August 1, 2010 | Real EstateThis post is a brief introduction to issues arising in Japanese real estate taxation. Below is a listing of some of the factors that complicate the taxation of real estate transactions in Japan. At the end of the post is a matrix showing different types of tax that often apply to real estate taxation, the different transactions to which such taxes apply and the government office administering the tax concerned.
Issues in Japanese real estate taxation
Issues that complicate Japanese real estate taxation include:
- The range of different types of taxes that can apply to property transactions. In addition to corporate tax, stamp duty, consumption tax, income tax and inheritance taxes that can apply to both real estate and other transactions stamp duty, real estate acquisition tax, fixed assets and city planning tax and special land holding tax also have to be considered.
- Different real estate valuation bases; “road side value”, “market value”, “public value” can all be used in the calculation of the basis for different types of taxes. The relationship between these valuation bases and market value is often obscure for people not familiar with the detail of the Japanese land valuation systems.
- Taxes are administered by both local and national tax authorities as well as by non tax offices in relation to registration taxes.
- There are a wide variety of entities and investment structures that can be used for real estate transactions. The structure chosen can have a large impact on the final effective tax rate paid on the transaction. Entities commonly used in real estate transactions include direct corporate ownership, tokumei kumiai structures, tokutei mokuteki kaisha (REIT style special purpose vehicles).
- The different timing of application of taxes to real estate. Taxes may be payable on initial completion and registration of ownership of buildings, on transfer of land and buildings, on the ongoing holding of real estate and on exit from the investment.
- The underlying transaction giving rise to the transfer or property. The incidence of tax can vary depending on whether the real estate transaction is further to sale, gift or inheritance.
- Corporate taxation itself has become increasingly more complex, including the introduction of group taxation, corporate reorganisation rules, tax consolidation and so on.
- Government tax policy and tax incentives applied to real estate taxation often change.
Real estate taxation summary and overview
The table below collates and summarises the impact of some of the issues above. Future posts will analyse taxation of these transactions in more detail.
|Right - type of tax||National tax||Prefectural tax||Prefectural and municipal tax||Municipal tax|
|Below - application, situation||Stamp tax||Consumption tax||Registration and license tax||Income tax||Inheritance tax||Gift, estate tax||Land value tax||Real estate acquisition tax||Inhabitants tax||Fixed assets, city planning tax||Special land holding tax|
|Taxes on real estate acquisition||New built or purchased||Applies||Applies||Applies||Applies (res loan dedn)||Does not apply||Sometimes applies (e.g on gift to buy)||Does not apply||Applies||Applies (res loan dedn)||Does not apply||Does not apply (suspended)|
|On inheritance||Does not apply||Does not apply||Applies||Does not apply||Applies||Sometimes applies (on splits post inheritance)||Does not apply||Does not apply||Does not apply||Does not apply||Does not apply|
|On gift||Applies (on contract for gift)||Does not apply||Applies||Does not apply||Sometimes applies (gifts three years prior)||Applies||Does not apply||Applies||Does not apply||Does not apply||Does not apply|
|Taxes on holding real estate||Own home||Does not apply||Does not apply||Does not apply||Applies||Does not apply||Does not apply||Does not apply (suspended)||Does not apply||Does not apply||Applies||Does not apply (suspended)|
|Rented||Sometimes applies (rent of land)||Sometimes applies (non-residential let)||Does not apply||Applies (income from real estate)||Does not apply||Does not apply||Does not apply (suspended)||Does not apply||Applies (income from real estate)||Applies||Does not apply (suspended)|
|Taxes at time of transfer||Applies||Applies (assets used in business)||Does not apply||Applies||Sometimes applies (on split)||Sometimes applies (e.g. low value transfer)||Does not apply||Does not apply||Applies||Does not apply||Does not apply|
|Government office handling tax||Tax office||Legal office||Tax office||Prefectual tax office||Local govt. office (for some special areas in Tokyo, tax office)|
|See note (2) for details around valuation timing and announcement of value||Market vale||Applied||Applied||Not used||Not used||Sometimes applied (e.g. low value transfers)||Not used||Not used||Applied||Not used||Not used (suspended)|
|Public value||Not used||Not used||Not used||Applied||Not used||Not used||Not used||Not used||Not used||Not used||Not used|
|"Road side" value||Not used||Not used||Not used||Applied||Applied (note 1)||Applied (note 1)||Not used (suspended)||Not used||Not used||Not used||Not used|
|Fixed asset valuation - land||Not used||Not used||Applied||Applied||Sometimes applied||Sometimes applied||Not used (suspended)||Applied||Not used||Applied||Not used|
|Fixed asset valuation - buildings||Not used||Not used||Applied||Applied||Applied||Applied||Not applicable||Applied||Not used||Applied||Not applicable|