3. Costs and Taxes When Selling Property in Japan

This post is a practical guide for foreign property owners selling property in Japan, explaining the main costs and taxes to understand before selling, including brokerage fees, stamp duty, fixed asset tax settlement, and capital gains tax.

What Costs and Taxes Apply When Foreign Owners Sell Property in Japan?

After preparing the necessary documents, it is equally important to understand the costs and taxes associated with selling property in Japan. In addition to the sale price, sellers should be aware of the various expenses that may arise throughout the transaction.

This article explains the main costs and taxes that foreign property owners should know before selling property in Japan.

When selling property in Japan, the sale price does not necessarily represent the full amount that will remain after the transaction. Brokerage fees, stamp duty, tax settlements, registration-related costs, and taxes on capital gains may apply depending on the property and the seller’s situation.

Understanding these costs in advance helps foreign owners plan the sale more clearly and avoid unexpected expenses during the process.

How Are Selling Costs Generally Calculated?

The overall financial result of a property sale is generally affected by the sale price, selling-related costs, and applicable taxes.

For this reason, it is important not only to consider the expected sale price, but also to understand the costs and taxes that may be deducted during or after the transaction.

Main Costs that Apply

• Brokerage Fee

The brokerage fee is a success-based fee paid to the real estate company when a sales contract is successfully concluded through its brokerage service.

In Japan, the maximum brokerage fee is regulated under the Real Estate Brokerage Act, and the calculation method differs depending on the sale price. In some cases, special rules may apply to certain low-priced vacant houses or similar properties that meet specific conditions.

• Stamp Duty

Stamp duty is imposed on the real estate sales contract. The amount of stamp duty depends on the contract price, and reduced tax measures may apply in certain cases.

• Fixed Asset Tax Settlement

Fixed asset tax is imposed on the person who owns the property as of January 1 each year.

When a property is sold during the year, it is common for the seller and buyer to settle the tax on a prorated basis according to their respective ownership periods. City planning tax may also be settled in the same way where applicable.

Additional Costs and Taxes That May Apply

Depending on the property, the seller’s circumstances, and the details of the transaction, the following costs may also arise.

• Judicial Scrivener Fees

Judicial scrivener fees may be required if registration procedures are needed, such as discharging an existing mortgage or registering a change of address or name before the sale.

• Registration and License Tax

Registration and license tax may be required for procedures such as mortgage discharge registration or address/name change registration. In general, however, the ownership transfer registration is borne by the buyer.

• Survey Costs

If land boundaries have not been clearly confirmed, a boundary confirmation survey may be necessary. The cost varies depending on the condition, size, and location of the land.

• Demolition Costs

If an existing building is demolished and the property is sold as vacant land, demolition costs will be required. These costs can vary significantly depending on the structure of the building and site conditions.

• Moving and Related Costs

If the seller is relocating as part of the sale, additional costs may include:

·       Moving expenses

·       Disposal costs for unwanted items

·       Temporary accommodation costs, where necessary

• Withholding Tax for Non-Resident Owners

When a non-resident owner living overseas sells property in Japan, the buyer may be required to withhold a portion of the sale price under certain conditions.

The required procedure depends on the seller’s residency status, the buyer’s situation, the sale price, and other transaction details. Because the rules can differ depending on the case, foreign owners should confirm the requirements in advance with a qualified professional or consult Dana Estate for initial guidance.

What is Capital Gain Tax?

If a profit is generated from selling property, capital gains tax may be imposed.

In general, a capital gain means the profit calculated by deducting the acquisition cost and selling-related expenses from the sale price. If no profit is generated, capital gains tax is generally not imposed.

Tax Rates Differ Depending on the Holding Period

Capital gains tax on property in Japan differs depending on the holding period as of January 1 of the year in which the property is sold.

Long-Term Capital Gain

If the property has been owned for more than five years, the gain is generally treated as a long-term capital gain, and the tax rate applicable to long-term capital gains applies.

Short-Term Capital Gain

If the property has been owned for five years or less, the gain is generally treated as a short-term capital gain, which is taxed at a higher rate than a long-term capital gain.

Because the timing of the sale may affect the tax burden, it is advisable to confirm the expected tax treatment before deciding on the sale schedule.

Special Tax Relief Programs

Depending on the seller’s situation and the type of property, certain tax relief programs may be available. Examples may include:

·       The special deduction of up to JPY 30 million for certain residential property sales

·       Special reduced tax rates, where applicable

·       Replacement or exchange-related tax deferral programs, where applicable

In some cases, a tax return may also be required after the sale. Because each program has specific requirements, it is recommended to consult a licensed tax accountant or other qualified professional for detailed tax advice.

Summary

When selling property in Japan, foreign owners should consider not only the sale price but also the costs and taxes that may arise during the transaction.

Common costs include brokerage fees, stamp duty, fixed asset tax settlement, and registration-related expenses. Additional costs may also be necessary depending on the mortgage status, land boundaries, building condition, or the seller’s place of residence.

If a profit is generated from the sale, capital gains tax may apply. For owners living overseas, withholding tax procedures may also need to be considered depending on the transaction.

Dana Estate Provides Clear Guidance on Selling Costs and Taxes

At Dana Estate, we support foreign property owners and overseas residents by explaining not only the expected sale price, but also the main costs and taxes that may arise during the selling process.

We provide guidance tailored to each owner’s circumstances, including document preparation, property valuation, contract procedures, closing, and communication with relevant professionals where necessary.

If you are considering selling property in Japan, please feel free to contact Dana Estate for professional advice and personalized support.