Withholding Tax for the leasing of real estate owned by Non-residents
There has been an increase in the number of foreigners purchasing real estate in Japan since it was announced that the 2020 Olympics will be held in Tokyo. The majority of our company’s real estate sales and lease transaction mediations have been for foreign customers. We have recently observed that more and more foreign customers are buying real estate in Japan for investment purposes, with the intention of renting out their real estate property.
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 some 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 the 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. If the tenant fails to pay the withholding tax, the Non-resident owner of the property will file a report of omission. 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 the tenant of a Non-resident owned property, they are exempt from withholding tax (only when being used for their own residence or a relative’s residence).
|Use of lease||For own residence or relative’s residence||For other usage||In any use|
|Withholding Tax||Not Needed||Needed||Needed|
|Monthly rent paid by lessee||100%||79.58%||79.58%|
When Corporations are tenants of Non-resident owned property
When corporations are the tenant of a Non-resident owned property, they pay 79.58% of the total rent to the owner and the remaining 20.42% of the rent to the local tax office by the 10th of the following month as withholding tax.
Tax is paid to: The local tax office of the tenant (corporation) responsible.
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; consequently 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 Non-resident individuals and corporations rent out their property in Japan to a corporation, the income from the rent is subject to withholding tax. This tax will 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”
|A Non-resident or foreign corporation has been conducting business long enough that it is deemed as a permanent establishment in Japan. At that time it will be considered the same as a domestic-resident or domestic corporation.
A Non-resident corporation receives a “Certificate of Exemption from Withholding” from the district director of the local tax office.
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 final 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 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 treaty with Japan
|An income tax treaty would reduce the withholding of the income tax. To apply for a reduction, it is necessary to submit the application or claim for a refund to the district director of the local tax office through the pay of domestic source income (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.