Withholding Tax for Non-Residents Purchasing Land in Japan

Have you ever wondered why real estate agents in Japan are particularly attentive regarding land transactions made by non-residents? The answer lies in the unique tax implications that these transactions carry. Let’s delve deeper into this topic.

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The 10.21% Withholding Tax

In Japan, when a non-resident or a foreign corporation decides to purchase land or buildings, a specific tax rule comes into play. The buyer must withhold 10.21% of the transaction price. This amount is essentially a prepayment of income tax.

Whether you’re an individual or a corporation, if you’re paying the transaction price, you’re responsible for withholding this tax.

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Exceptions to the Rule

However, there are exceptions. If an individual buyer purchases property for personal residence and the purchase price is below 100 million yen, they are exempt from this withholding. The rationale is that the property is not intended for business use.

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Timeline for Tax Payment

Once the tax is withheld, ensuring its timely payment is essential. The withheld tax amount must be settled by the 10th of the month following the transaction.

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Settling the Withheld Tax

This withheld income tax isn’t the end of the story for non-residents or foreign corporations. It will later be reconciled through the tax return process. If you’re a non-resident, you’ll settle it through your tax return. If you’re a foreign corporation, it will be reconciled through your corporate tax return.

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Conclusion

Navigating the tax implications of purchasing land in Japan as a non-resident can be complex. If you need assistance with tax returns or have questions about this process, don’t hesitate to contact us. We’re here to help ensure that your real estate transactions in Japan are smooth and compliant with all tax regulations.

Stay informed and make wise decisions regarding your real estate investments in Japan!