What Tax Do Non-Resident Owners Pay? Property Tax, Income Tax, Withholding
Written by：SUMIMOTO Inc.Editorial Policy
Owning Japanese property while living abroad puts you on a different set of tax procedures than a resident owner. Three things matter most: fixed asset tax, income tax on rental income, and withholding by the tenant. Miss any of them and you are looking at back taxes or a dispute.
Rates worth committing to memory
- Withholding on rent
- 20.42%
- Standard fixed asset tax rate
- 1.4%
- City planning tax ceiling
- 0.3%
Certain exceptions apply
On the assessed tax base
Properties in urbanization promotion areas
Who receives the property tax bill?
Fixed asset tax is a local tax charged to whoever owns the property on 1 January, the assessment date, with payment slips typically issued around April. If you live overseas, the standard practice is to appoint a tax agent in Japan so the slips reach a domestic address. That is what prevents arrears accruing on a bill you never saw.
Do you have to file a return on rental income?
Rental income is Japan-source income and, in principle, requires an annual tax return. How you structure deductions — management fees, repairs, loan interest, depreciation — changes the burden materially, so agree an approach with a Japanese tax accountant from the outset rather than at filing time.
Who withholds, and how much?
Withholding is the item most often missed. A person paying rent to a non-resident is in principle obliged to withhold 20.42%. The exception is an individual tenant renting the property as a residence for themselves or a relative. Confirm before signing whether the arrangement is subject to withholding, and put the treatment in the lease.
When withholding applies (general position)
| Tenant | Use | Withholding |
|---|---|---|
| Corporate | Office, company housing, etc. | Required |
| Individual | Residence for self or a relative | Not required |
| Individual | Any other use, e.g. business | Required |
The governing provisions
- Income Tax Act, Article 161
- Consideration for the lease of real property located in Japan is treated as Japan-source income.
- Income Tax Act, Article 212(1)
- A person paying Japan-source income to a non-resident must withhold income tax and pay it to the state.
- Local Tax Act, Articles 343 and 359
- Fixed asset tax is charged to the owner of the asset, with the assessment date set at 1 January of the year in which the fiscal year begins.
- Act on General Rules for National Taxes, Article 117
- A taxpayer without a domicile in Japan must appoint a tax agent to handle tax matters and notify the tax office.
Common oversights and what to do instead
✕No tax agent appointed, so the property tax slip never arrived and the account fell into arrears.
→Appoint a tax agent before letting begins and notify both the tax office and the municipality.
✕Not realising withholding applied, so the tenant remitted in full and it had to be unwound later.
→Confirm the withholding position before signing and state the treatment in the lease.
✕Receipts not kept, so deductible costs could not be claimed.
→File evidence for management fees, repairs and insurance by fiscal year from the start.
✕Filing started without a depreciation approach, locking in a poor result in year one.
→Settle depreciation and expense treatment with a tax accountant at acquisition.
Before you start holding the property
- Appointed a tax agent and filed the notification
- Confirmed where the fixed asset tax slip will be sent
- Confirmed the withholding position with tenant and management company
- Stated the withholding treatment in the lease
- Engaged a tax accountant for the annual return
- Agreed the approach to expenses and depreciation
- Set up a system for retaining receipts
Frequently asked questions
- Q. Who can act as your tax agent?
- A. Any individual or company with an address in Japan. In practice a tax accountant or the management company usually takes the role.
- Q. Can withheld tax be recovered?
- A. The annual return settles the difference against your final liability. In a year with heavy expenses, that can mean a refund.
- Q. What about tax when you sell?
- A. The gain is taxable, and a sale by a non-resident can trigger withholding by the buyer. Check with a tax accountant before you sell.
- Q. Will you also be taxed at home?
- A. That depends on your country of residence and any tax treaty. For relief from double taxation, consult a specialist familiar with both systems.
The SUMIMOTO Hub app models holding costs property by property, including the taxes and fees above. For actual filings and withholding practice, confirm with a Japanese tax accountant and the tax office. Tax rules change — check the current position when you decide.
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References & Sources
This article provides general information as of its publication date and is not individual legal, tax or investment advice. It was written with the help of generative AI.Editorial Policy
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