Tax Rules: Japan Rental Income for Non-Residents

🇯🇵 Tax Obligation for Non-Resident Real Estate Rental Income in Japan

A non-resident individual who derives rental income from real estate located in Japan is generally subject to Japanese income tax on that income, which is classified as "domestic source income" (国内源泉所得 - kokunai gensen shotoku).

1. Classification and Scope of Taxation

Under the Income Tax Act (所得税法 - Shotokuzei Hō), non-residents are generally taxed only on their Japan-source income (Article 164). Income from the rent or lease of real estate in Japan falls under this category.

Relevant Provision: Income Tax Act, Article 164 (Method of Taxation on Non-residents) and Article 161, Item 7 (Domestic Source Income: Rent or other compensation for the use or lease of real estate in Japan and rights therein or established thereon).

Taxable Income: The taxable income is calculated as the gross rental income minus necessary expenses (such as depreciation, repairs, property taxes, etc.) related to the real estate, similar to a resident taxpayer.

2. Withholding Tax System (源泉徴収制度 - Gensen Chōshū Seido)

To ensure tax collection from non-residents, Japan employs a withholding tax system on certain types of domestic source income, including real estate rentals.

General Rule: When a payer (e.g., a corporate tenant or a property management company acting as the payer) pays rent to a non-resident owner, they are generally obliged to withhold tax at a flat rate.

Withholding Tax Rate: The current withholding tax rate on real estate rental payments to non-residents is 20.42% (which includes the base rate of 20% plus 0.42% Reconstruction Special Income Tax).

Relevant Provision: Income Tax Act, Article 212 (Obligation to Withhold Taxes) and Article 213 (Amount of Taxes Withheld).

Exemption: A significant exception to the withholding requirement exists when the property is leased by an individual for their own or a relative's personal residential use, provided the property is not used for business purposes.

3. Final Tax Return Obligation (確定申告義務 - Kakutei Shinkoku Gimu)

Despite the withholding tax, a non-resident individual deriving real estate rental income is generally required to file a Final Tax Return (Kakutei Shinkoku).

Requirement: The non-resident must file an income tax return to declare the actual taxable rental income (gross income minus necessary expenses) and reconcile the tax liability with the amount of tax already withheld.

Tax Calculation (Crucial Point): The net real estate income (不動産所得 - Fudōsan Shotoku) is subject to Comprehensive Taxation (総合課税 - Sōgō Kazei) and is taxed using the Progressive Tax Rates applicable to residents (5% to 45% plus Reconstruction Special Income Tax), although the availability of certain deductions is restricted.

Purpose: Since withholding is applied at a flat 20.42% rate to the gross rent, filing the final tax return based on the net income (after expenses, and subject to the progressive rates) typically results in a tax refund for the non-resident.

Filing Period: The final tax return must be filed between February 16 and March 15 of the year following the tax year.

Relevant NTA Circular: NTA Tax Answer No. 12014 (Real estate income of non-residents) explicitly states that non-residents earning real estate income from Japan are required to file a final tax return and that the withheld tax amount will be settled in this process.

4. Mandatory Appointment of a Tax Agent (納税管理人 - Nōzei Kanrinin)

A crucial requirement for non-residents is the mandatory appointment of a Tax Agent in Japan.

Requirement: A non-resident individual who is required to file a tax return must appoint a resident individual or corporation in Japan (such as a relative or a certified tax accountant) to manage all tax affairs on their behalf.

Procedure: A "Notification of Tax Agent" (納税管理人届出書 - Nōzei Kanrinin Todokedesho) must be submitted to the District Director of the Tax Office with jurisdiction over the place of tax payment.

Relevant Provision: The requirement is stipulated in the General Rules of National Tax Act, Article 117 (Tax Agent).

Summary Table (Revised)

Aspect	Detail	Relevant Law/Circular
Taxable Income	Rental/Lease Income from Real Estate in Japan	Income Tax Act, Art. 161, Item 7
Withholding Tax	Generally 20.42% of gross rent	Income Tax Act, Art. 212 & 213
Final Tax Rate	Progressive Tax Rates (5%–45%) applied to net income (不動産所得)	Income Tax Act, Art. 89 (Comprehensive Taxation)
Filing Obligation	Mandatory Final Tax Return (Kakutei Shinkoku)	NTA Tax Answer No. 12014
Tax Agent	Mandatory Appointment (Nōzei Kanrinin)	General Rules of National Tax Act, Art. 117