(Uploaded:2025/8/28)

Withholding income tax on real estate payments to non-residents

It has become not uncommon for the price of condominiums to exceed JPY 100,000,000 (especially in Tokyo). There are several factors, but it is said that one of them is due to purchases by foreigners. It seems that many of them do not live in the condominiums they purchased, and their purpose is to obtain a profit from the sale due to the soaring price of the condominium. Also, it seems that many of them do not live in Japan. Under the tax rules, such people are called non-residents. When conducting a real estate-related transaction with a non-resident, there is something you need to understand. That is the withholding income tax on real estate-related payments to non-residents. In other words, when making a real estate-related payment to a non-resident, a portion of that payment (10.21% or 20.42%) will be deducted as withholding income tax, and the remainder will be paid to the non-resident. And you, the person making the real estate-related payment, will pay that withholding income tax to the tax office in Japan. This becomes the obligation of the person making the payment. I would like to confirm what kind of real estate transactions incur what amount of tax.

Transfer of Land or Buildings
When purchasing land or buildings in Japan from a non-resident, you must withhold tax. The tax rate is 10.21%. For example, if you purchase a condominium from a non-resident for JPY 150,000,000, you must pay the non-resident the amount after deducting JPY 15,315,000 in tax, and the purchaser must pay that tax to the Japanese tax office. However, if the purchaser is an individual buying for personal or family residence and the purchase price is JPY 100,000,000 or less, withholding tax is not required.

Real Estate Rent
When paying rent for a condominium or similar property to a non-resident, you must withhold tax. The tax rate is 20.42%. For example, if you pay monthly rent of JPY 200,000 to a non-resident, you must pay the non-resident the amount after deducting JPY 40,840 in tax, and the tenant must pay that tax to the Japanese tax office. However, if an individual is renting for personal or family residence, withholding tax is not required. In certain cases, a non-resident may have a document called a “Certificate of Exemption from Withholding Tax(源泉徴収の免除証明書).” If this document is presented to the tenant, withholding tax is not necessary.

What happens if you don’t withhold?
What happens if you pay the full contract amount to a non-resident without withholding tax? Unfortunately, the obligation to withhold tax for the payer is not exempted, so you must still pay 10.21% or 20.42% of the payment amount to the Japanese tax office as withholding income tax. Furthermore, you will have to pay a 10% penalty for the portion that was not withheld. Thus there is absolutely no benefit for the person making the payment. It is possible to contact the non-resident and request a refund of the withholding income tax portion. However, it is not certain whether the non-resident will agree. Even if they do not provide a refund, the Japanese tax office will not contact the non-resident to collect the tax. This is because the obligation to withhold tax rests with the person making the payment. Please be careful when making real estate-related payments to non-residents.