Taxes When Buying Property in Japan: Acquisition Tax, Registration Tax, and Consumption Tax
【Koshida Accounting Firm Column Date:】
Hello, my name is Taisei Koshida, a certified public accountant and tax accountant in Japan.
When buying property in Japan, the purchase price is not the only cost you need to consider. Several taxes may arise when you acquire land or a building, including real estate acquisition tax, registration and license tax, and consumption tax.
The tax treatment differs depending on whether you purchase land or a building, whether the property is residential, and who the seller is.
In this article, I explain the three main taxes you should know about when purchasing real estate in Japan.
Our accounting firm in Japan provides accounting and tax services with English support, including assistance for foreign individuals and business owners dealing with the Japanese tax system.
1. Real Estate Acquisition Tax
Real estate acquisition tax is imposed when you acquire land or a building in Japan.
The tax is generally calculated based on the property’s fixed asset tax assessed value (固定資産税評価額), rather than its actual purchase price. In most cases, the assessed value is lower than the market price.
The standard tax rate is 4%. However, a reduced rate of 3% applies to land and residential buildings until March 31, 2027.
There are also various reductions and special treatments available for certain residential properties and land. Therefore, the actual amount of real estate acquisition tax may be significantly lower than a simple calculation using the standard tax rate.
2. Registration and License Tax
When you purchase real estate in Japan, the transfer of ownership is generally registered with the Legal Affairs Bureau.
Registration and license tax is imposed when the ownership transfer is registered.
For a transfer of ownership through a purchase, the standard tax rate is generally 2% of the fixed asset tax assessed value of the property.
However, reduced tax rates and other special treatments may apply depending on the type of property and the applicable requirements.
This tax is based on the assessed value for fixed asset tax purposes, not simply on the property’s purchase price.
3. Consumption Tax on Property Purchases
The consumption tax treatment differs between land and buildings.
Land is not subject to Japanese consumption tax. Therefore, no consumption tax is imposed on the portion of the purchase price attributable to land.
Buildings, on the other hand, may be subject to 10% consumption tax when they are sold by a business that is required to charge consumption tax.
This distinction can be important when purchasing a property that includes both land and a building. The purchase price is normally allocated between the land and building portions, and the consumption tax treatment differs for each portion.
If you purchase real estate for business or investment purposes, taxes at the time of purchase are only part of the picture. You should also consider the tax treatment of rental income and the taxes that arise when the property is eventually sold.
You can find more information in the following articles:
Taxes When Running a Property Lending Business in Japan
Taxes When Businesses Sell Real Properties in Japan
4. Other Taxes and Costs to Consider
In addition to the taxes explained above, purchasing property in Japan may involve other taxes and transaction costs, such as stamp tax, judicial scrivener fees, and real estate agent fees.
After acquiring the property, you should also consider annual fixed asset tax and city planning tax.
If you purchase the property as an investment or through a company, the accounting and tax treatment after the purchase also becomes important, including depreciation of the building and the treatment of expenses related to the property.
5. FAQ: Taxes When Buying Property in Japan
Is real estate acquisition tax calculated based on the purchase price?
Generally, no. Real estate acquisition tax is calculated based on the fixed asset tax assessed value of the property, which is different from the actual purchase price.
Is consumption tax charged on land in Japan?
No. Land is not subject to Japanese consumption tax. However, the building portion of a property purchase may be subject to consumption tax.
If I buy land and a building together, is the entire purchase price subject to consumption tax?
No. The land portion is not subject to consumption tax. The building portion may be subject to consumption tax depending on the seller and the transaction.
Do I need to consider taxes after purchasing the property?
Yes. Property owners may be subject to fixed asset tax and city planning tax each year. If the property generates rental income, income tax or corporate tax and the accounting treatment of depreciation and expenses should also be considered.
Is the purchase price used as the depreciation amount for a rental property?
Not necessarily. Land cannot be depreciated. When a purchase includes both land and a building, the purchase price needs to be allocated between them, and depreciation applies to the building portion.
6. Accounting and Tax Support in Japan
Koshida Accounting and Tax Office provides accounting and tax services in Japan with English support.
We assist foreign individuals, entrepreneurs, and business owners with accounting in Japan, Japanese tax filings, corporate tax matters, and international tax issues.
For clients purchasing real estate for investment or business purposes, we can also assist with the accounting and tax treatment of rental income, expenses, depreciation, and the eventual sale of the property.
Through our network of specialists, we can also connect clients with professionals in areas such as visas, company and property registration, social insurance, and legal matters.
All of our accounting and tax services are available in English.
Please feel free to contact us through our inquiry form.
If you are purchasing property as part of a new business in Japan, you may also find the following guide useful:
Starting a Company in Japan: 3 Essential Tax Steps for Foreign Entrepreneurs