Taxes concerning real estate
Real estate acquisition tax
Real estate acquisition tax is paid when receiving income from real estate.
Income from real estate is acquired by:
1. Lending real estate such as land and buildings
2. Constituting and lending the right on real estate such as surface right
Calculation of real estate income
Total income amount - necessary expenses = real estate income amount
Total income amount includes:
1. Rental income from lending
2. Money received in the name of registration fee, transfer fee, renewal fee, or down payment
3. Security deposit or guarantee money that you do not need to return
4. Electric bill, water bill, or cleaning fee received in the name of a communal charge
Necessary expenses include:
1. Property tax
2. Non-life insurance premium
3. Depreciation
4. Cost of repair
Calculation of income tax
Income tax is calculated at a rate of 5% to 45% depending on the amount of income, including all income other than real estate. As for non-residents, income earned within Japan is subject to tax.
Income tax quick calculation table
Resident tax (municipal tax/ prefectural tax)
Resident tax is composed of “per capita basis” and “per income levy”.
"Per capita basis " is a tax that is levied at the same rate regardless of the amount of income.
"Per income levy" is a tax that is based on the amount of income. The income-based amount of residence tax is calculated by subtracting insurance premiums, income deductions, etc., and then multiplying the income by 10%.
Resident tax varies depending on the region and existence of dependent.
You must pay the tax to the city, ward, town or village where you live if you have an address in Japan as of January 1st and receive a salary above a certain amount, even if you are a foreign national.
Registration license tax
When purchasing land or constructing buildings, preservation or relocation registration of ownership are required. The tax required for this registration is the registration license tax.
Calculation of registration license tax
Amount of tax = tax base × tax rate
The value of real estate, which is the tax base for registration license tax, is the price of real estate registered in the property tax ledger (assessed value for real property tax), and as for the buildings without assessed value, the price calculated by the Bureau of Legal Affairs (price certified by the Bureau of Legal Affairs) is the tax base.
<1> New-built
<2> Existing houses (used)
Gift tax
A gift tax is levied on the person who receives property as a gift.
When you get money to purchase real estate, or land, a building, or a car for free, a gift tax is imposed.
Those who are subject to gift tax must file and pay gift tax on the total amount of property gifted between January 1st and December 31st during February 1st to March 15th of the following year.
Calculation of gift tax
Taxable price = Gift property value – 1.1 million yen (basic deduction)
Tax amount = Taxable price × Tax rate − Deduction amount
Basic deduction…You do not need to declare gifts within 1.1 million yen per year.
Gift tax quick calculation table
<1> If a person who receives a gift is 18-year-old or older
as of January 1st of the year in which s/he receive the gift from a lineal ascendant.
<2> Other than those above
Acts considered as gift
In addition to gifts of cash and real estate, the following acts are also included in gifts for tax purposes:
1, When name of property is changed without receiving any money.
For example, if the property is community property despite that only the husband provided the funds, or if parents provide funds but parents’ names are not found.
2, When property is acquired in the name of a relative.
For example, if you are unable to take out a loan, your parent take out a loan in their name, and you repays the loan yourself.
3, When you get your debt waived.
For example, if you borrow money from your parents and then decide not to relay it.
4, When you borrowed money from a relative or such with unconventional repayment terms.
In case of conditions significantly different from those of general banks or financial institutions such as no interest or repaying at your convenience.
5, When purchasing property at a price significantly lower than its market price.
For example, if you buy an apartment with a market value of 30 million yen from your parents for 10 million yen.
Stamp tax
Stamp tax is levied on taxable documents stipulated by the Stamp Tax Act.
In real estate transactions, real estate transaction contract, construction contract document, land lease contract and loan agreement are taxable documents, and the amount of tax is determined by the amount stated in the contract.
Stamp tax payment is completed by affixing the prescribed stamp to the contract and postmarking it. If you prepare multiple copies of the same contract, affix a stamp to each copy.
As for real estate transaction contract, a stamp must be affixed on each contract prepared and stored by a buyer and a seller respectively, but a copy of the original is not considered a taxable document.
However, copies with handwritten signatures or seals of the parties to the contract are considered to be documents created for the purpose of certifying the agreement to a contract and are therefore classified as taxable document just like originals.
Receipt stamp tax list
About “stated amount”
As for “stated amount”, the amount of stamp tax varies according to description method of consumption tax amount in the contract.
“Stated amount” is the price without tax when “consumption tax amount is described in separate categories” or “when tax-included and tax-excluded amounts are listed”.
<Example 1>
When described as “consumption tax amount is 1 million yen out of the construction contract amount of 11 million yen”
Stated amount is “11 million yen”→ stamp tax amount is “2,000 yen”
<Example 2>
When described as “contract money amount is 11 million yen (tax included)” or “contract money amount is 11 million yen (includes 10% consumption tax, etc.)”
Stated amount is “11 million yen”→ stamp tax amount is “4,000 yen”
Real property tax and city planning tax
The property owner as of January 1st of each year must pay real property tax and city planning tax.
The municipality calculates the tax amount and notifies the taxpayer of the tax amount, and the taxpayer pays the tax based on the amount.
Tax amount calculation
●Calculation of real property tax
Tax amount = tax base × 1.4% (standard tax rate)
●Calculation of city planning tax
Tax amount =tax base × up to 0.3% (limited tax rate)
Standard tax rate is the normal tax rate stipulated in the local tax law, and limited tax rate is the tax rate that cannot be exceeded when tax is imposed.
Real property tax is levied on the owner of land or a building as of January 1st of each year (the person registered in the property tax ledger) by the municipality. Pay your taxes using the tax notice sent to you. You can pay off in full or pay in installments four times a year.
The tax base is the assessed value for real property tax registered in property tax ledger.
Taxation method of city planning tax
City planning tax is levied on the owner of land or a building within city planning area as of January 1st of each year by the municipality. City planning tax is paid together with real property tax.
Tax rate is within a maximum limit of 0.3%.
How to pay off real property tax and city planning tax
Real estate tax and city planning tax are levied on the owner as of January 1st of each year. In transactions of used housing, the seller pays the tax for that year, so pay off at the time of delivery.
Generally, in real estate transactions, the settlement date is January 1st or April 1st, and the amount borne by the seller and buyer is calculated by dividing the annual tax amount on the tax notice on a daily basis.
〔Ex〕Calculation when January 1st is the starting date, the property is delivered on May 31st and the annual tax amount is 150,000 yen
The amount borne by the seller…from January 1st to May 30th =150 days → 150,000 yen × 150 days / 365 days ≒ 61,643 yen
The amount borne by the buyer…150,000 yen - 61,643 yen =88,357 yen
〔Note〕
Tax notice is usually sent around May to the seller who is the owner as of January 1st of the year, so for deliveries between January and May, the seller and buyer must decide which payment method to be used from the three choices below in advance.
1, Postpone payment until the tax notice arrives.
2, Temporarily settle the amount based on the previous year’s tax amount, and re-settle when the tax notice arrives.
3, Settle the amount based on the previous year’s tax amount, and do not re-settle.
Consumption tax
Consumption tax is levied on domestic transactions (transfers and loans of assets and provision of services conducted domestically for a consideration) conducted by taxable entities.
When transferring assets, land is not taxed while building transfer fees and brokerage fees are taxable.
Consumption taxable transactions/non-taxable transactions
What is consumption taxable transactions?
A consumption taxable transaction is the transaction that satisfies all of the following four requirements and is not non-taxable transaction, tax-exempt transaction, or untaxable transaction.
1, A transaction conducted within Japan (Overseas transaction is not taxed)
2, A transaction carried out by a business operator as a business (It must be conducted repeatedly, continuously and independently)
3, A transaction conducted for compensation (If it is free of charge, it is a tax-free transaction)
4, Transfer or lending of assets, provision of services
What is consumption tax exempt transaction?
Consumption tax falls under taxable transactions if the taxation requirements are met, but there are some items are not subject to tax because of being unsuitable for taxation or with consideration for social policy when asking for burdens on consumption. Therefore, thirteen non-taxable transactions (transfer and lending of land, lending of housing) are definitively specified.