Is rental income earned in Japan subject to taxation? What is the tax rate? How should foreigners file?

Okay, no problem. Let me explain the tax situation for rental income in Japan in plain language so it's easy to understand.

Is Rental Income Earned in Japan Taxable? What's the Tax Rate? How Do Foreigners File?

Hey! Seeing you ask this, I guess you've either just bought a property in Japan or are about to? Congratulations! Collecting rent is great, but you definitely need to understand the tax implications, otherwise, the tax office might come knocking. Don't worry, it's not that complicated. I'll break it down step by step for you.

The Bottom Line First: Do I Need to Pay Tax?

Simply put: Yes!

As long as your property is located in Japan, regardless of where you personally live, the rental income you receive is considered income sourced in Japan and is generally subject to Japanese taxes.

Part 1: What Tax Do We Pay? How Is It Calculated?

You might be thinking: "Do I pay tax on the full 100,000 yen I receive in rent?" No! The Japanese tax authorities are quite reasonable. They only tax the money you "actually earn", meaning your profit.

This profit has a specific name in tax terms: "Real Estate Income" (Fudosan Shotoku).

The calculation formula is super simple: Real Estate Income = Total Rental Income - Necessary Expenses

What are "Necessary Expenses"? These are the costs you incur to maintain the property for rental purposes. These expenses are deducted from your total income, reducing your taxable amount. This is key to saving on taxes!

Common necessary expenses include:

Fixed Asset Tax / City Planning Tax: Annual property taxes.
Management Fees / Repair Reserve Funds: Monthly fees paid to the building management if you own an apartment.
Insurance Premiums: Costs like fire insurance or earthquake insurance.
Brokerage Fees: Fees paid to agents when buying the property or finding tenants.
Loan Interest: Important! Only the interest portion of your loan counts, not the principal repayment.
Depreciation Expense (Genka Shokyakuhi): This is a major one and often the most overlooked tax-saving tool! You can think of it as the property and its fixtures "wearing out" each year. This loss in value can be claimed as an expense. Calculating it can be a bit complex (usually done by a tax accountant), but you need to know it exists.
Tax Accountant Fees: Fees paid to your tax professional can also be claimed as an expense.
Other Miscellaneous Expenses: Things like travel costs to Japan to inspect the property, communication costs with tenants or agents, etc.

Example: Your annual rental income is 1.2 million yen. Your expenses: Fixed Asset Tax 100,000 yen + Management/Repair Fees 120,000 yen + Insurance 20,000 yen + Depreciation 300,000 yen = 540,000 yen. Therefore, your taxable base (Real Estate Income) for the year is: 1.2 million - 540,000 = 660,000 yen The tax office will calculate your tax based on this 660,000 yen, not the full 1.2 million. Feels better, right?

Part 2: What's the Tax Rate? How Much Will I Pay?

Once you've calculated your "Real Estate Income," you apply the tax rates. Japan uses a "progressive tax rate" for personal income tax, meaning "the more you earn, the higher the rate."

Key Point: For us foreigners (non-residents of Japan), if you have no other income in Japan (like salary), then your "Real Estate Income" is your entire taxable income.

Two main taxes are involved:

Income Tax (National Tax): Rates range from 5% to 45% depending on your income level.
Residence Tax (Local Tax): Can be roughly understood as around 10%.

Here's the latest Income Tax Rate Table for 2024 as a reference:

Real Estate Income Amount (A)	Tax Rate (B)	Deduction Amount (C)	Income Tax Due (A x B - C)
Up to 1.95 million yen	5%	0 yen	Income x 5%
1.95 mil ~ 3.30 million yen	10%	97,500 yen	Income x 10% - 97,500
3.30 mil ~ 6.95 million yen	20%	427,500 yen	Income x 20% - 427,500
6.95 mil ~ 9.00 million yen	23%	636,000 yen	Income x 23% - 636,000
9.00 mil ~ 18.00 million yen	33%	1,536,000 yen	Income x 33% - 1,536,000
18.00 mil ~ 40.00 million yen	40%	2,796,000 yen	Income x 40% - 2,796,000
Over 40.00 million yen	45%	4,796,000 yen	Income x 45% - 4,796,000

Using the previous example, your Real Estate Income is 660,000 yen.

Income Tax: Falls into the "Up to 1.95 million yen" bracket, rate 5%. 660,000 x 5% = 33,000 yen.
Residence Tax: Approximately 660,000 x 10% = 66,000 yen.
Total: You would pay about 33,000 + 66,000 = 99,000 yen in taxes for the year.

Don't forget there's also a special "Reconstruction Special Income Tax" which is 2.1% of the income tax amount. We won't go into detail here; your tax accountant will handle it.

Part 3: I'm a Foreigner Living Abroad. How Do I File?

This is the most crucial practical part. As a "non-resident" not living in Japan, the filing process has a few key points:

Step 1: Appoint a "Tax Administrator" (Nouzei Kanrinin)

Since you aren't in Japan, the tax office can't contact you directly. Therefore, the law requires you to appoint an "agent" in Japan to handle your tax matters. This person/company is called a "Tax Administrator".

Who can be one? It could be a Japanese friend, relative, or a professional tax firm or accountant.
Strong Recommendation: Directly appoint the Tax Accountant (Zeirishi) you hire. They are professional, reliable, and can handle everything properly.
How to do it? Once chosen, you need to submit a "Notification of Tax Administrator" (Nouzei Kanrinin Todokede Sho) to the tax office (Zeimusho) where your property is located. Usually, your tax accountant will handle this for you.

Step 2: File the "Final Tax Return" (Kakutei Shinkoku)

This is what we commonly call "filing taxes."

Filing Period: From February 16th to March 15th each year, for your entire rental income from the previous year (January 1st to December 31st). For example, in February 2025, you file for the full year 2024.
How to File:
- Do it yourself: Theoretically possible, but requires fluency in Japanese, knowledge of Japanese tax law, and ability to use the Japanese e-filing system (e-Tax). This is extremely difficult for foreigners and not recommended.
- Hire a Tax Accountant: This is the easiest and most reliable way. You just need to gather your income and expense records for the year (e.g., lease agreements, receipts for various costs) and send them to your accountant. They will handle all the calculations, form filling, and submission.

Special Note: About "Withholding Tax" (Gensen Choshu)

There's a special situation you need to be aware of:

If your tenant is a "Corporation" (Company): Then, when that company pays your rent, they are legally required to withhold 20.42% as tax upfront and pay you the remainder. This withheld amount is paid directly to the tax office by the company. This is called "Withholding Tax." Don't worry, this isn't money lost. When you file your "Final Tax Return" the following year, this prepaid tax can be credited against your final calculated tax liability. You'll either get a refund or pay the difference.
If your tenant is an "Individual": There is usually no withholding tax. The tenant pays you the full rent amount. You need to pay the entire tax amount yourself when you file your tax return the following year.

Quick Summary of the Process

For an overseas landlord in Japan, the standard tax process is:

Find a reliable Tax Accountant and appoint them as your "Tax Administrator."
Consistently collect and keep all records related to your property's income and expenses.
At the beginning of each year, send your accountant the records for the entire previous year.
Your accountant calculates your "Real Estate Income" optimally and completes the entire "Final Tax Return" process.
Based on your accountant's notification, pay the corresponding tax (or receive a refund).

Done! This way, you can relax back home as a hands-off landlord, just collecting the rent.

Hope this explanation helps! When investing in Japanese real estate, tax compliance is the foundation for long-term, stable returns. Make sure to take it seriously.