LEGAL & TAX GUIDE
Navigate Japanese property law, ownership structures, and tax obligations.
Understanding the legal framework and tax implications of property ownership in Japan is crucial for both domestic and international buyers. Japanese property law provides strong protections for owners while imposing specific compliance requirements.
ARK G.K. partners with experienced legal and tax professionals to ensure you receive expert bilingual guidance throughout your property transaction and ownership period.
Property Ownership Structures
Individual Ownership (個人所有)
The most common form of ownership for residential properties. Property is registered in your personal name with full rights of ownership, use, and disposal.
- Simplest structure with lowest administrative burden
- Full control over property decisions
- Income taxed at progressive personal rates
- Inheritance tax applies to heirs upon death
- Suitable for primary residences and small investment properties
Joint Ownership (共有)
Multiple individuals hold registered shares of the property. Common for married couples or family members purchasing together.
- Ownership percentages registered on title deed
- Major decisions require all owners' consent
- Each owner can separately mortgage or sell their share (with restrictions)
- Tax benefits distributed according to ownership share
- Useful for splitting mortgage loan-to-value requirements
Corporate Ownership (法人所有)
Property held by a Japanese corporation (株式会社 or 合同会社). Often used for investment properties or multiple holdings.
- Separates personal and business liabilities
- Corporate tax rates may be advantageous (15-23.2%)
- Greater expense deduction opportunities
- Annual accounting and reporting requirements
- More complex to establish and maintain
Trust Ownership (信託)
Property held in trust for beneficiaries. Less common but useful for estate planning and asset protection.
- Trustee manages property on behalf of beneficiaries
- Can provide for family members after death
- May reduce inheritance tax burden
- Requires trust registration and ongoing management
- Specialized legal advice essential
Foreign Ownership Regulations
Japan has relatively liberal regulations regarding foreign property ownership compared to many countries:
Key Facts for Foreign Buyers
- No Restrictions: Foreign nationals and corporations can freely purchase and own property in Japan
- No Special Permits Required: Unlike some countries, no government approval needed for foreign ownership
- Equal Rights: Foreign owners have the same legal rights as Japanese nationals
- Residence Not Required: You can own property without living in Japan or holding a visa
- Repatriation Allowed: Rental income and sale proceeds can be transferred overseas (subject to tax withholding)
Documentation Requirements for Foreign Buyers
- Residence Certificate: Non-residents must provide notarized residence certificate from home country
- Seal Registration: Personal seal (印鑑 - inkan) registered in Japan or notarized signature certificate
- Tax Identification: Japanese tax number (マイナンバー) for residents, or foreign taxpayer number
- Proof of Funds: Evidence of legitimate fund sources for large transactions
- Translation: Foreign documents must be officially translated to Japanese
Property Taxes Overview
Property owners in Japan are subject to several ongoing and transactional taxes:
| Tax Type | Rate/Amount | When Due |
|---|---|---|
| Fixed Asset Tax (固定資産税) | 1.4% of assessed value | Annual (quarterly payments) |
| City Planning Tax (都市計画税) | Up to 0.3% of assessed value | Annual (with fixed asset tax) |
| Real Estate Acquisition Tax (不動産取得税) | 3-4% of assessed value | One-time upon purchase |
| Registration Tax (登録免許税) | 2% ownership, 0.4% mortgage | One-time at registration |
| Consumption Tax (消費税) | 10% (on building only, not land) | At purchase (if applicable) |
Important Note on Assessed Values
Property taxes are calculated based on government-assessed values (公示価格), which are typically 60-70% of market value. This means effective tax rates are lower than the percentages suggest.
Income Tax on Rental Properties
If you rent out your property, rental income is subject to Japanese income tax:
For Japanese Residents
Rental income taxed as "Real Estate Income" (不動産所得) under progressive personal income tax rates:
- 5% on income up to ¥1,950,000
- 10% on income from ¥1,950,000 to ¥3,300,000
- 20% on income from ¥3,300,000 to ¥6,950,000
- 23% on income from ¥6,950,000 to ¥9,000,000
- 33% on income from ¥9,000,000 to ¥18,000,000
- 40% on income from ¥18,000,000 to ¥40,000,000
- 45% on income over ¥40,000,000
For Non-Residents
Non-resident owners are subject to 20.42% withholding tax on gross rental income. This can be reduced by filing a tax return and claiming deductible expenses.
- Property management agent must withhold tax and remit monthly
- Annual tax return can claim refund for excess withholding
- Tax accountant (納税管理人) must be appointed in Japan
- Tax treaties may provide relief from double taxation
Deductible Expenses
- Property Management Fees: Full cost of professional management services
- Repairs & Maintenance: Ordinary repairs (not improvements) are deductible
- Depreciation (減価償却): Building value depreciated over useful life (typically 22-47 years)
- Property Taxes: Fixed asset tax and city planning tax fully deductible
- Interest Expenses: Mortgage interest deductible against rental income
- Insurance Premiums: Fire and earthquake insurance deductible
- Advertising Costs: Expenses to find tenants
- Professional Fees: Accountant, legal, and agent fees
Capital Gains Tax on Property Sales
When you sell property, capital gains are taxed based on the holding period:
Short-Term Capital Gains (5 years or less)
Properties held for 5 years or less are subject to higher tax rates:
- National Income Tax: 30%
- Resident Tax: 9%
- Total Rate: 39% of capital gain
Long-Term Capital Gains (over 5 years)
Properties held for more than 5 years receive preferential rates:
- National Income Tax: 15%
- Resident Tax: 5%
- Total Rate: 20% of capital gain
Special Exemption for Primary Residence
If selling your primary residence (owner-occupied for at least 10 years), you may qualify for a ¥30 million capital gains exemption. This can significantly reduce or eliminate capital gains tax.
Inheritance & Gift Tax
Inheritance Tax (相続税)
Japan has one of the highest inheritance tax rates globally. When property passes to heirs upon death:
- Basic exemption: ¥30 million + (¥6 million × number of heirs)
- Progressive rates from 10% to 55% on amounts above exemption
- Property valued at assessed value (typically 70-80% of market value)
- Primary residence may qualify for 80% valuation reduction
- Tax due within 10 months of death
Gift Tax (贈与税)
Gifting property during lifetime triggers gift tax for the recipient:
- ¥1.1 million annual exemption per recipient
- Progressive rates from 10% to 55% on amounts above exemption
- Gifts to adult children may qualify for special exemptions (housing acquisition, etc.)
- Strategic gifting can reduce overall estate tax burden
Compliance & Ongoing Requirements
Property owners must maintain compliance with various regulations:
- Annual Tax Returns: File by March 15 each year if earning rental income
- Property Tax Payments: Quarterly payments in June, September, December, and February
- Building Inspections: Mandatory inspections every 10 years for certain buildings (特定建築物)
- Condominium Management: Attend owners' meetings and pay management fees promptly
- Fire Prevention: Maintain required fire safety equipment and conduct regular inspections
- Address Registration: Update your registered address within 14 days of moving
- Rental Registration: Register as business operator if operating multiple rental units
Working with Legal Professionals
Different professionals handle specific aspects of property transactions and ownership:
Judicial Scrivener (司法書士 - Shihōshoshi)
Handles property registration, title transfers, and mortgage registrations. Required for all property transactions.
Administrative Scrivener (行政書士 - Gyōseishoshi)
Assists with documentation, visa applications, and administrative procedures related to property ownership.
Tax Accountant (税理士 - Zeirishi)
Prepares tax returns, provides tax planning advice, and represents clients in tax matters. Essential for investment properties.
Attorney (弁護士 - Bengoshi)
Handles complex legal issues, disputes, contract negotiations, and represents clients in court if necessary.
ARK G.K. Professional Network
We maintain relationships with qualified bilingual legal and tax professionals who specialize in real estate. We can facilitate introductions and coordinate services to ensure you receive expert guidance throughout your property ownership journey.