When you consider buying a property in Japan, it would be good to know beforehand what taxes and fees you would need to pay when you were selling it. Whether your purchase is for investment purpose or for your own use, even if you don’t plan to sell the property in the near future, having the exit costs in mind helps you avoid “this is not what I expected”.
When selling a property in Japan, there are two types taxes you need to pay:
(1) Taxes on gains from sale of property
(2) Taxes on the selling process
Taxes on gains from sale of property
[Formula]
Capital Gains Tax: (Sale price - [costs of acquisition + expenses of sale]- special deduction) x tax rate
➟ What is capital gains tax?
Capital gains tax is a tax levied on the gains from the sale of land, building and structures. The gains here are not the amount of money you receive from the buyer but the amount after deducting, from the sale price, the costs and expenses you paid to acquire and transfer the property. If you have lived in the property as your primary residence, special deduction will be applied. The tax rate is determined depending on the use of the property and the length of your ownership.
➟ Who pays it?
The seller of the property is responsible for the payment. If the seller incurs loss from the sale, there is no need to pay this tax.
➟ When to pay?
The seller will need to submit tax return and pay the tax within the period from February 16th to March 15th in the year following the year when the sale took place.
➟ How is the tax rate determined?
Capital gains are classified into two classes: long-term capital gains and short-term capital gains.
When the sale is completed, if you have held the property for over 5 years as of January 1st of the year, the gains from such sale are considered long-term capital gains. Long-term capital gains are taxed at a flat rate of 20.315% (15.315% national tax & 5% local inhabitant’s tax).
If you have held the property for 5 years or less as of January 1st of the year, the gains from such sale are considered as short-term capital gains. Short-term capital gains are taxed at a flat rate of 39.63% (30.63% national tax & 9% local inhabitant’s tax).
Please take note that the 5-year ownership criterion applies to the length of ownership as of January 1st of the year when the sale takes place. Let’s look at this example: you purchased a property in June 2018 and want to sell it in July 2023. In July 2023, you will have held the property for 5 years, but as of January 1st 2023, you will have owned the property less than 5 years, which means the gains from the sale will be categorized as short-term capital gains and taxed at 39.63%.
➟ What if I don’t live in Japan?
Even if you are a non-resident who does not have a resident address in Japan nor have lived in Japan consecutively for one year, you will have to submit a tax return and pay capital gains tax from your sale of property.
Like the payment of Fixed Asset Tax and City Planning Tax we explained in our previous article, you will need to appoint a “Tax Agent” who is a resident of Japan and can pay this tax on your behalf. Once you have a Tax Agent, you are required to notify the local tax office that has jurisdiction over the property by submitting a form called “Notification of Tax Agent”.
Taxes on the selling process
These are taxes on the selling process regardless of whether you have gains from the sale or not.
(a) Stamp Duty
Revenue stamp needs to be affixed on the contract of sale and purchase, and the amount of the stamp duty depends on the amount of the sale price written in the contract. Currently, contracts prepared between April 1st 2014 and March 31st 2024 for property the price of which exceeds 100,000 yen are subject to a reduced tax rate.
➟ Who pays the fees?
The person who prepares the contract is liable for the payment. In case of a sale and purchase transaction of property, both the buyer and the seller are equally liable. Usually, there is a provision in the contract that the seller and the buyer evenly share the stamp duty, since the agreement is made upon mutual agreement between them.
➟ When to pay?
Stamp duty is payable when the contract of sale and purchase is executed. The stamps are available at post offices and Legal Affairs Bureau offices.
(b) Registration and License Tax: Assessed value of property x 2%
This tax becomes due when the ownership of property is transferred to the buyer.
➟ Who pays the fees?
It is common that the buyer bears this tax, since the buyer is considered as the beneficiary of the transfer.
➟ When to pay?
This tax is paid when the transfer of ownership is registered.