What are the differences in the purchasing process and taxation for non-residents (foreigners not living in Japan) compared to residents?

Hello! I see you're interested in buying property in Japan. It's a significant decision, especially as a non-resident, and there are indeed some key differences compared to residents. Let me break it down for you in simple terms.

Essentially, the biggest differences aren't about whether you can buy, but rather "how to get the money in," "how to handle the procedures," and "how taxes work."

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Differences in the Purchase Process

Legally, Japan is very open. Regardless of your nationality or residency status, you have the right to purchase and own Japanese property and land, on equal footing with residents. However, in practice, you'll encounter several hurdles:

1. Identification Documents: You Need an "Affidavit"

• For Residents: Those living in Japan need to provide a Jūminhyō (Residence Certificate) and an Inkan Shōmeisho (Seal Registration Certificate) during the property transfer process.
• For Non-Residents: You don't have these documents. Therefore, you need to go to the Japanese Embassy or Consulate in your country to obtain an Affidavit. This document serves as the equivalent of your Jūminhyō + Inkan Shōmeisho, proving your name, address, signature, etc., are valid. This is a mandatory document for property registration (transfer).

2. Bank Loans: Almost Impossible, Prepare for Full Cash Payment

• For Residents: Residents with stable jobs and income can apply for loans from Japanese banks at very low interest rates.
• For Non-Residents: This is likely the biggest hurdle. Japanese banks are almost certain to deny loans to foreigners who don't live in Japan and have no Japanese income source. Banks cannot assess your creditworthiness or repayment ability. Therefore, the vast majority of non-residents buy property using full cash payment.
  • Pro Tip: Some Chinese banks with branches in Japan (e.g., Bank of China Tokyo Branch) might offer loan services to eligible Chinese clients, but the scrutiny is very strict, and conditions are tougher than for local Japanese banks. This could be an alternative option to inquire about.

3. Cross-Border Funds Transfer: Getting Money In Safely and Compliantly

• For Residents: Funds are in a domestic Japanese account; a simple transfer suffices.
• For Non-Residents: You need to transfer the purchase funds from overseas to Japan. This large transfer involves:
  • Your home country's foreign exchange purchase regulations and capital controls.
  • Anti-Money Laundering (AML) checks by Japanese banks. Your real estate agent or judicial scrivener will require proof of the funds' source, such as pay slips, bank statements, stock transaction records, etc., to prove the money is legitimate.
  • Exchange rate fluctuation risk. There might be several months between deciding to buy and paying the final balance, during which exchange rate changes could impact your final cost.

4. Signing Contracts & Transfer: You Need a "Key Ally"

• For Residents: Can attend in person; communication is easier.
• For Non-Residents: If you cannot fly to Japan for contract signing or final payment, you need to appoint an agent. Typically, your real estate agent and the Judicial Scrivener (Shiho Shoshi) handling the transfer are your "key allies".
  • Judicial Scriveners are unique Japanese legal professionals specializing in property registration and transfer matters; they are crucial. You need to find one experienced with overseas clients.
  • You can sign a Power of Attorney, authorizing them to handle procedures on your behalf in Japan.

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Differences in Taxation

During the stages of buying, holding, and selling property, some taxes are the same, but the handling differs significantly for non-residents.

When Buying: Tax Types and Rates are the Same

Don't worry too much at this stage; the taxes you pay are identical to residents:

• Stamp Duty (Inshi Zei): Tax affixed to the purchase contract, based on the contract amount.
• Real Estate Acquisition Tax (Fudōsan Shūtoku Zei): A one-time tax paid after acquiring the property, roughly 3%-4% of the property's assessed value.
• Registration and License Tax (Tōki Menkyo Zei): Tax paid when registering property ownership at the Legal Affairs Bureau.

Holding and Renting Out: This is the Key Difference!

1. Mandatory Appointment of a "Tax Agent"

• For Residents: Tax bills are sent directly to their home address; they pay them themselves.
• For Non-Residents: Because you don't live in Japan, the Japanese government cannot send tax bills abroad and fears you might not pay. Therefore, the law mandates that non-resident property owners must appoint a Tax Agent in Japan.
  • What do they do? This person or company is your tax contact in Japan. They receive all your tax bills (e.g., annual Fixed Asset Tax), notify you of payments due, and handle tax office matters on your behalf.
  • Who can be one? You can usually appoint your property management company, accountant, or a specialized service company. This is, of course, a paid service.

2. Renting Out the Property: Rent is Subject to "Withholding Tax"

If you rent out the property, the tax treatment here is completely different from residents.

• For Residents: Receive the full rent amount, then file an income tax return (Kakutei Shinkoku) the following year, calculating profit and paying income tax.
• For Non-Residents: To ensure tax collection, the Japanese tax authorities implement a Withholding Tax (Gensen Chōshū) system.
  • Simply put: Your tenant (if a company) or your property management company must withhold 20.42% tax from your rent payment before paying you, and remit it directly to the government. You receive the remaining 79.58%.
  • Example: For monthly rent of ¥100,000, you actually receive 100,000 * (1 - 20.42%) = ¥79,580. The ¥20,420 has already been paid to the tax office by your tenant or agent.
  • This is not the final tax amount! The 20.42% is just a prepayment. You still need to file an Income Tax Return (Kakutei Shinkoku) the following year. Deduct all allowable expenses (management fees, repair costs, depreciation, tax agent fees, etc.) from your total rental income to calculate your actual profit. Then, calculate the tax you truly owe based on this profit. You'll get a refund if you overpaid, or pay more if you underpaid. In most cases, the actual tax rate is lower than 20.42%, so you can get a partial refund after filing.

When Selling: Sale Proceeds are also Subject to "Withholding Tax"

• For Residents: Receive the full sale proceeds, file a tax return the following year, calculate capital gains (sale price minus costs), and pay tax.
• For Non-Residents: Similar to rental income, withholding tax applies when selling.
  • The rule: If the buyer is an individual purchasing for personal use, withholding is usually not required. However, if the buyer is a company or an individual purchasing for investment, the buyer must withhold 10.21% of the total sale price when paying you, and remit it directly to the tax office.
  • Example: You sell a property for ¥30 million. The buyer will pay 30 million * 10.21% = ¥3.063 million directly to the tax office. You only receive ¥26.937 million.
  • Again, this is not the final tax amount. You also need to file a tax return later to calculate the actual capital gains tax. If the tax you owe is less than ¥3.063 million, you can apply for a refund.

Summary

Hope this explanation helps! The core advice is, as a non-resident, you absolutely must find an experienced real estate agent and judicial scrivener team specializing in serving overseas clients. They will guide you through the entire process and help you avoid pitfalls.