(c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation (Individuals Purchasing...
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Transcript of (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation (Individuals Purchasing...
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate Taxation(Individuals Purchasing Real Estate in Japan)
Grant Thornton Japan / ASG Tax Corporation
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationAgenda
1. Resident Status
2. Taxes on Acquisition and Holding
3. Rental Income
4. Capital Gains
5. Case Study
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationResident Status - Classifications
Resident
Non-permanent
Permanent
Non-Resident
Lived in Japan for 5 years or less of past 10 years
Lived in Japan for more than 5 of past 10 years
Domicile in Japan or resided in Japan for at least 1 year up to current date
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationResident Status - Scope of Income
• Permanent Resident– Worldwide income
• Non-permanent resident– Japan source income and income remitted into
Japan
• Non-Resident– Japan source income only
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate Taxation Acquisition Taxes
Taxes paid on acquisition of propertyReal Estate Acquisition Tax 4% of valuation
Registration and License Tax 2% of valuation
Consumption Tax 5% of building value
Stamp Tax JPY80,000 (JPY100M - JPY500M contract)
Total as % of Purchase Price 5% - 8%
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationAcquisition Taxes - Client Case
Purchase Price JPY130M; Valuation JPY93M
Real Estate Acquisition Tax 3.7M
Registration & License Tax 1.8M
Consumption Tax 4.2M
Stamp Tax 0.08M
Total 9.8M
Total as % of Purchase Price 7.5%
Calculation of Acquisition Taxes
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationHolding Taxes
Taxes paid through the period of ownershipFixed Assets Tax 1.4% of valuation
City Planning Tax 0.3% of valuation
Total as % of Property Value 1% - 3%
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationHolding Taxes - Client Case
Purchase Price JPY130M; Valuation JPY93M
Fixed Assets Tax 1.3M
City Planning Tax 0.3M
Total 1.6M
Total as % of Purchase Price 1.2%
Calculation of Holding Taxes
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationRental Income - Treatment
• How does Japan treat rental income?
– Treated as “lease” or “business” income on your tax return
– Taxed with other income at progressive rate
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationRental Income – Expenses
• Claim expenses against your income:
– Depreciation
– Repairs
– Interest
– Management fees
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationRental Income - Depreciation
• Purchase cost of the building can be recovered as an expense – depreciated over useful life
• Only buildings can be depreciated
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationRental Income - Depreciation of new assets
Statutory useful lives for new buildings
Type of Structure Residential Use Office Use
Concrete 47 50
Brick 38 41
Wood 22 26
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationRental Income - Depreciation of used assets
• If older than statutory useful life …
– Depreciated over period equal to 20% of statutory useful life
– 30-year old wooden house depreciated over 4 yrs.
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationRental Income - Repairs and Renovations
• Repairs– Treated as an expense
– Taxable deduction
• Renovations– Increase value of building
– Costs added to the price paid for the house and depreciated
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationRental Income - Interest
• Interest on a loan deductible
– Building / land value ratio required
– All of building portion deductible
– Land portion may be deductible
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationCapital Gains
Niseko Property
Buy in 2001 9M
Sell in 2008 62M
Capital Gain 53M
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationCapital Gains - Short term vs. Long term
Non-residents pay national component only
Capital Gains Tax RatesTime Property held National Local
More than 5 years 15% 5%
5 years or less 30% 9%
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationCapital Gains - Owner-occupier discount
• JPY30M discount on gains
• Must reside in the property at time of sale
• Joint-owners can each claim discount … gift tax
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationClient Case (Jack)
• Jack is from the USA• Single• Annual salary JPY32M• Lives in Tokyo• Considering property purchase
and wants to know tax implications
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationClient Case (Jack) – Investment Property
Jack's InvestmentProperty (type/use/construction date) Wood/Residential/1987
Year of purchase 2008
Purchase price JPY80M
Loan, Interest 60M, 5%
Repairs JPY15M over 5 years
Renovations None
Estimated rental income JPY3M per year
Sell date/Estimated price 2014/JPY100M
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationClient Case (Jack) - Calculation
Before investment
Employment Income 32M
Deductions 2M
Taxable income 30M
Income Tax 9.2M
After investment
Rental Income 3M
ExpensesInterestRepairsDepreciation
(2.25M)(3M)
(12M)
Taxable Income (Prop.) (14.25M)
Taxable Income (E) 30M
Taxable income 15.75M
Income Tax 3.7M
Annual Income Tax Savings: JPY5.5M(5-year: JPY27.5M)
(c) Grant Thornton Japan. All rights reserved.
Japan Real Estate TaxationClient Case (Jack) – Capital Gain
Sell in 2014 for JPY100MCost base (purchase price + depreciation) 20
Amount of gain (sale price – cost base) 80
Long-term / Non-resident CG tax payable (15%) 12
Long-term / Resident CG tax payable (20%) 16
Long-term / Resident CG tax payable (20%) with JPY30M deduction
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