Tax on Property in Japan
Owning and earning income from property in Japan involves several types of taxes. Here's an overview relevant to overseas investors:
Income Tax on Rental Income
If you rent out your Japanese property (including short-term rentals like Airbnb), the net income generated is subject to Japanese national income tax. As a non-resident owner, you are required to file an annual Japanese tax return (typically by March 15th for the previous calendar year).
The tax is calculated using progressive rates based on your total taxable income from Japan:
National Income Tax Brackets (Reference: 2024/2025 Rates)
| Taxable Income (JPY) | Tax Rate |
|---|---|
| Up to 1,950,000 | 5% |
| 1,950,001 - 3,300,000 | 10% |
| 3,300,001 - 6,950,000 | 20% |
| 6,950,001 - 9,000,000 | 23% |
| 9,000,001 - 18,000,000 | 33% |
| 18,000,001 - 40,000,000 | 40% |
| Over 40,000,000 | 45% |
Important Notes:
- These rates are applied progressively. For example, income between 1.95M and 3.3M is taxed at 10%, but only the amount *above* 1.95M. The first 1.95M is still taxed at 5%. (Specific deductions apply in the official calculation method to simplify this, but the effective rate increases with income).
- A separate **2.1% reconstruction surtax** is added to the calculated income tax amount.
- These rates apply to *national* income tax. Non-residents typically do not pay local inhabitant taxes on rental income alone.
- Taxable income is calculated after deducting allowable expenses (e.g., property management fees, repairs, depreciation, loan interest, fixed asset tax).
Withholding Tax on Rent for Non-Residents
When rent is paid to a non-resident owner (either directly by the tenant or via a property manager), the payer is generally required to withhold **20.42%** of the gross rent and pay it directly to the Japanese tax office.
This withholding amount acts as a prepayment towards your final income tax liability. When you file your annual tax return, your actual tax is calculated based on your net income and the progressive rates shown above. If the 20.42% withheld exceeds your actual tax due, you are entitled to a refund.
Other Key Property Taxes
-
Fixed Asset Tax (Kotei Shisan Zei)
An annual municipal tax levied on the owner of the property as of January 1st each year. The standard rate is 1.4% of the property's official assessed value.
-
City Planning Tax (Toshi Keikaku Zei)
An additional annual municipal tax (maximum rate generally 0.3% of assessed value) levied if the property is located within a designated city planning zone.
-
Property Acquisition Tax (Fudosan Shutoku Zei)
A one-time tax paid shortly after purchasing the property (see 'Costs of Buying' page for details).
-
Capital Gains Tax
If you sell the property for a profit, this gain is subject to capital gains tax. The rate differs significantly depending on whether you owned the property for 5 years or less (short-term, higher rate approx 39%) or more than 5 years (long-term, lower rate approx 20%).
Tax Representative Requirement
Non-resident owners earning rental income in Japan **must appoint a local tax representative** (納税管理人 - nozei kanrinin). This representative acts as the point of contact with the tax authorities and assists with filing obligations. Property Pilot Japan offers this service (see 'Pricing' page).