One of the tax mistakes by non-professionals that will probably come as a surprize and may cost you a lot is withholding tax on lands and properties which are purchased from a non-resdients seller.
The buyer has to deduct 10.21% from the price and pay only 89.79% to the seller. If the buyer fails to do so and pays full amount to the seller, it is still the buyer’s responsibility pay the tax.
It is very easy for the tax office to find the error. It is because the ownerships of the properties are registered in the property registry. It keeps records of all the ownerships of every single property from the beginning to today with the causes of the transactions (e.g. newly built, sales, foreclosure and auction, etc). Since the records include “address”, the tax office easily tell if a property was bought from a non-resident.
It is very possible that the buyer does not know the rule. He/she may pay the full purchase price because that is what their contract demends! If his brokerage company is experienced enough with non-resident customers, they will probably know and tell you about the rule.
The cost of not kowing may become significant. For example, if you buy a buidling in Tokyo for 400,000,000 JPY from a non-resident, the tax will be 40,840,000 JPY. The deadline to pay is the 10th of the next month when its payment is made.
Bad news is that, even though the buyer might have not known about the withholding tax responsibility, it is still his responsibilty.
Good news is that he may get the tax back although he will need a cooperation from his seller. Here is how it works:
1) The buyer pays the tax.
2) The seller claims back the tax the buyer paid because it can be treated as tax credit for the seller’s capital gain tax (or loss).
3) The seller returns the refund to the buyer.
We have a lot of experiences in filing for refund of withholding tax that purchaser paid on behalf of sellers. We would be happy happy to give you an advice regarding the refund process or filing refund on behalf.
Hakuba village in Nagano prefecture in late May. The mountains still have plenty of snow.
