Real estate buyers in Japan are faced with a long list of taxes and duties to be paid upon signing the deal — which can substantially add to the property cost. A full guide to the taxes and costs can be found in our Property Taxes in Japan article. 

However, if the property you buy is a detached house and therefore qualifies as a home, tax breaks apply that can add up to substantial savings. The preferential treatment system for home buyers was originally set to end on March 31st, 2018, but has now been extended to March 31st, 2020.

Here is an overview of the applicable taxes and duties that offer reductions for home buyers, and the conditions that must be fulfilled to qualify.

Stamp tax (or stamp duty) 

Stamp tax (link in Japanese) is levied on real estate contracts as well as the housing loan contracts that are often signed at the same time. For real estate transactions, the rate varies from JPY 200 for sale amounts below JPY 0.5 million and up to JPY 480,000 for transactions over JPY 5 billion. With the preferential treatment, the stamp duty will be halved for all contracts signed before March 31st, 2020. 

For instance, if the detached house you are buying is between JPY 10 and 50 million in value, you will now only have to pay  JPY 10,000 instead of JPY 20,000.

Registration and licence tax

Registration and license tax is levied on the registration of ownership and calculated based on both the land and building value. The same tax is also applied to mortgage loans. The tax rate —  between 0.4% to 2% — can be reduced if the floor area is larger than  50 sq m.

Sometimes, the area stated on the real estate registry differs from the advertised area, so make sure to check what is on the registry to confirm if you qualify. If the floor area is larger than 50 sq m, the tax on housing loans will be reduced from 0.4% to 0.1%, on land from 2% to 1.5% (until March 31st, 2019), and on property from 0.4% to 0.15% (until March 31st, 2020).

Real estate acquisition tax 

This tax is imposed only once on the acquisition of land and buildings at the rate of 4%. In the case of detached houses, the assessed value and the tax rate will be reduced to zero if the gross floor area is larger than 50 sq m, but not over 240 sq m. The conditions and process vary slightly from prefecture to prefecture, so enquire with your prefectural government or city hall for details.

Fixed asset tax

This is levied every year on land and buildings from the time of purchase. Both residents and non-residents who are registered as the owners of a property in the tax register as of January 1st of each year are obliged to pay the fixed asset tax. It is usually taxed at 1.4%, and luckily the value calculated by the government office is often far below the market value. 

For land, a portion of the land up to 200 sq m (or less if the land area is smaller than that) is reduced to one sixth of the regular taxation rate. For detached houses under 120 sq m floor area and are 3 years or older, the tax is halved (5 years or older for apartment buildings). This reduction is applied automatically by the government office when your tax is calculated and sent out to you. It is expected to remain in effect until 2020.

City planning tax

This is a surtax on the fixed asset tax, and is usually levied at a rate of 0.3% on land and buildings within city planning zones. For land, the assessed value is reduced to one-third of the land area, however not over 200 sq m. There are no tax breaks on buildings.

The tax breaks outlined above can therefore reduce the tax and duties levied at the time of purchase for e.g. a condo sold at JPY 40 million by about JPY 1 million and the annual taxes that are due by about JPY 80,000. Enquire with the city hall or prefectural office for the area in which your property is located before the contract is executed as you need to apply for some of these reductions in advance.

Source: https://www.chalier.jp/column/vol06.html#

By Mareike Dornhege 

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