みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo

みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo, tax tips, accounting, running business

Tax saving by investing properties overseas

time 2015/07/14

One of the frequently asked questions to me is whether tax can be saved by investing overseas. My answer is yes, you can but be careful.

The reason you can save your income tax or corporate tax is because of the life year of assets. It is not common in Japan but apparently a house or building over 100 years old is not that rare in some countries overseas, and you can “legally” benefit from the gap.

According to the Japanese tax law, the life year of old house/building is calculated by the following formula:

Original life year for new property – 80% of its age of the property.

For example, the life year for building made of concrete with steal structure is 50 years. If a building you are purchasing in NY is 50 years old, you deduct 40 years (80% of 50 years that are used) to get 10 years as its life year for tax calculation.

Also, I understand that in real world practice of property appraisal in some country, the price of a building is 90% of the total value and the land portion is only regarded as 10%, which is very different from Japanese  market.

So, if the total purchase cost of a property is 1 MM USD (120,000,000 JPY) , you can depreciate 900,000 USD over 10 years. It means you can save tax on your income by 90,000 USD every year for 10 years. It must be a quite big saving.

 

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