Withholding Tax for the leasing of real estate owned by Non-residents
When a foreign investor or a real estate owner who does not live in Japan due to overseas assignment rents out real estate in Japan and a lessee is a corporation, the lessee shall pay 20.42% of the rent to the tax office as withholding tax, and the lessor will receive the remaining amount after withholding the tax amount as monthly rent.
What classifies someone as a “Non-resident”?
Generally speaking, a person or company who neither has a residential address in Japan nor been living in Japan for more than a year is a Non-resident. Foreign residents, corporations, and long-term Japanese expats living abroad are such examples of those who fall into the category of Non-resident.
Who is responsible for paying the Withholding tax from a Non-resident property?
When a tenant of a property is a corporation and not an individual, the tenant will be responsible for paying the withholding tax to the local tax office. The withholding tax rate (income tax and special income tax for reconstruction) for the rent of real estate is 20.42%.
When an individual is a tenant of a Non-resident, and when being used for his/her own residence or his/her relative’s residence, the owner is exempted from withholding tax.
Use of lease
|For own residence or relative’s residence||For other usage||In any use|
Monthly rent paid by lessee
When a Corporation is a tenant of a Non-resident-owned-property
When a corporation is a tenant of a property owned by a Non-resident, the corporate tenant shall pay 79.58% of the total rent to the owner and pay the remaining 20.42% of the rent as withholding tax to the local tax office by the 10th of the following month.
Tax to be paid:
The local tax office of the location of the tenant (corporation).
Method of payment:
Together with the submission of a “Statement of Collected Income Tax on Non-residents and Foreign corporations” (Tax Payment Slip), withheld income tax shall be paid at a local financial institution (bank, post office, etc..) or at the local tax office.
Tax Payment Slip:
This payment slip is available at the tax office. You can also request to have the document sent to you by mail by enclosing a self-addressed envelope and postage stamp in an envelope and sending it to the tax office.
Please note that the tenant is responsible for paying the withholding tax; delinquent taxes and additional taxing on non-payment shall be imposed when the party responsible fails to pay or when there is a delay in payment.
When Non-residents rent out to Corporations
When a Non-resident individual and corporation rents out a property in Japan to a corporation, the income from the rent is subject to withholding tax. This tax shall be paid by the tenant who is a corporation in the following manner: 79.58% of the rent will be paid to the Non-resident owner and 20.42% will be paid to the government as withholding tax.
A tax reduction or exemption will be applicable in the following cases:
In the event a Non-resident or foreign corporation receives a “Certificate of Exemption from Withholding”
When a non-resident or foreign corporation which has been conducting business long enough, having a permanent establishment in Japan, it is considered the same as a domestic-resident or domestic corporation. For this reason, a non-resident or foreign corporation can receive a “Certificate of Exemption from Withholding” from the district director of the local tax office when satisfying certain requirements, and by presenting the “Certificate of Exemption from Withholding” to the tenant, no withholding tax will be paid by the tenant until the certificate expires.
Some requirements that must be met before Non-residents are eligible to receive a “Certificate of Exemption from Withholding”
1. Has submitted a Notice of Commencement of Business, etc..
2. The Non-resident does not reside in the location where he/she is responsible for paying tax, but has a tax agent
3. Has submitted a tax return form for income tax for the year preceding the relevant year.
*Note: A Tax Agent is someone who is responsible for giving notices from the Tax office in Japan to the Non-resident, and is also responsible for submitting tax return forms and making tax payments on the non-residents behalf. (Tax Agent may be a company or an 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 be registered pursuant to the provisions of the Companies Act or of the Civil Code, and has been registered.
Where a tax treaty is concluded between Japan and the country of residence of a non-resident or a foreign corporation
Withholding tax may be exempted or reduced pursuant to the provisions of the tax treaty. To apply for such exemption or reduction, it is necessary to submit the application or claim for a refund to the director of the local tax office via the payer of withholding income tax in Japan (lessee).
Non-resident owners may receive a refund from the withheld amount by filling out a final income tax return from February 16th to March 15th of the following year.
*Note 1 The tax rate may change in the event of a revision of the tax law.
*Note 2 For details regarding the tax filing procedure, please contact your local tax office or a tax specialist.
Confirmation of Lessee’s payment of Withholding tax
When a lessor is concerned about a corporate lessee’s payment of withholding tax, the lessor can confirm whether the payment has been made by getting a “Report of Payment” from the lessee.