JAPAN Law and Practice Contributed by: Eriko Ozawa, Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada & Matsumoto
computing real estate acquisition tax, the TMK is allowed to reduce the Taxable Base of the prop - erty to 40% of the regular taxable base. 8.3 Municipal Taxes In Japan, no universal municipal taxes are paid on the occupation of business premises, 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. The main municipal taxes paid on real estate per se are a fixed asset tax ( kotei shisan zei ) and a city planning tax ( toshi keikaku zei ), which are imposed on every owner of real estate, regard - less of its purpose. However, there are limited exemptions for the above municipal taxes in cer - tain designated areas where the municipal gov - ernment is promoting certain industry sectors. 8.4 Income Tax Withholding for Foreign Investors Income Tax Withholding for Foreign Investors There is income tax withholding for non-resident individuals and foreign corporations. Taxation on Rental Income Rental income from real estate is subject to cor - poration tax if the lessor is a foreign corporation, or to income tax if the lessor is a non-resident individual. In 2022, the applicable corporation tax rate is 15% (for small income of a small enterprise) or 23.2% (in other cases), plus a local corporation tax of 10.3% of the amount of the corporation tax and a special corporation enter - prise tax of various rates, while the applicable progressive income tax rates range from 5% to 45%, plus a special income tax for reconstruc - tion, at 2.1% of the amount of the income tax.
If the lessor is a non-resident individual or foreign corporation, 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 residence for themself or their relatives. Any amount withheld by the tenant from the rent can be used as a deduction for corporation or income tax. There is no exemption for taxation on rental income from real property in Japan. Taxation on Gains from the Disposition of Real Property Capital gains from the disposition of real proper - ty in Japan are subject to corporation or income tax in the same manner as rental income, as described above. 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. With - holding is not required if the purchase price does not exceed JPY100 million and the buyer will use the property as a residence for themself 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. The deprecia - tion expense is allocated to each taxation year
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