earned from real estate investment.
Income tax = taxable income x tax rate – taxable deductions
The inhabitant tax rate is a flat 10% (income portion only). The income tax rate varies depending on the amount of taxable income, as shown below.
5％ to the income up to 1.95 million yen
10% to the income over 1.95 million yen up to 3.3 million yen(exemption: 97,500yen)
20% to the income over 3.3 million yen up to 6.95 million yen(exemption: 427,500yen)
23% to the income over 6.95 million yen up to 9 million yen(exemption: 636,000yen)
33% to the income over 9 million yen up to 18 million yen(exemption: 1,536,000yen)
40% to the income over 18 million yen up to 40 million yen(exemption: 2,796,000yen)
45% to the income over 40 million yen (exemption: 4,796,000yen)
Individual enterprise tax
If the business is large enough to be considered a real estate trading business or a real estate lending business (e.g., owning 10 or more apartments or condominiums) and has rental income above a certain level, a individual enterprise tax will be imposed.
Individual enterprise tax = (income – necessary expenses – business owner’s deduction of 2.9 million yen) x 5%
Unlike income tax and inhabitant tax, the special blue return deduction does not apply.
If you have any questions or/and if you would like to have more details, feel free to contact us by contact form.
