Why buy a property in Japan?
- Japan is the World’s third largest economy, a politically stable democracy with strong legal and commercial institutions and rights of property ownership.
- An archipelago stretching from close to the arctic circle in the north to sub-tropical islands in the south encompassing jaw-droppingly beautiful scenery and diversity, it is an increasingly popular tourist destination with a renowned sense of hospitality.
- Amazing skiing, summer entertainment, culture and food.
- 3 hours flight from Beijing, 4 hours from Hong Kong, 7 hours from Singapore, 10 hours from Sydney, 12.5 hours from the UK.
Can a foreigner buy property in Japan?
- Yes, a foreigner can acquire and sell proprietary rights to Japanese land and buildings, just like a Japanese national, with no time limits.
- The purchase of real estate in Japan does NOT confer the right of permanent residence or a special visa in Japan.
Can I get a loan from a Japanese bank as an overseas buyer?
- Japanese banks generally do not lend to offshore buyers. Most overseas clients are cash buyers either via liquid assets or by borrowing against the value of their property at home.
I have found the home I wish to buy. What is the payment structure of the process?
- Down payment: the amount of deposit paid at the time of signing the purchase agreement is usually 10%. If the buyer cancels before closing the contract he/she forfeits the deposit. If the seller cancels he/she must pay two times the deposit amount.
- The balance is payable on closing the contract unless you have agreed with the builder to stage payments (new construction).
What are the costs associated with buying a property?
The sum of all of the below comes to between 4-5% of the purchase price, on average.
- Registration Tax: this is a tax on registration of ownership and transfer of land and buildings and is officially recorded in the Real Estate Registry at the local Legal Affairs Bureau. The tax is based on the value of the property as indicated in the “Fixed Asset Tax Book”. This assessed value is generally 50-70% of construction cost for a building and 70% of the market price of the land. The tax rate for initial registration of ownership after construction is 0.4% of the building value and 2% of the land value. Thereafter the rate for a transfer of ownership (re-sale) is 2% of both building and land values.
- Stamp Duty: based on the purchase price with a sliding scale. Until March 2018 the rate on a property with a purchase price of less than Y500 million is Y60,000.
- Agency Fee: Generally this is 3.24% of the purchase price +Y64,800 (this is the legal upper limit). One half of the agent fee is usually paid at the time of signing the purchase agreement with the balance due at closing.
- Consumption Tax (VAT): Not applied to the purchase price of land and generally included in the purchase price of the building. Agency fees and lawyer’s fees are subject to consumption tax (8%).
- Real Estate Acquisition Tax: a notice for this tax will come from the prefecture between 6-18 months after the transaction is completed. It is payable by the purchaser every time land and/or buildings are transferred in Japan regardless of the amount of purchase price, construction price etc. The basic rate is 4% of the value of the property as indicated in the “Fixed Asset Tax Book”.
Fixed Asset Tax and City Planning Tax: these are levied every year on the owner of a property as of January 1st. The Fixed Asset Tax rate is 1.4% of the value as indicated in the “Fixed Asset Tax Book) and the City Planning Tax rate is 0.3% of such value. Both of these taxes are payable to the local authorities quarterly in April, July, December and the following February. Please note that City Planning Tax only applies to properties located in designated city planning areas under Japanese zoning laws. When a property is sold mid-year the buyer is usually required to pay the proportion of the tax rate that corresponds to the time the new buyer will own the property in the year.
Is a foreigner subject to Japanese Income Tax and Withholding tax?
- Non-residents are generally not subject to Japanese income tax provided they do not have a “permanent establishment” in Japan as defined by Japanese income tax rules.
- However rental income will be subject to Withholding tax (generally 20.42%) prior to being remitted abroad.
- If you sell your property any capital gain will be subject to a capital gain tax of between 15% to 30% depending on how long the seller holds the asset (five years or less).
- In addition, and depending on whether Japan has a tax treaty with your country of origin, a withholding tax (generally 10.21%) may apply.
- The specific tax rates depend on your country of origin, the characterisation of such income for Japanese tax purposes, the rules of the applicable bilateral tax treaty etc.
Can someone in Japan look after my property affairs?
- The developers that we work with provide a management service to help you manage your second home in Japan.
- Examples of services include managing your utility connections, paying your utility bills/annual property taxes for you on account, emptying your mailbox, checking your property, managing fire safety inspections, snow clearing and, of course, managing rentals. Please ask us for further details.
The information herein has been provided in good faith as a guide. APS would like to acknowledge the work done by Jeff Wynkoop at realestate.co.jp in providing this information. However, regulations, tax rates and exemptions may change. APS accepts no responsibility for its accuracy and buyers should always consult the lawyer handling the purchase for clarification and guidance.