When a foreigner owns property in Japan and earns rental income from it, what should they do about tax filing?
Japan’s income tax system is based on two key perspectives:
- The residency status of the foreigner in Japan
- The location where the income is generated
In this article, we will explain the income tax rules that apply when a foreigner earns income from real estate they own in Japan.
1. Basic Knowledge of Japan’s Income Tax
(1) Residency Status for Foreigners
Under Japan’s income tax system, foreigners are classified into three categories based on their residency status:
- Permanent Resident
- Non-Permanent Resident
- Non-Resident
Which category you fall into will affect whether and how you need to file a tax return.
For more details on each residency type, please see the related article linked below.
(2) Where Real Estate Income is Considered to Arise
Japan’s income tax rules differentiate taxable income based on where the income is generated.
In this case, since the rental income is from real estate located in Japan, the income is considered to be generated in Japan.
2. How Real Estate Income is Taxed in Japan
Let’s break down the tax treatment based on each residency status.
(1) Permanent Residents
Real estate income is subject to taxation in Japan, and a tax return must be filed.
This income is taxed under the comprehensive taxation system, which means the rental income is added together with other types of income, such as salary, to calculate the total taxable amount.
(2) Non-Permanent Residents
Taxation rules are the same as for permanent residents.
The income is taxed in Japan, and a tax return must be filed under the comprehensive taxation system.
(3) Non-Residents
① Income Tax is Withheld at Source
Non-residents are also taxed in Japan, and a tax return is required.
Comprehensive taxation applies here as well. However, what’s important to remember is the withholding tax. Withholding tax means that the payer of the rent deducts the income tax in advance before making the payment to the landlord. So, by the time you receive your rental income, the tax has already been deducted.There are general rules and exceptions for withholding tax.
② General Rule
When the tenant pays rent to the landlord, 20.42% of the rent is withheld as income tax.If the amount withheld exceeds your actual tax liability, you can claim a refund by filing a tax return.If the amount withheld is less than your actual tax liability, you must pay the difference when you file.
For example, if the withholding tax is ¥2,500, but your total annual tax is ¥2,000, the ¥500 difference will be refunded.
③ Exception
If the tenant is an individual and is renting the property for personal residential use, withholding tax does not apply.
④ Check the Tax Treaty
If you live in a different country from where the income is generated, you should also check whether a tax treaty applies. A tax treaty is an agreement between Japan and another country to prevent double taxation and to coordinate tax rules. Since Japan and your home country may have different tax laws, the tax treaty helps resolve any differences and ensures fair treatment. So, make sure to review the relevant tax treaty as well.
3. How to Calculate Real Estate Income and Required Tax Forms
Real estate income is the profit you earn from renting out property, such as land or buildings.
It is calculated as:
Total Rental Income – Necessary Expenses
Necessary expenses are costs that are directly related to earning rental income. Expenses that are not related to your rental activity cannot be deducted. If you own fixed assets, you can also deduct depreciation expenses, which must be calculated in accordance with Japan’s income tax rules. When filing your tax return, you must prepare not only Form 1 and Form 2, but also additional documents depending on whether or not you use the blue return system. If you qualify for the blue return, you must submit the Financial Statement for Blue Return. If you do not use the blue return, you must submit the Statement of Earnings and Expenses.
The blue return system offers various tax benefits.
For example, under the blue return system, you can deduct salaries paid to family members who are involved in the rental business if certain conditions are met.
For more details, please refer to the related article.
4. Can Non-Residents Use the Blue Return System?
Even if you live outside Japan as a non-resident, you can still use the blue return system. However, the timing of when you submit the Application for Filing the Blue Return determines when you can start filing under this system.
For example, if you submit the application in 2025:
If you submit it by March 15, 2025
→ You can use the blue return starting with your 2025 tax filing.
If the rental activity is your first-ever business and you file the application within two months of starting it, you can also file a blue return for 2025.
→ You can also use the blue return starting with your 2025 tax filing.
In all other cases
→ You can use the blue return starting with your 2026 tax filing.
Be careful not to assume that you can automatically use the blue return system immediately after submitting the application.
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