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Withholding Tax for the leasing of real estate owned by Non-residents (Foreign residents) Japanese of this page

Post: Thursday December 11, 2014

There is an increasing number of foreigners purchasing real estate in Japan ever since the Olympics were decided to be held in Tokyo in 2020. Our company has been mediating sales and lease transactions of real estate mostly for foreign customers and have observed that recently more and more foreign customers are buying real estate in Japan for investment purposes and that such non-resident owners consider leasing their real estate properties.

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What is the meaning of the term "Non-resident"?

In principle Non-resident is defined as someone who does not have a residential address in Japan and who has not lived in Japan for more than 1 year. Foreign residents and foreign corporations, and long-term Japanese expats in overseas are such examples.

Withholding Tax imposed on the rent income of real estate owned by Non-residents

When the lessee name is not an individual and is a corporation, the payer of the rent for the lease should pay the tax amount withheld to a local tax office, to prevent an omission of report by a non-resident owner of real estate. In other words, the lessee is responsible for withholding tax from the rent.

Withholding tax rate (the income tax and the special income tax for reconstruction) imposed on the rent for real estate is 20.42%.

When the lessee is an individual and leases for using as their own residence or a relative’s residence, withholding tax is exempted.

LesseeIndividualIndividualCorporation
Use of lease For own residence or relative’s residence For other usage In any use
Withholding Tax Not Needed Needed Needed
Tax rate - 20.42% 20.42%
Monthly rent paid by lessee 100% 79.58% 79.58%

When corporations lease real estate from Non-resident owners

When corporations are the lessee they pay 79.58% of the rent to the Non-resident owners, then also pay 20.42% of the rent to a local tax office by the 10th of the next month as withholding tax.

Tax paid to: The local tax office for the lessee corporation responsible.

Method of payment: Together with the submission of "Statement (Tax Payment Slip) of Collected Income Tax on Non-residents and Foreign corporations", withheld income tax shall be paid at a local financial institution (such as a bank or post office) or over the counter at the local tax.

Tax Payment Slip:

非居住者・外国法人の所得についての所得税徴収高計算書の様式及び記載事項

https://www.nta.go.jp/shiraberu/zeiho-kaishaku/jimu-unei/shotoku/gensen/080623/pdf/05.pdf

This payment slip is available at the tax office. You can also order and get it by mail by enclosing a self-addressed envelope and postage stamp.

Description of the payment slip: http://www.nta.go.jp/shiraberu/zeiho-kaishaku/jimu-unei/shotoku/gensen/080623/05.htm

Please note that the lessee is responsible for paying the withholding tax; consequently delinquent tax and additional tax on non-payment shall be imposed to the lessee when he fails to pay or delays the payment.

When non-residents lease to corporations

When foreign residents and foreign corporations lease their real estate properties owned in Japan and receive income (income subject to withholding) from the lease, and where the lessees are corporations, as described above, the corporations as lessees shall pay 20.42% of the rent as withholding tax (the income tax and the special income tax for reconstruction), and to the lessor the remaining 79.58%.

Tax Reduction or Exemption shall be applied in the cases listed below:

Where a non-resident or a foreign corporation receives a "Certificate of Exemption from Withholding"

  Where a non-resident or a foreign corporation has had a business long enough that it is deemed as a permanent establishment in Japan, then it is considered the same as a domestic resident or a domestic corporation.

In such cases a non-resident or a foreign corporation receives a "Certificate of Exemption from Withholding" from the district director of the local tax office.

By presenting the certificate to the payer withholding tax (lessee), no withholding is required from this domestic source income (the rent) paid by the payer during the effective period of the certificate.

<Some requirements for Non-residents to receive"Certificate of Exemption from Withholding" >

1. Has submitted a Notice of Commencement of Business, etc.

2. When a non-resident does not reside in the location where he/she is responsible for paying tax but has a tax agent

Has submitted a final return form for income tax for the year preceding the relevant year.

(Note)What is a Tax Agent?:A Tax Agent gives notices from the Tax office in Japan to the Non-resident and also submits tax return forms and makes tax payment on the non-residents behalf. (Tax Agent may be a company or individual.)

<Some requirements for foreign corporations to receive "Certificate of Exemption from Withholding">

1. Has submitted a Notice of Acquisition of the Status of Foreign Ordinary Corporation

2. Where the foreign corporation is one that should make a registration pursuant to the provisions of the Companies Act or of the Civil Code, and has registered.

Where the country of residence of a non-resident or a foreign corporation has an income tax convention with Japan

  An income tax convention would reduce the withholding of the income tax. To apply for the reduction, it is necessary to submit the application or claim for refund to the district director of the local tax office through the payer of domestic source income (lessee).

Non-resident lessor may receive a refund of the withheld amount of money by doing a final income tax return during one month from February 16th through March 15th of the next year.

(Note 1) Tax rate may change in case of a tax law revision.
(Note 2) For details on the procedure, please contact your tax office or tax experts.

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