Purchasing real estate in Japan as a foreigner can be a rewarding investment, but it’s crucial to understand the legal landscape and specific procedures involved. This guide covers essential legal steps, tax obligations, and potential challenges to ensure a smooth transaction.
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Can Foreigners Buy Property in Japan?
Yes, there are no explicit laws prohibiting foreigners from purchasing property. While Japan has laws like the Alien Land Law (外国人土地法) and the regulations concerning the acquisition of real estate by foreign governments (外国政府の不動産に関する権利の取得に関する政令), these don’t impose restrictions on individual foreign buyers.
There is one notable exception. In June 2021, Japan introduced the Act on the Review and Regulation of the Use of Real Estate Surrounding Important Facilities and on Remote Territorial Islands(重要施設周辺及び国境離島等における土地等の利用状況の調査及び利用の規制等に関する法律). This law places restrictions on land purchases in what are considered security-sensitive zones, such as areas near Self-Defense Force bases, nuclear power plants, and border islands. This law, intended for national security, affects both foreign and domestic buyers but primarily targets foreign entities.
Legal Procedures for Buying Real Estate in Japan
Property Search
Begin by selecting the property type—residential, commercial, or land—and determine your budget. You will typically negotiate the sale or purchase of real estate through a real estate agent or attorney, following the necessary steps for entering into a sales contract and transferring the property registration.
Reporting Requirements
As previously mentioned, while there are no special restrictions on foreigners acquiring real estate in Japan, it is important to note that foreign nationals classified as non-residents are required to report their real estate acquisition.
Specifically, non-resident foreigners must report the acquisition to the Minister of Finance through the Bank of Japan within 20 days of the acquisition under the Japanese Foreign Exchange and Foreign Trade Act.
A non-resident is defined as anyone who does not qualify as a resident, and a resident refers to an individual who either has an address in Japan or has resided there for more than one year.
However, non-residents are exempt from the reporting requirement in the following cases:
- When acquiring real estate from another non-resident.
- When acquiring real estate for use as the non-resident’s own office.
- When acquiring real estate for use as a residence for the non-resident, their family, employees, or other personnel.
- When a non-profit entity acquires real estate for the purpose of conducting non-commercial activities in Japan.
Registration Process
in Japan, ownership is transferred upon signing the sales contract, and registration with the title book is only required to assert the ownership transfer against third parties.
Also, for a buyer to modify, expand, sell, or lease the acquired property, the name must be registered (through property registration). Therefore, it is common practice to complete the registration process without delay after the sale is finalized.
To apply for title transfer registration, documents such as “proof of the buyer’s address” and a “certificate of seal registration” are required. For foreigners who do not reside in Japan, instead of providing a resident record (juminhyo), they can submit a “signature certificate” that has been notarized in their home country or certified by the Japanese consulate. Similarly, in place of a seal registration certificate, a “signature certificate” notarized in their home country or certified by the consulate can be submitted.
Financing Options for Foreign Buyers
Many Japanese banks offer financing options to foreign residents, but non-residents may face stricter requirements. Be prepared to provide extensive documentation, including proof of income, residence, and the intended use of the property.
Costs Involved in Purchasing Real Estate in Japan
When purchasing real estate in Japan, several expenses arise, including stamp duty, brokerage fees, and registration costs (which include a registration license tax amounting to 0.2% of the purchase price). On average, these costs are estimated to be around 6% to 8% of the property’s value.
After acquiring the property, annual fixed asset taxes (based on the municipal government’s valuation of the property, with a standard rate of 1.4%) and residential taxes must be paid. Additionally, if there is rental income, income tax will be applicable, and in cases of capital gains, capital gains tax must also be paid.
Japan has a tax representative system for non-residents. Therefore, property owners residing abroad must appoint a tax representative to handle tasks such as tax payments on their behalf.
Withholding Tax System for Non-Residents
When a non-resident sells or leases real estate in Japan, it’s important to note that a withholding tax system is in place to prevent the omission of tax filings by non-residents, under certain conditions.
For non-residents selling real estate in Japan, the buyer is obligated to withhold 10.21% of the purchase price and pay it to the tax office. This means that the non-resident seller will only receive 89.79% of the agreed sale price. However, if the buyer is an individual, and the purchase price is 100 million yen or less, and the property is intended for personal or family residential use, the withholding requirement does not apply.
In the case of leasing real estate, 20.42% of the rent received by the non-resident must be withheld, provided specific conditions are met. However, similar to property sales, if the lessee is an individual and the property is used for personal or family residential purposes, the withholding tax does not apply.
The amounts withheld are reconciled during the final tax return filed the following year.
Common Pitfalls to Avoid
Foreign buyers should be wary of fluctuating exchange rates, hidden costs like property maintenance, and language barriers during contract negotiations. Hiring a bilingual legal counsel is highly recommended to avoid miscommunication.
Conclusion
Foreigners looking to purchase real estate in Japan can benefit from its open market, but the process involves detailed legal and financial steps. With the right legal professionals by your side, acquiring and investing in Japanese real estate can be a straightforward and profitable venture.
Why Choose Us?
Our office has extensive experience in handling real estate transactions for foreign clients. We have successfully assisted numerous international buyers in navigating Japan’s complex legal, tax, and regulatory environment. By partnering with top legal professionals in Tokyo and Osaka, we ensure that your real estate transactions proceed smoothly and efficiently. Whether you are purchasing, selling, leasing or even inheriting property, our team is here to provide expert guidance every step of the way.
For expert advice on real estate transactions in Japan, reach out to us by clicking here.
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