JAPAN Law and Practice Contributed by: Eri Hirata, Takunori Kono, Naoki Matsumoto and Ikki Kawasaki, Nishimura & Asahi
Individuals or corporations leasing farmland or selling agricultural products are subject to income tax, cor- porate income tax, and local inhabitant tax on rental income and capital gains. Taxes on Transfer and Acquisition of Agricultural Land Rights Individuals or corporations selling or exchanging farmland rights are subject to income tax, corpo- rate income tax, and local inhabitant tax on capital gains and exchange gains. Acquisition of agricultural land rights triggers real estate acquisition tax, inherit- ance tax, or gift tax, depending on the legal form of acquisition. In addition, registration and licence tax is imposed on the registration of changes in agricultural land rights. Special Tax Measures for Agricultural Land In order to encourage the continuation of agricultural management, Japan provides special tax measures, including: • reduced appraised value – agricultural land is assessed at a lower value than residential land for fixed-asset tax purposes; • preferential treatment for agricultural successors – when an agricultural successor inherits or receives agricultural land by gift, exemptions or tax deferral measures apply to inheritance tax and gift tax; and • preferential rates – registration and licence tax and real estate acquisition tax are subject to reduced rates compared to taxes levied on general transac- tions. For further details and other special measures, see 7.2 Tax Benefits and Incentives . Exemptions for Agricultural Operations Similarly to other special measures designed to sup- port agricultural management, the following exemp- tions apply under Japanese tax law. • Individual business tax – exemption for agriculture conducted by sole proprietors. Livestock industries (excluding those incidental to agriculture) are also exempt if they are carried out primarily through an individual’s own efforts.
• Corporate business tax – exemption for qualified agricultural corporations. • Business office tax – facilities that are directly used for agricultural production by farmers and fall under the following categories are excluded from the tax base for business office taxation: (a) crop rearing and management facilities; (b) sericulture rooms; (c) livestock barns; (d) livestock raising and management facilities; (e) farmhouses; (f) agricultural product drying facilities; (g) agricultural production material storage facili- ties; (h) fertiliser barns; and (i) silos and mushroom-cultivation facilities. 7.2 Tax Benefits and Incentives The following are among the main tax incentives for agriculture. Special Tax Treatment for Lump-Sum Gifts of Agricultural Land Where a farmer transfers two thirds or more of farm- land used for cultivation, two thirds or more of graz- ing land, and/or quasi-agricultural land (land certified by the municipal mayor as appropriate to be used as farmland or pasture within ten years) to a quali- fied successor (a presumptive heir who meets certain conditions) as a lump-sum gift, the following apply. • Gift tax deferral and exemption – gift tax is deferred and ultimately there is an exemption from gift tax upon the death of either the donor or the succes- sor. • Inheritance tax treatment – if there is an exemp- tion from gift tax due to the donor’s death, the transferred land is deemed inherited and subject to inheritance tax. In this case, if agricultural use is continued, the successor can apply for a deferral of payment of inheritance taxes. Special Tax Treatment on Sale of Agricultural Land Special deductions apply when farmland is trans- ferred under certain conditions. • Transfers for agricultural use – deductions of JPY8 million, JPY15 million or JPY20 million are availa-
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