Real estate taxation – introduction

August 1, 2010  |  Real Estate

A Japanese room with traditional features including tatami, shoji

This 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.

[table id=7 /]

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