Real Estate Taxes in Japan: Acquisition & Holding Explained

When budgeting for a real estate taxes in Japan, foreign investors often use the market price to estimate their tax costs. This leads to incorrect calculations.

Japan’s real estate tax system is largely based on a specific government-assessed value, not the transaction price. This article outlines the comprehensive list of taxes for acquisition and holding, covering tax bases, specific rates, and obligations for property owners.

1. The Core Concept: Fixed Asset Tax Valuation

To understand Japanese property taxes, you must first understand the Fixed Asset Tax Valuation (固定資産税評価額).

No More “70% Rule”
Historically, it was often said that the Fixed Asset Tax Valuation is approximately 70% of the market price. However, this rule of thumb is becoming increasingly difficult to rely on. Due to the polarization of the Japanese real estate market—skyrocketing prices in the Tokyo metropolitan area versus the issue of vacant homes in rural areas—the gap between the market price and the tax valuation now varies significantly by location. Do not rely on a simple percentage estimate. You must obtain the actual certificate to see the real number.

2. Taxes at the Time of Real Estate Acquisition

When you purchase property, you will face the following one-time taxes.

2-1. Real Estate Acquisition Tax (Prefectural Tax)

• Tax Base: Fixed Asset Tax Valuation
• Standard Rate: 4% (for non-residential buildings)
• Reduced Rate:
  • 3% for land and residential buildings.
  • Further deductions from the tax base may apply for newly built residential properties or qualifying used housing.

2-2. Registration and License Tax (National Tax)

• Tax Base: Fixed Asset Tax Valuation
• Standard Rate: 2% for ownership transfer registration.
• Reduced Rate:
  • 1.5% for land ownership transfer (temporary measure).
  • 0.3% – 0.4% for qualifying residential buildings (requires specific certificates).
• Payment: Paid at the Legal Affairs Bureau upon registration.

2-3. Stamp Duty (National Tax)

• Tax Base: Contract Amount stated in the sales agreement.
• Tax Amount: Fixed amount based on the contract tier.
  • Example: 10,000 JPY for contracts between 10M–50M JPY.
  • Example: 30,000 JPY for contracts between 50M–100M JPY.
• Payment: Affixed as revenue stamps on the contract document.

2-4. Consumption Tax (JCT)

• Tax Base: Building Price (Land is exempt).
• Rate: 10%.
• Applicability: Applies when purchased from a taxable business entity (e.g., developers). Private sales of used residential properties are typically exempt.

3. Taxes During Real Estate Ownership

While holding the property, you are liable for annual taxes.

3-1. Fixed Asset Tax (Municipal Tax)

• Tax Base: Fixed Asset Tax Valuation
• Standard Rate: 1.4%
• Adjustments: Municipalities may determine different rates. Reduced tax bases apply to land used for residential purposes (e.g., 1/3 or 1/6 of the valuation).

3-2. City Planning Tax (Municipal Tax)

• Tax Base: Fixed Asset Tax Valuation
• Standard Rate: 0.3%
• Applicability: Levied only on properties located in designated “Urban Planning Areas.”

3-3. Income Tax (National Tax)

• Tax Base: Net Rental Income (Revenue − Deductible Expenses).
• Rate: Progressive rates from 5% to 45%, depending on total income.
• Note: Non-residents generally must appoint a Tax Representative to handle this filing.
• (Note: Non-residents are generally not subject to the local Resident Tax on rental income).

4. Conclusion

As outlined above, accurate tax estimation depends heavily on knowing the Fixed Asset Tax Valuation and applying the correct rates.

Nozaki CPA & Tax Firm specializes in tax compliance for non-resident investors. If you need assistance with your ongoing tax obligations, please visit our service page.

Frequently Asked Questions (FAQ)

Q: Can I look up the tax valuation of a property online?

A: No. In Japan, this is private information. You must request the official certificate from the seller or their agent.

Q: Is the tax valuation the same as the market price?

A: No. Historically, it was estimated at around 70% of the market price. However, due to recent market fluctuations (surging urban prices vs. rural depreciation), this ratio is no longer reliable.

Q: When does consumption tax apply in Japan?

A: Land is exempt. Buildings are taxed at 10% if sold by a taxable business entity (e.g., developers). Private sales of used housing are often exempt.

Q: What filings are required for non-residents?

A: Once you own the property, you must appoint a Tax Representative (Nozei Kanrinin) to receive tax notices and file income tax returns. This is the core service provided by PropTax Japan.