Home Sweet Home, the saying goes. But for all the happy memories there, you might wonder just how much it’s worth when your annual property tax bill arrives. Following on from our article on income tax in Japan, this article will cover the taxes you can expect to pay if you dip your fingers into the real estate market. The taxes you’ll pay can broadly be split into two–the taxes paid during property acquisition and then the regular taxes you’ll pay while you own the property.
Annual taxes paid on property
Once you’ve got that deed signed and paid all your fees, this is the easy part. The taxes that you’ll need to pay are Fixed Asset/Property Tax (固定資産税 or Kotei Shisan Zei) and, potentially, City Planning Tax (都市計画税 or Toshi Keikaku Zei). Property tax is calculated on all taxable assets including land, housing, and commercial buildings, regardless of location. City Planning Tax, however, will only apply if the property in question is in an area designated by the City Planning Act, which are usually urban areas. The taxes are both flat rate with Property tax being levied at 1.4% of the assessed value and City Planning Tax at 0.2 to 0.3%, depending on location. So, for example:
- Land with an Assessed Value of ¥50,000,000
- Property Tax at 1.4% = ¥700,000
- Tokyo City Planning Tax at 0.3% = ¥150,000
- For a total tax bill of ¥850,000
Are there any exceptions or deductions?
That might seem like an easy calculation, but there’s a few points to keep in mind. Firstly, as stated, the City Planning Tax is a flat rate, but will vary between cities and prefectures. Karuizawa, for instance, has a rate of 0.2%, whereas Tokyo has the highest rate of 0.3%, so be sure to check your area’s rate.
Furthermore, the Assessed Value of your property will be used to calculate your tax payments. This is not necessarily the market value, but a precalculated price stored at the local tax office. This means that depending on the property market, you may end up paying tax on an under or overvalued property. Though it will eventually be reassessed, you can have your property revalued sooner by a specialist firm.
Fortunately, there are also several deductions that might apply (p.40). Property below certain thresholds are entirely exempt – Land in Tokyo worth less than ¥300,000 and residential buildings worth less than ¥200,000 are untaxed. Residential buildings also are taxed at lower rates than buildings used for commercial purposes, as are smaller plots of land.
You might think that residential buildings being worth less than ¥200,000 is unusual, but it’s actually quite common. If you’re buying a property with a structure on it that’s over 40 years old, in Japan, it’s effectively worthless.
Finally, the local government will sometimes calculate the new payment by dividing the full taxable amount by the maximum amount payable in the previous year. This is to prevent large spikes in tax payments. Therefore the tax levied immediately after a revaluation is only a percentage of the full amount.
How am I supposed to calculate and pay all this?
Luckily, you don’t have to! These bills are calculated by your local tax office, and you will receive them from April to June. Much like Income Tax or Health Insurance bills, they can be paid at convenience stores, banks, and post offices. Like Residence Tax, the bills will be presented as both a lump sum and divided for convenience.
What if I want to buy property?
Buying property in Japan involves three different taxes, in addition to signing up for the aforementioned property and city planning taxes in future. Those are Stamp Duty, Registration and License Tax, and Real Estate Acquisition Tax. The taxes are one-off payments made at different points during the purchase, but together can add up to a significant amount, so keep them in mind!
Real Estate Acquisition tax is the “main” singular tax you’ll pay when receiving any form of property–it’s levied against most of the common ways you’ll acquire assets. This includes buying, constructing, gifting, and exchanging. This tax is also levied at a flat tax rate–3% on land and residential property, and 4% on non-residential property. Like regular property tax, this tax is calculated using the Assessed Value of the property and, depending on the date of construction and acquisition, maybe be eligible for tax reductions (p.35). This tax will also be calculated and sent out as a bill by your local tax office shortly after the acquisition.
Stamp Duty, on the other hand, is a niggling tax that you’ll probably find yourself paying multiple times throughout the process of buying property. As the name applies, it is a tax levied on contracts and receipts to mark them as official. Each of these will have a postmark stamped on once paid, hence the name. Though the seller is obligated to pay this as they will be the ones preparing the contracts, the cost will usually be passed onto the buyer as part of the fees for acquisition. Therefore, it should be considered a tax to be paid when acquiring property. It is calculated based on the value of the of the receipt or contract (link in Japanese). Though we are mentioning it, the judicial scrivener (司法書士 or shishoushoshi) or lawyer overseeing the purchase will usually arrange this for you.
Finally, Registration and License tax is levied on the establishment of a mortgage, transferring ownership of assets, or preserving ownership. This tax is paid separately on land and buildings and is based on the Assessed Value of the property, much like Property tax and Real Estate Acquisition tax. These rates depend on the movement of ownership and type of property (p.73), but will usually be 2% on transfers of ownership and 0.4% on new ownerships and mortgage establishment. This tax is usually paid at the ward tax office alongside the application for the requested change and may often be paid in revenue stamps if below a certain threshold.
And then that’s it! You’re done with taxes on your new property and can move in knowing that you’re done with bills. Well, until April rolls around and the new property tax bills come calling… but home sweet home for now!