Real Estate Rental Income Tax in Japan

Poste date: Monday, October 1, 2018

The income received when renting out a real estate property in Japan is counted as part of your taxable income. It may seem frustrating at first if you don't know where to ask or how things are calculated. Here in this easy to follow guide, we will explain what rental income taxes can affect real estate investments and how they are calculated.


How to calculate your real estate rental income tax

The amount of income tax that will need to be paid is calculated by multiplying an applicable tax rate by your total taxable income (employment income + real estate rental income – tax deductions and allowances).

1. How to calculate your rental real estate income

The total taxable income from renting out real estate properties is calculated by subtracting the nessesary expenses from the gross rental income.

Real estate rental income amount = 1.1 gross rental income – 1.2 necessary expenses

1.1 Example of Gross Rental Income

  • ・ House rent, Land rent
  • ・ Key money
  • ・ Renewal fee
  • ・ The portion of the security deposit and guarantee money that the owner is not required to return to the renter
  • ・ Common area maintenance fees including electric bills, water bills, cleaning charges, etc.

 

1.2 Details of Necessary Expenses Eligible for Deduction

The following expenses are counted as “necessary expenses” for those who have rental income from a house.

Various real estate taxes Real estate acquisition tax paid upon purchase of property
Property Buying Costs and Taxes in Japan

Fixed Asset Tax and City Planning Tax for real estate owned
Fixed Asset Tax and City Planning Tax
Insurance fees Insurance coverage such as fire insurance and earthquake insurance
Depreciation expense Acquisition costs of a building shall be divided equally by the statutory useful life of new construction or used property and the divided amount shall be included in each year’s necessary expenses.
Repair expenses Costs for restorating the property to its original state, costs for replacement of facilities such as a water heater, air conditioner, etc.

(Costs to increase the value or durability of a property shall be included in capital expenditures and shall not be included in repair expenses).
Interest rate on borrowing Only the interest of the total loan repayment amount
Management fee to a property management company Fee to a management company for collecting house rent from tenants, handling problems, and advertising for new tenants.
Management fee, Repairing fund, etc. Fees to a condominium management association.
Other necessary expenses Fee to a certified tax accountant on a final income tax return, transportation, and communication expenses for real estate leasing
Special deductions from filing a tax return Blue Form When you have filled out a blue tax return form at a local tax office and the filing has been approved, you may receive a deduction up to JPY650,000. This is from the income amount of real estate leasing business, or you may have deduction of JPY100,000 from a small real estate income amount. (The deduction amount shall be amended for the 2020 tax year).

2. How to calculate your total taxable income

Taxable income amount = Real estate rental income + Income from employment + other income - Tax deductions and allowances*

* Tax deductions and allowances are meant to adjust the amount of tax to be paid taking into consideration the taxpayer’s personal situations, such as the number of their dependent relatives eligible for tax deduction (e.g. deduction for spouse, deduction for dependents).

 

3. How to calculate your income tax total

Income tax amount = Taxable income amount × an applicable income tax rate – an applicable credit amount

Applicable income tax rates and applicable credit amounts are listed in the below rapid calculation table.

Rapid calculation table for Income tax

Taxable income amount Tax rate Credit amount
Not exceeding JPY1,950,000 5%
Not exceeding JPY3,300,000 10% JPY97,500
Not exceeding JPY6,950,000 20% JPY427,500
Not exceeding JPY9,000,000 23% JPY636,000
Not exceeding JPY18,000,000 33% JPY1,536,000
Not exceeding JPY40,000,000 40% JPY2,796,000
Amounts over JPY40,000,000 45% JPY4,796,000


※When a non-resident real estate owner is withholding tax imposed on the house rent income of his/her property, he/she can have the tax amount payable by deducting the withholding tax amount from the sum of the above Income Tax amount and Special Reconstruction Income Tax amount.

Withholding Tax for the leasing of real estate owned by Non-residents

How to pay income tax

You should complete the filing of your taxable income and pay your total tax for the tax year (from January 1st to December 31st) within the 1 month period from February 16th to March 15th of the following tax year at the local taxation office. It is called filing an income-tax return. You can adjust the excess and deficiency of your tax amount withheld by filing an income-tax return.

*For each tax year in the period from 2013 to 2037, Special Reconstruction Income Tax (2.1%) shall be imposed in addition to Income Tax.

Filing Japanese Income Tax in Tokyo

Yearly income tax returns are usually filed by a person themself or by a certified tax accountant on behalf of the person.

We here at PLAZA HOMES support our customers throughout their various real estate investments and related matters. From purchasing real estate properties and advertising them for tenants, to offering property management services, PLAZA HOMES will be there for you. When filing your yearly income tax return we can help you to submit necessary documents smoothly, in cooperation with English-speaking certified tax accountants.

 

In the case of an overseas investor

Here is an example of a non-resident overseas investor who purchased real estate, has income from renting out a house in Japan and the income tax applicable to this persons situation.

Conditions

Owned real estate property:
Purchase of a 20 years old pre-owned apartment with reinforced concrete construction.
Purchase price:
JPY50,000,000 (Land price: JPY26,000,000, Building price: JPY24,000,000)
Other income:
N/A
Income tax withheld:
JPY490,080/year (House rent: JPY200,000/month x 20.42% (Paid by Lessee))

Income

House rent income:
JPY2,400,0000/year  (House rent: JPY200,000/month)

Necessary expenses

Management fee, repairing fund, etc.:
JPY360,000/Year  JPY30,000/Month
Management fee paid to a property management company:
JPY120,000/Year JPY10,000/Month
Fixed property tax and city planning tax:
JPY200,000/Year
Depreciation expense:
JPY24,000,000 × 0.033 = JPY792,000
(31 years is applied as the statutory useful life of used fixed assets)
Other expenses:
JPY200,000
Special deductions of Blue Form tax return filing:
JPY100,000 (In case of a small real estate income)

Example calculation using infromation from above

1. To calculate the real estate rental income

Total House Rent Income  JPY2,400,000
Necessary expenses       JPY1,772,000
Rental Real Estate Income  JPY628,000

2. To calculate taxable income

No other income in Japan, no eligible deductions and allowances

Taxable income amount JPY628,000

3. To calculate the total amount of taxable income See Rapid calculation table for Income tax

JPY628,000×5% = JPY31,400

4. To calculate Special Reconstruction Income Tax

JPY31,400×2.1% = JPY659

5. To calculate the amount of taxable income and Special Reconstruction Income Tax for the tax year, add the totals from “3.” and “4.”

JPY31,400 + JPY659 =JPY32,059

6. To deduct the income tax amount withheld

JPY32,059 - JPY490,080 = - JPY458,021

After the owner’s filing of an income tax return, part of the amount of taxes withheld (JPY458,021), will be returned to them (in this scenario).

*The above scenario’s sample calculation has been presented with simplified conditions for easier understanding to be used only for refrence.

 

 

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