Property taxes in Japan: is it expensive to buy property?

While Japan is often perceived as an expensive market, the actual tax burden on property can be manageable if you plan ahead.

Generally, you should budget between 10% and 15% of the property’s purchase price to cover various one-off taxes and fees during the buying process.

What are the main property taxes in Japan?

Japan’s property tax system consists of one-off payments made during the purchase or sale and recurring taxes paid annually by owners. The main taxes you will encounter include:

• Real Estate Acquisition Tax: A one-time tax paid when you buy or receive property.
• Fixed Asset Tax: A recurring annual tax based on the value of the land and building.
• City Planning Tax: An additional annual tax often collected alongside the Fixed Asset Tax in urban areas.
• Registration and License Tax: Paid when registering the ownership transfer at the Legal Affairs Bureau.

Who is subject to these taxes?

Anyone who owns property in Japan is subject to these taxes, regardless of their residency status.

Both Japanese residents and non-residents are required to pay, though non-residents must often appoint a tax administrator to handle payments on their behalf.

Corporations owning real estate are also subject to these regulations.

Taxes on buyers

When you purchase a property in Japan, you must account for several initial tax costs.

Real Estate Acquisition Tax (Fudosan Shutoku-zei)

This is a prefectural tax levied on the acquisition of real estate. The standard rate is 4% of the property’s appraised value, though a reduced rate of 3% is currently applied to residential land and buildings.

Registration and License Tax (Toroku Menkyo-zei)

This tax is paid to register the transfer of ownership. The rate for residential buildings is typically 2.0% of the assessed value, though reduced rates may apply if you meet specific criteria for a primary residence.

Stamp Duty (Inshi-zei)

Japan requires revenue stamps to be affixed to the purchase contract. The cost varies based on the transaction price, ranging from a few hundred to several thousand yen.

Consumption Tax (VAT)

Japan’s consumption tax of 10% is applicable to the building portion of the purchase if the seller is a business entity. Land purchases are exempt from consumption tax.

Exemptions:

• Properties with a value below a certain threshold (usually ¥230,000 for land) may be exempt from the Real Estate Acquisition Tax.
• Newly constructed homes may qualify for significant deductions from the taxable base value.

Taxes on sellers

Selling a property in Japan involves taxes on any profit you make from the sale.

Capital Gains Tax

Profit from the sale of a property is taxed as income. The rate depends on how long you owned the property:

• Short-term Capital Gains (owned for 5 years or less): Approximately 39%.
• Long-term Capital Gains (owned for more than 5 years): Approximately 20%.

Exemptions:

• If you sell your primary residence, you may be eligible for a special deduction of up to ¥30 million on the capital gains, regardless of the ownership period.

Taxes on homeowners: recurring payments

As an owner, you will face annual taxes to maintain your property.

Fixed Asset Tax (Kotei Shisan-zei)

This is a municipal tax levied on anyone listed in the Fixed Assets Tax Ledger as of January 1st each year. The standard rate is 1.4% of the assessed value.

City Planning Tax (Toshi Keikaku-zei)

This tax funds urban development and is charged to owners of property in designated urban areas. The maximum rate is 0.3%.

Exemptions:

• Residential land may qualify for a tax base reduction—the value for tax purposes is often reduced to one-sixth for small residential plots (up to 200sqm).

Is rental income taxed?

Yes, if you rent out your Japanese property, the income is subject to Japanese income tax. Residents report this on their annual tax return, while non-residents are typically subject to a 20.42% withholding tax on the gross rent.

Exemptions:

• Non-residents may be exempt from the withholding tax if the tenant is an individual using the property as their own or their family’s residence.

First vs second home: tax implications

Japan offers several tax benefits to encourage people to buy their primary home.

First-time buyers or those moving into a primary residence can often access lower Registration and License Tax rates and a mortgage tax deduction (Jutaku-loan Kojo).

Second homes or investment properties do not usually qualify for these deductions and may face higher interest rates on loans.

How to save money on your property purchase

Buying property involves moving large sums of money, which can lead to high costs if you use traditional banks. Banks often add a markup to the exchange rate, meaning you receive less than the mid-market rate.

You can use Wise to move money abroad for your property purchase and save on currency conversion costs. You can use Wise to pay the seller or your real estate agent directly.

Alternatively, if you have already opened a Japanese bank account, use Wise to move money between your international and Japanese accounts to avoid hidden fees.

Wealth taxes in Japan

While Japan does not have a “wealth tax” in the sense of a tax on your total net worth, it does have a robust Inheritance and Gift Tax system.

Property ownership can fall under these categories if you transfer the property to family or if it is part of an estate. Rates can be high, reaching up to 55% for large estates.

How to pay your taxes

Property taxes in Japan are managed by local municipal offices or the National Tax Agency (NTA) depending on the tax type.

Annual Fixed Asset and City Planning taxes are usually paid in four installments throughout the year (often in May, July, December, and February), or as a single lump sum. You will receive payment slips in the mail that can be paid at banks, post offices, or convenience stores.

When to speak to a tax professional

It is usually a good idea to speak to a tax professional when buying or selling a house in Japan. The system involves specific calculations and local regulations that can be difficult to navigate alone, especially regarding non-resident status and potential exemptions.

Useful resources

• National Tax Agency (NTA) – Official information on national taxes, including income and capital gains.
• Ministry of Land, Infrastructure, Transport and Tourism (MLIT) – Detailed data on property values and registration processes.
• Japan Property Central – A resource for news and practical guides on the Japanese real estate market.