JAPAN Law and Practice Contributed by: Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada
Taxation on Gains From the Disposition of Real Property Capital gains from the disposition of real property in Japan are subject to corporation or income tax in the same manner as rental income. If the owner of the real property to be sold is a non- resident individual or foreign corporation, the buyer is required to withhold 10.21% of the purchase price, payable to the tax authority no later than the tenth day of the month following the date of payment of the purchase price. Withholding is not required if the purchase price does not exceed JPY100 million and the buyer will use the property as a residence for themselves or their relatives. Any amount withheld by the buyer from the purchase price can be used as a deduction for corporation or income tax. There is no exemption for taxation on capital gains from the disposition of real property in Japan. 8.5 Tax Benefits A depreciation deduction is available for a person who owns a building. Depreciation expense is allocated to each taxation year either equally or at a declining rate over the life of the building, as prescribed by law, depending on the structure and purpose of the build - ing. Land is not a depreciable asset.
The main municipal taxes paid on real estate per se are a fixed asset tax ( kotei shisan zei ) and a city plan - ning tax ( toshi keikaku zei ), which are imposed on every owner of real estate, regardless of the purpose of the real estate. However, there are limited exemp - tions for these municipal taxes in certain designated areas where the municipal government is promoting particular industry sectors. 8.4 Income Tax Withholding for Foreign Investors Withholding Income Tax for Foreign Investors There is withholding income tax for non-resident indi - viduals and foreign corporations. Taxation on Rental Income Rental income from real estate is subject to corpora - tion tax if the lessor is a foreign corporation, or to income tax if the lessor is a non-resident individual. In 2024, the applicable corporation tax rate was 15% (for small income of a small enterprise) or 23.2% (in other cases), plus a local corporation tax of 10.3% of the corporation tax, and a special corporation enter - prise tax at various rates. The applicable progressive income tax rates range from 5% to 45%, plus a spe - cial income tax for reconstruction, levied at 2.1% of the amount of the income tax. If the lessor is a non-resident individual or foreign cor - poration, the tenant is required to withhold 20.42% of the rent, payable to the tax authority no later than the tenth day of the month following the date of the payment of the rent. Withholding is not required if the tenant is a natural person using the property as a resi - dence for themselves or their relatives. Any amount withheld by the tenant from rent can be used as a deduction for corporate or income tax purposes. There is no exemption for taxation on rental income from real property in Japan.
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