Withholding tax on real estate sales by Non-residents
When a real estate property in Japan owned by a non-resident or a foreign corporation is sold, to prevent omission of report on income tax, the person who purchases and pays for the property has to pay the equivalent amount of the income tax withheld upon the transaction to the local taxation office. In other words, a foreigner who does not live in Japan (non-resident) should understand that he may not receive 100% of sales amount when he sells his real estate property in Japan due to the deduction of the equivalent sum of the income tax withheld.
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. Long-term Japanese expats who stay for more than one year in overseas are also such examples.
What is the meaning of the term “Foreign Corporation”?
Whether it has branch offices in Japan, it is defined as a corporation which does not have the head office or a main office in Japan.
The case that the withholding tax is imposed upon the real estate sale by Non-resident
When someone purchases a real estate property from Non-resident or Foreign Corporation, the purchaser, regardless of an individual or a corporation, shall be liable for the withholding tax. But the withholding tax is not required exceptionally when the transaction meets the following conditions:
● The transfer value (trading value) of the real estate is less than 100 million yen
● A purchaser is an individual, and uses the purchased real estate for “residence of oneself or the relatives”
The rate of the withholding tax (income tax and the special income tax for reconstruction) of this system is the amount of 10.21% equivalency of the transfer value (trading value). Specifically, a purchaser of the real estate shall pay the amount of 89.79% equivalency of the transfer value (trading value) to a non-resident (seller) upon his payment for the purchase, and shall pay 10.21% equivalency of the value for withholding tax at a bank or a post office by the 10th in the next month after the payment of the purchase. Non-resident or Foreign Corporation who has sold real estate can do the settlement of the withheld amount by doing a final income tax return during one month from February 16 to March 15.
Withholding tax of the real estate sales by Non-resident
| Purchaser | Individual | Corporation | ||
| Use of Real Estate | For own residence or relative’s residence | Use except for own residence or relative’s residence | In any use | |
| Transfer value (trading value) | Less than 100 million yen | More than 100 million yen | In any value | In any value |
| Withholding Tax | Not Needed | Needed | Needed | Needed |
| Tax rate | - | 10.21% | 10.21% | 10.21% |
| Equivalency of the value Non-resident receives for sale | 100% | 89.79% | 89.79% | 89.79% |
- Capital Gains Tax when Selling Property in Japan
- When you have income from selling a real estate property a national and local (inhabitant) income tax may be imposed on it. Here is an introduction to the taxation system and the calculation method of a tax imposed on “transfer income”.
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