Real Estate-Related Taxes in Japan

If you’re thinking of leasing out your property in Japan, or you suddenly inherited real estate from your Japanese family, and this is your first time to be involved in real estate management, you would understandably have more than a few worries and doubts.

While various people get into real estate management for various reasons, the biggest concern for everyone is most likely money. Specifically, one of the most common queries we get is about the taxes involved in leasing out property in Japan.

If you’re employed by a company or organization, chances are that your employer handles the payment of most of your regular taxes, and real estate taxes are probably unchartered territory for you. In this article, we give a summary of real estate income tax in Japan.

Real Estate Income

When you lease out property in Japan and you earn income from that property, that income is subject to income tax and resident tax. Income tax is a progressive tax levied on your total income for one year, which includes your salary, personal business profits, real estate income, and other remuneration. This system wherein tax is calculated on a combination of different types of income is called comprehensive or aggregate taxation.

According to Japan’s Income Tax Law, income is categorized into 10 different types, one of which is “Real Estate Income”. In order to calculate your income tax, you must therefore determine your net real estate income. Real estate income is equal to your gross earnings from real estate minus necessary expenses. In other words, it is the “profit” from your real estate business. However, not all earnings from real estate are subject to income tax.

Real estate earnings subject to income tax

The types of earnings from real estate that are subject to income tax include the following:

・Rent
・Management fees, common service fees
・Key money (reikin)
・Renewal fees
・Premium (kenrikin) *exceptions apply
・Parking fees
・Lease fees of sailing vessels and aircraft

On the other hand, security fees (shikikin) and guarantee money are essentially refundable, so they do not have to be included in your real estate income. However, in cases where all or part of this money will not be returned to the tenant (e.g. if the rental contract states that the security deposit will be amortized), then the portion that is withheld must be included in the real estate income.

Author’s Remarks

This article only covers a small part of the taxes and fees involved in real estate management. As mentioned earlier, real estate income is equal to your gross earnings from real estate minus necessary expenses. Discussing these “necessary expenses” would probably need a whole article in itself!

There are many other important matters related to real estate taxes in Japan, and this article serves only as a rough guide. It is highly recommended that you consult with a certified tax accountant if you are planning to go into real estate management. Good luck!