Japan Property Sales: 10.21% Withholding Tax

If you live outside Japan and sell real estate located in Japan, you may find that 10.21% has been deducted from the payment you receive. This is due to a system called “withholding” (gensen choshu), under which the buyer deducts income tax from the payment and pays it to the tax office on your behalf. The amount withheld is calculated based on the amount paid for the property, not on your profit, and your final tax is settled later when you file a tax return.

Why Is Part of the Sale Price Withheld?

Under Japanese tax law, a person who purchases land or buildings in Japan from a non-resident of Japan must, as a general rule, withhold 10.21% when paying for the property and pay that amount to the tax office. This obligation is imposed on the buyer.

If you rent out real estate in Japan, you may already know that 20.42% is withheld from the rent you receive. The withholding on sale proceeds works in the same way. However, the rate is 10.21%, and the conditions under which withholding is not required are also different from those for rent.

The 10.21% is applied to the “transfer price,” not to your profit. The transfer price is the money and other amounts you receive in exchange for transferring the property. It is different from your profit on the sale and from the net amount you keep after paying expenses. If the buyer also pays you a fixed asset tax settlement for the period after the property is handed over, that amount is included in the transfer price as well.

For example, if you sell an investment property for JPY 50,000,000 and there are no settlement payments or similar amounts, the withholding tax will be JPY 5,105,000, and you will be paid JPY 44,895,000 after withholding. Please note that this is the amount before you pay the real estate agent’s commission and other expenses.

When Is Withholding Not Required?

The buyer does not need to withhold tax if all three (3) of the following conditions are met:

For example, even if the price is JPY 100 million or less, withholding is required if the buyer is purchasing the property as an investment. If the buyer is a corporation or other legal entity, withholding is required regardless of the amount or the intended use.

Please note that whether withholding is required does not depend on the seller’s nationality. A Japanese national living outside Japan may be a non-resident, and a foreign national living in Japan may be a resident. For tax purposes, whether a person is a resident or non-resident of Japan is determined based on factors such as where the center of the person’s life is located.

Does Withholding Complete Your Tax Obligations?

No. The amount withheld is similar to an advance payment of tax. Your final tax is calculated based on your capital gain from the sale (“joto shotoku” in Japanese).

As a general rule, the seller needs to file a final income tax return during the filing period in the year following the sale (from February 16 to March 15) and settle the amount withheld through that return. If the amount withheld is more than your final tax, the excess will be refunded; if it is less, you must pay the difference. Even if you sell at a loss, tax will be withheld unless an exception applies. In that case, you may file a return to claim a refund of the amount withheld.

To file a tax return while living outside Japan, you must appoint a tax manager in Japan and notify the tax office by the time you submit your return. Whether you will receive a refund, or how much you must pay, depends on factors such as the acquisition cost of the property and the expenses of the sale. Please consult a Japanese certified public tax accountant (zeirishi) about whether you need to file a return, the applicable filing deadline, and the return itself.

What Should You Confirm Before the Sale?

So that you are not surprised by the amount deducted on the settlement date, please confirm the following points with your real estate agent or other person handling the sale before signing the sales contract:

If you plan to return to Japan or to move abroad, please let the person handling the sale know as early as possible. This may affect whether you are treated as a resident or non-resident of Japan.

Frequently Asked Questions

Is the 10.21% calculated on my profit?

No. It is calculated on the transfer price, which includes the sale price and other amounts you receive in exchange for the property, such as a fixed asset tax settlement. Your profit is used later, when your final tax is calculated in your tax return.

Is tax withheld even if I sell at a loss?

Yes, unless an exception applies. You may file a tax return to claim a refund of the amount withheld.

If the price is JPY 100 million or less, is withholding unnecessary?

Not necessarily. Withholding is unnecessary only if the buyer is an individual, the buyer is purchasing the property as a residence for himself or herself or for a relative, and the transfer price is JPY 100 million or less. If the buyer is purchasing the property as an investment, or the buyer is a corporation, withholding is required.

I am a Japanese national living outside Japan. Does this apply to me?

It may. Whether withholding is required depends on whether you are a non-resident of Japan for tax purposes, not on your nationality.