JAPAN Law and Practice Contributed by: Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada & Matsumoto
tractually obliged to pay an amount equivalent to the consumption 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 liabil - ity is to use a trust structure where the inves - tor purchases the TBI in a property trust rather than the outright ownership of the real property itself. Please also see 2.1 Categories of Prop- erty 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 estab - lishment of a property trust is reduced from 1.5% (for land) or 2% (for buildings) of the taxable base of the property (which is appli - cable in an outright purchase 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- residential buildings) of the taxable base of the property (which is applicable in an out - right transfer of real estate) to zero. Alternatively, by using a TMK as an acquisi - tion vehicle, the registration and licence tax is reduced to 1.3% of the taxable base of the prop - erty and the real estate acquisition tax is effec - tively reduced to 0.6% (for building land), 1.2% (for non-building land and residential buildings) or 1.6% (for non-residential buildings) of the tax - able 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 occupation 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. 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 the purpose of the real estate. However, there are limited exemptions for these munici - pal 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 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 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 amount of the corporation tax and a special corporation enterprise tax of various rates. The applicable progressive income tax rates range from 5% to 45%, plus a special income tax for reconstruc - tion, levied at 2.1% of the amount of the income tax.
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