Not only foreign investors, but anyone should wonder how much is needed for purchasing real estate when making an investment in a property for the first time.

Looking into an international example, in Toronto, Canada, when foreigners buy real estate, 15% of the property price is levied as a “foreigner acquisition tax”. On the other hand, in Japan, the tax systems for foreign nationals are the same as those for the Japanese, and it is a great advantage that no special costs are incurred.

Here are the details of the relevant tax systems.

1.Stamp duty

Stamp duty is a tax levied on making certain documents such as contracts or receipts. Sticking a “revenue stamp” on the contract serves as a proof that you have paid the tax. This revenue stamp must be affixed to the “sales contract” that a buyer and seller sign. The amount of the stamp duty depends on the contract amount.

When the amount of the contract is:

□Between 5 to 10 million yen:          5,000 yen

□Between 10 to 50 million yen:        10,000 yen

□Between 50 to 100 million yen:      30,000 yen

□Between 100 to 500 million yen:    60,000 yen

*The amount of tax is based on the revenue stamps created between April 1, 2014 and March 31, 2022 that are subject to the stamp tax reduction measure.

If you want to get a loan from a bank instead of purchasing by cash, you need to put a revenue stamp on the “loan agreement (monetary loan agreement)” as well.

The amount of the stamp duty in that case is as follows.

When the amount of the loan agreement is:

□Between 5 to 10 million yen:          10,000 yen

□Between 10 to 50 million yen:              20,000 yen

□Between 50 to 100 million yen:      60,000 yen

□Between 100 to 500 million yen:    100,000 yen

When you get a loan, you will also need to pay fees for the loan and guarantee.

2.Property Tax / City Planning Tax

Property Tax is a mandatory tax if you have land or a building in Japan.

In addition, City Planning Tax is the tax allocated to the city planning and land section rearrangement projects. For example, it is used to build roads and maintain water and sewage systems.

Property Tax and City Planning Tax are levied on those who own the land or building as of January 1.

The tax paid when purchasing a property will be settled on a prorated basis based on the date of delivery.

More specifically, the tax from January 1 to the date of delivery will be the seller’s burden while the tax after the date of delivery to December 31 will be the buyer’s burden.

3. Real Estate Acquisition Tax

Real Estate Acquisition Tax is the tax levied on the acquisition of real estate.

A few months after obtaining ownership, the prefectural government will send you a tax payment notice. You have to pay the tax according to the instructions of the notice.

The tax amount is 4.0% of the valuation of the fixed asset tax.

As a measure for mitigation, the tax rate will be reduced to 3.0% for land and housing for the acquisition on and before March 31, 2021.

There are various other mitigation measures, but please note that you need to file a declaration in order to receive tax returns.

4.Registration and License Taxes

Registration and License Taxes are the taxes imposed on “transfer of ownership” or “setting of mortgage”.

The proceedings will be handled by a judicial scrivener, and the costs for the procedure will be required in addition to the compensation for the judicial scrivener.

The required amount is as follows:

Registration of transfer of ownership by buying or selling buildings: 2.0% of the valuation of the fixed asset tax

Registration of preservation of ownership:  0.4% of the valuation of the fixed asset tax

Mortgage registration: 0.4% of the loan amount

5.Judicial scrivener fee

Judicial scriveners perform proceedings such as “transfer of ownership”, “setting of mortgage”, and “on-site witnessing when concluding a monetary loan agreement”.

The cost depends on the judicial scrivener you request, but the average market price is around 100,000 yen.

6.Maintenance fee / reserve fund for repairs

The maintenance fee is a monthly payment to the maintenance agency for the day-to-day cleaning and management of common areas such as apartment elevators, corridors, and entrances.

In addition, the reserve fund for repairs is to reserve funds for long-term maintenance and repairs for a long span of 10 to 20 years. Even if you plan to sell the property in a short period of time, these costs will be incurred monthly.

The maintenance fee / reserve fund varies depending on the property, so be sure to check them before purchasing a real estate property.

You will also need to make a pro-rata settlement for the maintenance fee and reserve fund that the seller has already paid.

7.Real estate brokerage fee

It is the fee paid to a real estate agent that acts as an intermediary between the seller and the buyer.

If the sales amount exceeds 4 million yen, the upper limit of the legal brokerage fee is 3% of the sales amount + 60,000 yen + consumption tax.

8.Fire insurance

Many people might have the image that residents should pay for fire insurance, but it is recommended that owners also have fire insurance.

In that case, ideally you better sign a special contract for insurance for liability on facilities as part of the core fire insurance program.

The insurance for liability on facilities insures the liability when the property you own damages the resident’s body or assets.

Summary

Today we looked into the costs required for purchasing real estate properties. Some of these costs vary depending on the purchase price of the real estate.

It is very difficult to understand everything at once, so please feel free to contact us when you are considering buying a property.

Wagaya Japan also provides support for payment of various taxes and expenses after purchasing investment properties.

For foreign investors, tax systems and various payment structures in Japan might be quite complicated.

We offer a dedicated team for each owner and provide comprehensive support from purchase of an investment property to advertisement, rental management and sale of the property. Wagaya Japan is here to help you when purchasing real estate in Japan (Tokyo).