Japanese Tax Blog in English

日本の税務情報を英語で書くブログ by みなと国際会計事務所

Consumption tax refund from investing Japanese properties

time 2016/11/18

When you are thinking of investing Japanese properties, please talk with a qualified tax accountant. It will probably make a huge difference in your future cash flow i.e. consumption tax refund.

At the beginning of investing, you will need to decide whether you will buy properties as an individual or setting up a company and buy through it. This is already a big topic and it depends on situation of each person. I will cover this topic later.

The most common mistake is that you will create a company with minimum capital, like 1,000,000 yen. According to Japanese Consumption Tax Law, a company with capital less than 10,000,000 yen is considered as Small/Medium Enterprise, which is exempt of consumption tax by default (non tax filer of Consumption tax).

This law is aimed to help and encourage small businesses by giving at least first two years of exemption. Here is the trap.

If your company is an SME, you are exempt of Consumption Tax. You will not have to pay nor even file for Japanese Consumption Tax but you also can NOT file consumption tax. This means that you will not get Consumption Tax refund, even if you buy a property.

For example, if you buy a 30 million yen worth of a commercial apartment in Tokyo, the price of the apartment has to be split into the price for land portion and the one for building portion for the calculation. Presuming that land price is expensive, especially in Tokyo, let us presume that they are 50:50. in value Because land is not taxable of Consumption Tax (because it is not to be consumed but it is supposed to last forever), only the building portion is taxable. Consumption tax is 8% of 15 million yen, which is 1.2 million yen. And if you do not do anything, your new company is non-tax filer by default and therefore, it will not be able to get the refund.

To avoid this undesirable situation, you will need to submit a form to become a tax filer called “課税事業者選択届出書”. The deadline is by the end of the first fiscal year or, for the second year and onward, it is one day before the beginning of an accounting year. It is very strict.

Ohtemachi district – business district where many large sized corporations have their headquarters in later autumn.

Properties that will not get refund

Apartments to be used for residences are not qualified for consumption tax refund. The reason is because the rent income for residence in future are not taxable of consumption tax. And consumption tax on investment is only refundable when its future cashflow is expected to be taxable income.


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