If you currently own property in Japan, you should be receiving your annual property tax bill this month or next. These taxes are owed by anyone who owns real estate in Japan, be it residential, commercial or otherwise. Those living overseas are taxed the same as those living in the country.
The government has decided to extend the home loan tax deduction program for new home buyers to allow a three-year period whereby a home owner could deduct up to 2% of the building portion of their purchase price from their income tax. This is an effort to help support the housing market this year when the consumption tax rate is scheduled to increase to 10% from October 2019.
Kyoto City is firming up plans to impose a nightly tax on providers of short-term accommodation, or ‘minpaku’-type rentals. If approved, it could go into effect from October 2018.
Under the proposal, hosts or providers may be taxed at 200 Yen per night on accommodation that is priced at under 20,000 Yen per person, per night, 500 Yen on nightly accommodation that is between 20,000 ~ 50,000 Yen, and 1,000 Yen on nightly accommodation that is over 50,000 Yen.
Kyoto City is looking into introducing a tax on holiday home owners. In recent years, the number of out-of-town buyers of homes and apartments in the historic city has grown. The homes sit empty for most of the year while the owners do not provide much in the way of tax revenue, leaving locals to carry the costs of maintaining the city’s infrastructure, and various local activities and programs.
Furthermore, increasing tourist numbers have led to intense competition for hotel development sites, pushing up real estate prices in the inner city areas to levels that are now unaffordable for the younger population.
More details have been released on the proposed revision to the annual fixed asset taxes for high-rise apartments.
Current tax valuations for the building are based on the size of the apartment, which means an apartment on the 40th floor would have the same fixed asset value as the same-sized apartment on the 1st floor, despite market prices being vastly different.
Under the proposed revision, apartments on higher floors will be more heavily taxed, while apartments on lower floors will have lower taxes. For a 40-storey apartment building, the difference in tax value between a 1st floor and 40th floor apartment could be around 10%. If the annual tax was 200,000 Yen, the apartment on the 1st floor might end up with a tax bill of 190,000 Yen, and the apartment on the 40th floor might have a tax bill of 210,000 Yen. For a 50-storey building, the difference might be 12 ~ 13%.
If approved, the new tax calculation method would apply to brand-new apartment buildings delivered to buyers from 2018 onwards. The target of the tax revision is brand-new buildings over 60 meters tall (over 20 storeys). It will not apply to existing buildings delivered to buyers before this date.
Jiji Press, November 25, 2016.
The Nikkei Shimbun, November 26, 2016.
In Japan, annual property taxes on apartments are based simply on the floor area and the size of the land ownership share underneath the building, with no consideration given to the height of the floor. This means that the owner of a 100 sqm apartment on the top floor of a high-rise would pay the same annual property taxes as the owner of a 100 sqm apartment on the ground or second floor of the building, despite both units having considerably different market values.
The government is looking at adjusting the tax calculation methods for apartments to allow for some consideration to be given to floor height. Although details have yet to be ironed out, current discussions suggest that the new tax methods may apply to brand-new apartment buildings over 60 meters tall (approx. 20 storeys and above).
The National Tax Agency and the Ministry of Internal Affairs and Communications are considering introducing changes to the tax valuation of apartments in high-rises to counter-act a growing trend of wealthy Japanese buying up apartments on high floors to reduce their inheritance taxes. Changes could be introduced from as early as 2018.
When calculating inheritance taxes, assets such as cash and shares are valued based on their face value, while real estate is valued based on its ‘rosenka’ tax value which can be much lower than the actual market value.
For apartments in a high-rise building, the tax value is currently based on both the size of the apartment and the rosenka value of the small share of land. Tax values do not take into account the floor, views or facilities, so an apartment on the 2nd floor would have the same tax value as an apartment on the top floor, assuming they are the same size. The top floor unit, however, has a market value much higher than the lower floor unit.
The Osaka Regional Taxation Bureau has identified approximately 50 landlords of rental properties in Kyoto that failed to report over 300 million Yen (2.55 million USD) in rental income over a three year period.
From 2014, approximately 50 landlords of rental apartment buildings and the smaller ‘apaato’-type flats located near the Doshisha University campus were the subject of an investigation by the Kamigyo Tax Office. The investigation found that the majority of the landlords had failed to correctly file and declare taxes.
Japan’s National Tax Agency is calling on local tax offices to enforce stricter checks with regards to the purchase of high-rise apartments by wealthy individuals as a way of reducing their inheritance tax burden.
The inheritance tax charged on real estate is calculated based on the taxation value of the property rather than the market value. For apartments in high-rise buildings, the taxation value can be considerably lower than the actual market value because the land ownership share is usually quite small. The value of the apartment itself is also based on the size of the apartment and does not take into account the finish of the interior, whether it is on a high or low floor, nor the building facilities and services.
From February 28, 2015, the Act on Special Measures Concerning Vacant Houses will go into effect. This law has been designed to help reduce the number of abandoned homes across the country. Such homes pose fire and hygiene hazards, can invite crime and can be a general blight on the neighbourhood.
Under this Act, a local government can designate an abandoned and deteriorating property as a risk to the environment, and thereby make the property owner ineligible for the fixed asset tax deductions that would otherwise apply. In some cases, local governments may have the right to forcibly demolish the building.
In the 1970s, tax breaks were introduced to help ensure a steady supply of housing at a time when there was a housing shortage. Under this tax scheme, the annual fixed asset tax on residential land was reduced to a 1/6th on the first 200 sqm, and 1/3rd for the portion over 200 sqm, provided there was a house on the land.
Naturally this made it much more cost effective to leave a dilapidated and inhabitable structure on land that the owner had no current plans for, since removing the house could result in their tax bill increasing six-fold. For example, an annual fixed asset tax bill of 80,000 Yen would become 480,000 Yen.