Real Estate Purchases And The Various Taxes In Japan
There are various types of purchasing real estate by foreigners in Japan. For example, foreigners who have permanent residence in Japan purchase real estates as their residences. Also, improvement of the Japanese economy is recently seen due to a depreciation of the yen and rising of stock prices. Furthermore, the Tokyo Olympics will be held in 2020. These cases cause land values to be raised in urban areas, and some foreigners consider purchasing real estate such as condominiums or apartment houses for purposes as their investments.
However, on the other hand, there is a characteristic of having many taxes being related to real estate in Japan and said as “real estate is the mass of tax”. Therefore, it is important to understand about tax management in order to purchase and manage real estate without worries.
So, basic information about real estate and the taxes in Japan will be summarised several times. I am happy for foreigners to understand about real estate taxes in Japan in this series starting at this time.
Of course, as this is basic information about real estate taxes in Japan, it is useful to read this for Japanese people who are interested in real estate taxes also. At first, a tax which is occurred at the time of a real estate purchase is described.
3 types of necessary taxes of a real estate purchase in Japan
There are basically 3 types of taxes at the time of a real estate purchase in Japan. They are real estate acquisition tax, stamp duty, and registration license tax. The real estate acquisition tax is duty. And stamp duty and registration icense tax do not always occur legally.
In terms of whether a legal obligation, there are two groups of real estate acquisition tax, and stamp duty and registration license tax. However, in order to have legal protection about real estate that has been purchased or traded, stamp duty and registration license tax are essentially generated virtually. After all, 3 types of taxes will be occurred for a real estate purchase.
So, what are the 3 taxes specifically?
Real Estate Acquisition Tax
At first, a real estate acquisition tax will be charged for a real estate acquisition. The real estate acquisition tax is charged as a legal obligation for a real estate acquisition, and foreigners are necessarily obligated to pay. The real estate acquisition tax is calculated by a formula as [tax base x tax rate]. The base tax is specifically an amount of fixed assets accounting records by being entered in the Tax Administration of Japan. (However, it is the amount multiplied by the 1/2 of the fixed assets accounting records regarding residential land [a tax reduction step until March 31, 2015].)
The tax rate is three-100ths (that is 3 percent) in the case of housing and land, and four-100ths (that is 4 percent) in other cases. This is also the tax reduction step until March 31, 2015.
Although the real estate acquisition tax is the case in which taxing by seeking ability to pay for a real estate acquisition, some tax reduction steps are also the features for residential cases. Having housings are relatively tolerant in Japan, and there are various tax reduction steps. Because to the real estate acquisition tax is never avoided for a real estate acquisition, it is important to be ready for the tax payment at the purchase.
A stamp is seemingly something like a sticker. The stamp duty is the tax which relates to the documents of contracts or agreements being generated at the time of real estate purchase. The paper documents have also taxes focusing on the importance in papers socially. The stamp duty has a structure which proves to perform the tax liability by affixing a purchased stamp on a paper document for creating an agreement or a contract of 10,000 yen or more. Therefore, for example, the stamp of 15,000 yen needs to b purchased and affixed for a document in case of a real estate purchase in the amount of 30,000,000 yen.
By the way, free agreement between parties is very strongly guaranteed for a sales contract in Japan, and a public regulation has less legal system. The trading process has generally less legal system in a public regulation except certain farmland. Accordingly, a sales contract for real estate is effective without creating and affixing a stamp on a contract document. It never performs to be invalid by not creating or affixing a stamp on a contract.
Therefore, in an extreme case, an agreement or a contract document by a verbal promise never have a stamp duty. This means that the stamp duty is not legally obligated for a real estate trading business.
However, it is unrealistic for a realtor not to create a contract for a real estate business, and it causes tax evasion by not affixing a stamp on a created contract. So, the stamp duty is practically occurred in a process of a real estate trading business. Besides, there is an approach to make one copy of a created contract, and record a tax separately from the trading amount. This is an appropriate system.
Registration License Tax
The third is a registration license tax. A registration license tax is a tax to pay at the time of name registration of property rights in a public institution called the Legal Affairs Bureau. It is often called “transfer to renew a name” in Japan. Registration of rights is not legally enforceable. (It is considered to be enforceable among many Japanese in this case, but there is actually not legal punishment for failing to perform registration of rights.)
But, it is possible to have legal protection of being able to claim an ownership to a third party by performing a registration of a real estate purchase. (Civil Code Section 177)
For example, when a seller performed a double transfer (selling the same real estate to a third party), a registered holder will be protected as a right holder because of a registration completed. In case of a double transfer without a registration, a registered holder is mainly treated as a right holder although there is previously a sales contract and purchasing with a high value, Therefore, a registration license tax for a registration is actually necessary in order to preserve their rights.
A registration license tax amount is basically twenty-1000ths of the amount in fixed assets accounting records. (However, it is fifteen-1000ths regarding land until March 31, 2015.)
For example, a registration license tax amount is 600,000 yen for a real estate purchase of 30,000,000 yen. It might be very high depending on a real estate value. Furthermore, requesting for a registration application procedure to a third party, as a result, is to request to a registration application specialist called a judicial scrivener. In this case, it costs about 100,000 yen. It is important to be aware of a large expense including the specialist cost.
By the way, when buyers and sellers perform a registration application by themselves, it never costs the expense for a judicial scrivener. Since it is not so difficult to conduct a property rights registration transfer by a trading process, it is possible to cut the cost greatly being applied to the parties. Basically, necessary information should be entered by downloading an application from the Ministry of Justice homepage. And, a registration is simply processed by presenting a sales contract, a registered seal and a seal certificate of the seller, the proof that have been registered (title certificate), the seller resident’s registration identification information, and fixed assets tax notices.
A sales contract is returned by a procedure called an original refund. As mentioned above, real estate acquisition tax, stamp duty, and registration license tax are taken at the time of a real estate acquisition. And real estate costs various taxes up to sale during the possession. For the reasons above, it is extremely important to understand about taxes.