On request, we can refer you to a tax accountant and lawyer.
When a non-resident sells or rents real estate
Japanese taxes are applicable to those residing in Japan (residents) regardless of their nationality. In this case, not only income derived from Japan but also foreign source income is subject to tax.
Meanwhile, those who do not reside in Japan (non-residents) are taxed only if they have income derived in Japan, by selling or renting real estate in Japan while living in a foreign country. In addition, there is a withholding tax system in which the person paying the price or rent collects a certain percentage of the amount and prepays it to the tax office in order to prevent non-resident from failing to report sales or rentals of real estate.
Buyer’s withholding tax obligations when the seller is a non-resident
When a non-resident sells real estate, the purchaser of the real estate must withhold 10.21% of the payment amount and pay it to the tax office when paying for the purchase under certain conditions. In other words, the amount paid to the non-resident is 89.79% of the payment amount, and the remaining withholding amount (10.21%) is paid to the tax office by the 10th of the month following the month in which the purchaser of real estate pays a consideration. Non-residents who sold the property will have the withheld amount settled by filing a tax return. However, if the purchase price of real estate is 100 million yen or less and the purchaser intends to use the property as a residence for oneself or its relatives, the purchaser does not have to withhold tax.
About a resident and a non-resident
“Resident” refers to an individual who has an address in Japan or has continued to live there for one years or more, and individuals other than “resident” fall under “non-residents”. If you are a non-resident, only domestic source income (income sourced within Japan) will be taxed in Japan.
About tax returns if you leave Japan in the middle of the year
If a person who needs to file a tax return leaves Japan in the middle of the year, s/he is required to appoint a tax agent and notify the tax office accordingly. If you have designated a tax agent, the deadline for filing tax return for that year will be March 15th of the following year, but if you leave Japan without appointing a tax agent, you must file your tax return by the time of departure.
About a tax agent
A tax agent handles administrative procedures such as filing returns and paying taxes on behalf of taxpayers who do not have address or residence in Japan due to overseas assignment, etc. In addition to submitting tax returns and paying taxes, tax agents also serve as a liaison between overseas taxpayers and tax offices, but they are not obliged to prepare tax returns or pay taxes on behalf of taxpayers. You may ask parents, relatives, or friends to act as a tax agent on your behalf, but a tax accountant is often appointed as it is necessary to calculate the tax amount when filing a return. A tax agent can be an individual or a corporation as long as the person has an address in Japan. You must notify the national tax office of your national tax appointment and municipality of local tax appointment. If you fail to notify, the competent tax office director will request a notification, and the competent tax office director may designate a tax agent if you do not respond to the request.
About residential tax if you leave Japan in the middle of the year
Resident tax is levied on those who have an address in Japan as of January 1st of the year, based on their income during the previous year.
For example, if you leave Japan in September 2022, you will not have an address in Japan on January 1st, 2023, so you will not be subject to resident tax in 2023 even if you have income in 2022.
Case study
A non-resident sold a department in Japan to a resident, and the buyer used it for personal residence. The sale exceeded 100 million yen.
The buyer must withhold tax, and what specific procedures should the buyer and the seller take?
The procedures taken by the buyer and the seller are:
< Procedures taken by the buyer (resident)>
1, 10.21% of the purchase price (deposit, remaining amount, settlement of property tax) is withheld each time you pay the purchase price. The amount to be paid to the seller is 89.79% after deducting 10.21％.
2, Fill out the required information on the withholding tax payment slip (a statement of collected income tax on income of non-resident or foreign corporation) and pay the tax to the tax office by the 10th of the month following the in which the purchase price is paid.
<Procedures taken by the seller (non-resident)>
1, 89.79% of the purchase price after deducting the withholding tax of 10.21% is deposited. Keep a copy of the withholding tax payment slip or payment record you received from buyer, as you are required to submit document proving the amount withheld at source when filing tax return.
2, Submit your tax return to the tax office between February 16th and March 15th of the year following the year of sale.
As a result of calculation of the tax amount on your tax return, if the withholding tax amount is higher than the tax amount, you will receive a refund for the difference, and if the withholding tax amount is lower than the tax amount, you must pay the difference.
Tenant’s withholding tax obligation
When a non-resident rents real estate, the tenant of the real estate is obliged to withhold 20.42% of the amount paid and pay it to the tax office when paying rent, under certain conditions.
In other words, the amount paid to the non-resident is 79.58% of the payment amount, and the remaining withholding amount (20.42％) is paid to the tax office by the 10th of the month following the month in which the tenant of the property pays the rent.
Non-residents who rent the property will have the amount withheld tax settled by filing a tax return. However, there is no need to withhold tax if the person who rents real estate for use as a residence for oneself or relatives.
