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Hello everyone!

Today we are back again with some information about the investment real estate that is all the rage right now.

This is a case that has been bothering many foreigners who are owners of real estate in Japan. So, this will be a series of introductions regarding personal income tax returns for real estate income of foreigners.

It is very complicated, but it is something that must be done.

Let's go over the details together.

Confirmation of type of residence (resident or non-resident?) Non-resident?)
First of all, it is necessary to confirm whether the foreigner is a resident or a non-resident.

If a foreigner who does not live in Japan purchases Japanese real estate, he/she is basically classified as a non-resident. In such a case, what are the tax treatment and procedures in Japan? This article will introduce the tax treatment and procedures in Japan. 

Income tax return for real estate rental income (real estate income)
Even if you do not live in Japan and are a non-resident, your real estate rental income in Japan falls under the category of domestic source income in Japan, and you are required to file an income tax return in Japan.

Scope of Taxation for Nonresidents
Under the Japanese Income Tax Law, residents are, in principle, subject to taxation on their worldwide income, including income earned outside Japan, while nonresidents are only subject to taxation on “domestic source income” earned in Japan. 

Since real estate income falls under the category of “consideration received for the lease of real estate or rights, etc. existing on real estate located in Japan,” the conclusion is that it is taxable in Japan as domestic source income.

Scope of domestic source income

Income attributable to a permanent establishment

Income arising from the operation or ownership of assets located in Japan

Income arising from the transfer of assets located in Japan

Income arising from a business conducted through a permanent establishment based on a partnership contract, etc., which is allocated based on the partnership contract, etc., and which is subject to a certain amount of allocation based on the partnership contract, etc.

Consideration from the transfer of land, rights existing on land, buildings and auxiliary facilities or structures of buildings located in Japan

Consideration for the provision of personal services by a person whose business is the provision of personal services in Japan

Consideration received from the lending of real estate or rights existing on real estate located in Japan

Interest on Japanese government bonds, local government bonds, interest on corporate bonds issued by a domestic corporation, interest on bonds issued by a foreign corporation with respect to a business conducted through a permanent establishment, interest on deposits deposited at a business office in Japan, etc.

Dividends of surplus, dividends of profit, distribution of surplus, etc. received from a domestic corporation

Interest on loans extended to a person who performs business in Japan, which pertains to business conducted in Japan

Royalty for industrial property rights, etc. received from a person who performs services in Japan, or consideration for the transfer thereof, royalty for copyrights, or consideration for the transfer thereof, royalty for machinery and equipment, etc., which pertain to services in Japan

Salary, bonus, remuneration for the provision of personal services, which is based on work performed in Japan or the provision of personal services (including work performed outside Japan as an officer of a domestic corporation or the provision of other personal services specified by a Cabinet Order) (iii) Compensation for the provision of personal services, public pensions, retirement allowances, etc., which are based on the services, etc. performed during the period of residency.

Prize money for advertising a business conducted in Japan

Pension, etc. based on an insurance contract, etc. concluded through a business office, etc. located in Japan

Compensation for benefits of fixed term deposits, etc. received by a business office, etc. located in Japan

Distribution of profit under a silent partnership contract, etc. with respect to capital contribution to a person engaged in a business in Japan

Other domestic source income
 
Do I need to file a tax return? How is it taxed?

As mentioned above, if you earn rental income by renting out real estate, it is considered domestic source income and you are required to file a tax return as real estate income. 

Income tax is not imposed on rental income, but is calculated by applying a tax rate to the amount remaining after deducting necessary expenses from the rental income, etc., as shown below.

Gross income - necessary expenses = amount of real estate income


That was difficult, wasn't it?

However, there are many advantages in Japan if you file your tax returns properly.

We will continue this article next week.

Let's increase your knowledge together!


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