JAPAN Law and Practice Contributed by: Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada
7.5 Additional Forms of Security to Guarantee a Contractor’s Performance For domestic construction projects, additional forms of security, such as performance bonds or parent guarantees, are not common. It is normally difficult to get major construction companies to provide addi - tional security. 7.6 Liens or Encumbrances in the Event of Non-Payment The law grants contractors the right to retain ( ryuchi ken ) or refuse to deliver the completed building in the event of non-payment, provided the contractor has possession of the building. This right to retain does not require any registration. Construction contracts typically provide for payment of the final instalment of the construction price upon delivery of the completed building. 7.7 Requirements Before Use or Inhabitation The Construction Standards Law requires the owner to obtain an inspection certificate ( kensa zumi shou ) before it is allowed to use a newly constructed build - ing. The process is as follows: • the owner must apply for inspection by the relevant local government or government-accredited private building agency within four days of the completion of the construction; • the inspection will be carried out within seven days of the application being accepted; and • if it is confirmed that the construction and the site comply with relevant laws and regulations, the inspection certificate will be issued.
obliged to pay an amount equivalent to the consump - tion tax on top of the purchase price of the building. In general, sellers whose taxable sales did not exceed JPY10 million in the penultimate taxable year are
exempt from consumption tax. 8.2 Mitigation of Tax Liability
The most common method to mitigate tax liability is to use a trust structure in which the investor purchases the TBI in a property trust rather than owning the real property outright. Please also see 2.1 Categories of Property Rights and 5.1 Types of Entities Available to Investors to Hold Real Estate Assets . In doing so, generally: • the registration and licence tax for the establish - ment of a property trust is reduced from 1.5% (for land) or 2% (for buildings) of the taxable base of the property (which is applicable in an outright pur - chase of real property) to 0.3% (for land) or 0.4% (for buildings) of the taxable base of the property (in addition, JPY1,000 is paid for each TBI transfer); and • the real estate acquisition tax is reduced from 1.5% (for building land), 3% (for non-building land and residential buildings), or 4% (for non-residen - tial buildings) of the property’s taxable base (appli - cable to an outright transfer of real estate) to zero. Alternatively, by using a TMK as an acquisition vehicle, the registration and licence tax is reduced to 1.3% of the taxable base of the property and the real estate acquisition tax is effectively reduced to 0.6% (for building land), 1.2% (for non-building land and resi - dential buildings) or 1.6% (for non-residential build - ings) of the taxable base of the property because, in computing real estate acquisition tax, the TMK is allowed to reduce the taxable base of the property to 40% of the regular taxable base. 8.3 Municipal Taxes No universal municipal taxes are paid on the occupa - tion of business premises in Japan, except in certain major cities, where taxes (of a relatively low amount) are imposed on the basis of the size of the taxpayer’s premises or the amount of salaries paid.
8. Tax 8.1 VAT and Sales Tax
The sale of a building is subject to consumption tax (equivalent to VAT) at a rate of 10% of the building’s purchase price. The sale of land is not subject to con - sumption tax. Although the seller is liable for the consumption tax under tax law, in practice, the buyer is contractually
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