Posted on: 23 September 2025

Key Taxes Foreigners Face When Buying Real Estate in Japan

Buying real estate in Japan has become increasingly attractive to overseas investors and individuals seeking a second home. The country’s stable property market, rich culture, and long-term economic potential make it appealing to many. However, understanding the taxes involved is crucial, especially for a foreigner buying property in Japan. It’s also important to be aware of the property laws for foreign buyers, as these can affect ownership rights and tax obligations. Taxes can significantly affect your budget, both at the time of purchase and during ownership.

This guide breaks down the key taxes that foreign buyers should know about before stepping into the Japanese property market.

Acquisition Taxes On Property Purchase

The first set of taxes you will encounter happens during the actual purchase of property. These are one-time costs that must be paid shortly after the acquisition.

Real Estate Acquisition Tax

This is a local tax levied by the prefecture when you buy land or buildings. The standard rate is around 4% of the property’s assessed value, though there can be reduced rates or exemptions for residential properties or under certain conditions. While the rate might seem small, on a high-value property this can add up to a substantial sum, so it’s vital to factor this in from the start.

Registration and Licence Tax

When you transfer the ownership of a property into your name, you must pay this tax as part of the legal registration process. The rate varies depending on the type of property but is typically around 2% for buildings and slightly lower for land. Without this payment, ownership cannot be officially recorded.

Stamp Duty

All real estate sales contracts in Japan must be stamped, and the amount of duty depends on the value stated in the contract. For example, a contract worth hundreds of millions of yen will carry a higher duty than one worth only a few million. This tax might seem minor, but it is a legal requirement that should not be overlooked.

Taxes During Property Ownership

Once the property is in your name, you will be responsible for annual taxes, regardless of whether you live in Japan or remain overseas. Foreign ownership does not exempt anyone from these obligations.

Fixed Asset Tax

This is an annual tax charged on the value of both land and buildings. The standard rate is around 1.4% of the assessed value. Municipal authorities re-evaluate properties periodically, so this amount may change over time. It’s a recurring cost that all owners must budget for.

City Planning Tax

On top of Fixed Asset Tax, properties in designated city planning areas are also subject to a City Planning Tax, generally around 0.3%. It is calculated on the same assessed value and collected together with the Fixed Asset Tax. While this tax is relatively low, it still contributes to the overall cost of owning property.

Income Tax On Rental Income

If you choose to rent out your property, the income you earn will be subject to Japanese income tax. The exact amount depends on the level of income and allowable deductions. If you are classed as a non-resident for tax purposes, the tenant or property manager may be required to withhold part of the rent for tax.

Taxes When Selling The Property

When you eventually sell your property, further taxes can come into play. These taxes are often overlooked during the buying stage but can significantly impact your net profit.

Capital Gains Tax

If you sell your property at a profit, you may owe capital gains tax. The rate depends on how long you have owned the property. Properties held for less than five years are taxed at a higher rate than those held for more than five years. Non-residents are also subject to this tax, although different rates and rules can apply.

Consumption Tax On Brokerage Fees

While land itself is not subject to consumption tax, certain associated fees can be. For example, brokerage commissions charged by real estate agents typically include consumption tax at the prevailing rate. This is something to keep in mind when calculating the costs of selling.

Estate, Gift, And Other Occasional Taxes

Aside from regular purchase, ownership, and sales taxes, there are also occasional taxes that can arise in specific situations.

Estate Tax

If a foreigner inherits property in Japan, estate tax may be due. The amount depends on the relationship to the deceased, the value of the property, and whether the heir is considered a resident for tax purposes. This can be a complex area, and professional advice is strongly recommended.

Gift Tax

Similarly, if a property is given as a gift, gift tax may apply. This works in a similar way to estate tax, with the rate based on the relationship between the giver and recipient and the value of the property involved.

Consumption Tax On Building Purchases

While land is not subject to consumption tax, newly built properties or the building portion of a property transaction may be. This usually applies when buying from a developer or a company, rather than an individual.

Tax Residency And Its Impact

Whether you are considered a resident or non-resident for tax purposes has a major influence on how these taxes apply.

Non-residents are still liable for many of the same taxes as residents, including acquisition and ownership taxes. However, non-residents may be taxed differently on income from renting or selling property. For example, they may be subject to withholding tax on rental income, and their capital gains may be taxed at different rates.

Your residency status is generally determined by the amount of time you spend in Japan and whether you have a permanent home there. It is crucial to confirm your status early, as it affects not only tax obligations but also what deductions or exemptions you may qualify for.

Steps To Plan Ahead And Reduce Risk

Navigating Japanese property taxes as a foreign buyer can seem daunting, but there are steps you can take to simplify the process and reduce unexpected costs.

1. Get A Professional Valuation
   Since most taxes are based on assessed value, having an accurate valuation helps ensure you are paying the correct amount and budgeting properly.
2. Research Local Tax Rates And Exemptions
   Some municipalities offer reduced rates or temporary exemptions for certain types of properties, especially residential ones. It is worth checking these before you commit to a purchase.
3. Seek Tax Treaty Benefits
   Depending on your home country, you may benefit from double taxation treaties that reduce or eliminate certain Japanese taxes.
4. Budget For Ongoing Costs
   Consider not only purchase taxes but also recurring expenses such as annual Fixed Asset Tax, City Planning Tax, and maintenance costs.
5. Consult A Specialist
   Tax laws can change and often involve complex calculations. A professional who understands both Japanese tax law and international situations can save you significant time, money, and stress.

Conclusion

Understanding the taxes that come with purchasing property in Japan is essential for any overseas buyer. From one-time acquisition taxes like Real Estate Acquisition Tax and Stamp Duty, to ongoing obligations such as Fixed Asset Tax, to eventual taxes on rental income or capital gains, each stage carries important financial implications.

Careful planning and professional guidance can help you manage these costs effectively and avoid surprises. If you are considering entering the Japanese property market, consult with experienced real estate professionals like JP Homes, who can guide you through every step and ensure your investment journey is smooth and well-informed.