Overview of Japan's Property Tax System
Japan's property tax framework is well-established and transparent, but it can be complex for foreign investors unfamiliar with the system. This guide breaks down every tax you need to understand — from acquisition through ownership to eventual sale.
Taxes at Acquisition
Registration and License Tax (Toroku Menkyozei)
When you register property ownership at the Legal Affairs Bureau, you pay registration tax based on the property's assessed value:
- Land: 1.5% of assessed value (reduced rate through March 2026)
- Buildings (purchase): 2.0% of assessed value
- Buildings (new construction): 0.4% of assessed value
- Mortgage registration: 0.4% of loan amount
Important: The "assessed value" (hyoka-gaku) used for tax calculation is typically 50-70% of market value, so the effective rate is lower than it appears.
Real Estate Acquisition Tax (Fudosan Shutokuzei)
A one-time prefectural tax due 3-6 months after acquisition:
- Land: 3% of assessed value (with a 50% reduction for residential land)
- Residential buildings: 3% of assessed value
- Non-residential buildings: 4% of assessed value
Various deductions and exemptions may apply, especially for newly built or recently constructed residential properties.
Stamp Duty (Inshizei)
Stamp tax is applied to the purchase contract based on the stated price:
| Contract Amount | Stamp Tax |
|---|---|
| 1-5 million JPY | 2,000 JPY |
| 5-10 million JPY | 10,000 JPY |
| 10-50 million JPY | 20,000 JPY |
| 50-100 million JPY | 60,000 JPY |
| 100-500 million JPY | 100,000 JPY |
Reduced rates apply through March 2027.
Annual Property Taxes
Fixed Asset Tax (Kotei Shisanzei)
The primary recurring property tax in Japan:
- Standard rate: 1.4% of assessed value
- Assessed every 3 years by the local municipality
- Residential land exemption: Plots up to 200 sqm assessed at 1/6 of value; portions above 200 sqm at 1/3
- New building reduction: 50% reduction for first 3 years (5 years for fire-resistant construction)
City Planning Tax (Toshi Keikakuzei)
An additional tax in urbanization-promoted areas:
- Maximum rate: 0.3% of assessed value
- Same residential land exemptions as fixed asset tax (1/3 and 2/3 reductions)
- Not all areas charge this tax — check with the local municipality
Practical Example
For a condominium with an assessed value of 20 million JPY on a small plot:
| Tax | Calculation | Annual Amount |
|---|---|---|
| Fixed Asset Tax | 20M x 1/6 x 1.4% | ~46,700 JPY |
| City Planning Tax | 20M x 1/3 x 0.3% | ~20,000 JPY |
| Total | ~66,700 JPY/year |
This is approximately 450 USD per year — significantly lower than property taxes in most Western countries.
Rental Income Taxation
For Non-Residents
If you do not reside in Japan and earn rental income from Japanese property:
- Withholding tax rate: 20.42% of gross rent
- Withheld by tenant or property manager and remitted to the tax office
- No deductions applied at the withholding stage
Filing a Tax Return
Non-resident property owners can file a Japanese tax return to claim deductions:
- Depreciation: Buildings can be depreciated (useful life varies by structure type)
- Management fees and repair costs
- Property taxes
- Insurance premiums
- Professional fees (tax advisor, property manager)
By filing a return, the effective tax rate on net rental income is often significantly lower than the 20.42% withholding rate.
Tax Agent Requirement
Non-residents must appoint a tax agent (nozei kanrinin) in Japan. This is typically your property manager or tax advisor, who handles tax filings and communications with the tax office on your behalf.
Capital Gains Tax
Holding Period Matters
Japan's capital gains tax rates depend on how long you have owned the property:
| Holding Period | Income Tax | Resident Tax | Total |
|---|---|---|---|
| 5 years or less (short-term) | 30.63% | 9% | 39.63% |
| More than 5 years (long-term) | 15.315% | 5% | 20.315% |
Critical note: The holding period is measured from January 1 of the year following acquisition to January 1 of the year of sale. This means you effectively need to hold for 6+ calendar years to qualify for long-term rates.
For Non-Residents
- Capital gains are subject to withholding at 10.21% of the sale price (not the gain)
- The seller must file a final tax return to calculate actual tax and claim a refund if applicable
- Deductible expenses: Acquisition cost, improvement costs, selling expenses
Tax Treaty Benefits
Japan has tax treaties with over 70 countries. Key benefits include:
- Avoidance of double taxation: Foreign tax credits allow you to offset Japanese tax against your home country tax liability
- Reduced withholding rates on certain income types
- Information exchange provisions for compliance
Common Treaty Partners
Major treaty partners for real estate investors include:
- United States
- United Kingdom
- Australia
- Singapore
- Hong Kong (limited treaty)
- Canada
- Germany
- France
Upcoming Changes (2026)
The Japanese government has signaled several changes relevant to foreign property investors:
- Enhanced reporting requirements for non-resident property owners
- Potential adjustments to the special residential land exemptions
- Digital tax filing improvements for non-residents
Key Takeaways
- Japan's property taxes are relatively low compared to Western countries
- The holding period significantly impacts capital gains tax — plan for long-term ownership
- Non-residents should always file tax returns to claim deductions on rental income
- Appoint a qualified tax agent in Japan from the outset
- Leverage tax treaties to avoid double taxation
Disclaimer
This guide provides general information and should not be considered tax advice. Tax laws change frequently, and individual circumstances vary. Always consult with a qualified tax professional familiar with both Japanese tax law and the tax laws of your home country.