Tax on rent from Japanese property: the tenant may hold back 20.42%, and the deduction that shapes it is fixed by a table

What is taxed is the rent minus what the statute allows to be taken off

Rent from land or a building in Japan is a category of income with its own name and its own article. Art.26(1) of the shotokuzei ho (所得税法) — the Income Tax Act — defines fudosan shotoku (不動産所得), property income, as income from the letting of real property, rights over real property, ships or aircraft. The bracket in the article stretches "letting" well past a tenancy: it covers the creation of a chijo ken (地上権) — under Art.265 of the Civil Code, a right to use another person's land in order to own a structure, or trees and bamboo, on it — or an eikosaku ken (永小作権) — under Art.270, a right to cultivate the land or graze livestock on it in return for rent — and, in general terms, anything that lets another person use the property.

The bracket at the end of that sentence sets the boundary with two neighbouring categories: income that is jigyo shotoku (事業所得), business income, or joto shotoku (譲渡所得), a capital gain on a disposal, is not property income even where it arose from the same building. The second of those is the subject of our guide to capital gains tax; the first decides nothing on this page except which category a short-stay arrangement belongs in, which we come back to at the end.

Art.26(2) then states the measure in one line: the gross receipts for the year less the necessary expenses. The expenses are governed by Art.37(1), which allows expenditure directly required to obtain the receipts and the running costs of the business, but shuts out anything other than depreciation for which the liability is not fixed within the year. Two of those expenses are set not by what was paid but by rules written in other instruments. Depreciation is the subject of the two sections beginning with the fifth, and the interest on borrowing is the subject of the seventh.

The tenant may be required to hold back 20.42% of the rent

Where the owner is a non-resident, a duty attaches to the person paying the rent. It is built from three provisions and a surtax. Art.161(1) lists what counts as Japan-source income, and item (vii) is the letting of real property in Japan. This is a different item from item (v), the consideration for a sale, which carries a different rate and a different exception — that one is covered in our guide to capital gains tax.

Art.212(1) requires a person who pays income within items (iv) to (xvi) to a non-resident to withhold income tax on payment and to pay it to the state by the tenth day of the month following the month of withholding. Art.213(1)(i) fixes that amount at 百分の二十, twenty per cent, for the residual class into which item (vii) falls: item (ii) of that paragraph takes the sale item at ten per cent and item (iii) takes two other items at fifteen, and rent is in neither. Art.28 of the reconstruction funding act then requires the reconstruction surtax to be withheld at the same time, at 2.1 per cent of the income tax withheld, for withholding carried out up to 31 December 2037. Twenty multiplied by 1.021 is 20.42. That multiplication is ours; no article prints the combined figure.

The exception that switches the withholding off

Art.212(1) carries the words 政令で定めるものを除く — excluding what a cabinet order prescribes — and the order is Art.328 of the enforcement order. Item (ii) of that article is the one that matters here.

Two conditions run together. The payer must be an 個人, an individual rather than a company, and that individual must have taken the property in order to live in it themselves or to house a relative. Where both hold, the rent leaves the withholding duty altogether and is paid across in full. Where either fails — a company taking a flat for staff housing, an individual renting a shop, an individual renting a flat in order to sublet it — the duty in Art.212(1) is not switched off.

This is not the same exception as the one on a sale, and the difference is a number

The sale-side carve-out in Art.281-3 of the same order also asks for an individual buying to live in the property, but it adds a ceiling: consideration その金額が一億円を超えるものを除く, over ¥100,000,000, is outside the carve-out however the buyer will use it. Art.328(ii) states no ceiling at all. We read the two articles on the same day and compared them. So a high rent paid by an individual tenant for their own home sits outside the withholding duty on the strength of the same two conditions that apply to a modest one, while on a sale the price alone can put the transaction back inside.

The withholding is a payment on account, not the end of it

Art.164(1) sorts non-residents into those with a permanent establishment and those without, and then lists the income each is assessed on. Item (vii) rent appears in both lists — at (i)(ロ) for the first group and in item (ii) for the second — and both are routed into the aggregate taxation provisions rather than into the separate withholding-only regime in Art.164(2). Aggregate taxation means the rental figure is added to the person's other income taxed on that basis and run through the graduated rates in Art.89, which is why no page can turn a rent roll into a tax bill: the answer depends on income this page cannot see.

Art.166 then applies the resident provisions on returns, payment and refunds to that income, with a list of substitutions. Art.120(1)(iv), reached that way, is where the withheld tax comes back: the amount entered on the return is the tax computed under Chapter III less the gensen choshu zeigaku (源泉徴収税額), the tax withheld. If the 20.42% taken from gross rent exceeds the tax due on the profit, the difference is dealt with in the return rather than lost.

An owner living abroad also runs into Art.117(1) of the Act on General Rules for National Taxes, which requires an individual with no jusho (住所) — a domicile, which Art.22 of the Civil Code defines as 各人の生活の本拠, the base of a person's life — and no kyosho (居所), a place of abode, in Japan who must deal with national taxes to appoint a nozei kanrinin (納税管理人), a tax agent, and Art.117(2) requires that appointment to be notified. The local-tax equivalent, which has its own separate rules and an application to be excused, is set out in our guide to the annual property tax.

Buildings run on one method and a published table

The largest expense in a rental year can be one that never leaves a bank account. Two questions decide it: over what number of years, and by which method. The method is settled quickly. Art.120-2(1)(i) of the enforcement order offers a choice between the straight-line teigaku ho (定額法) and the declining-balance teiritsu ho (定率法) in sub-item (イ), but that sub-item is written for assets acquired on or before 31 March 2016 （建物を除く。） — buildings excluded. A building falls through to sub-item (ロ), which gives straight-line alone.

The number of years comes from Appended Table 1 of the genka shokyaku shisan no taiyo nensu to ni kansuru shorei (減価償却資産の耐用年数等に関する省令), the ministerial ordinance on useful lives. Under 建物, buildings, the residential line reads 住宅用、寄宿舎用、宿泊所用、学校用又は体育館用のもの and is set by construction:

The table has no line for land, and that is deliberate rather than an omission. Art.2(1)(xviii) of the Income Tax Act lists 固定資産 as land and rights over land, depreciable assets, telephone subscription rights and others, while Art.2(1)(xix) defines a depreciable asset by naming buildings, structures, machinery, ships, vehicles, tools and fixtures and mining rights. Land is named in the first definition and absent from the second. Whatever share of the purchase price the land took stays where it is until the property is sold, which is one reason the split between land and building in the contract matters long after completion.

The formula for a building that has already been used

A 47-year life applied to a concrete block that went up in 1998 would be an odd result, and Art.3(1) of the same ordinance provides the alternative, 前二条の規定にかかわらず — notwithstanding the two preceding articles. Item (i) is the estimated remaining period of use. Item (ii) is a formula, and the article makes it available where estimating that period is difficult. The two-year floor sits in the words introducing the formula rather than in either limb of it, so it governs both.

Worked through, on figures we chose so that the arithmetic lands on whole years:

• ■A reinforced concrete flat, statutory life 47 years, 20 years old when acquired. 47 − 20 = 27, and 20 × 0.2 = 4. The result is 31 years.
• ■A timber house, statutory life 22 years, 10 years old when acquired. 22 − 10 = 12, and 10 × 0.2 = 2. The result is 14 years.
• ■A timber-framed mortar house, statutory life 20 years, past its whole statutory life. 20 × 0.2 = 4. The result is 4 years. The floor in the words quoted above means no result of this formula, under either limb, goes below two.

One condition sits in the proviso to Art.3(1) rather than in the formula: where the capital expenditure made on the asset to bring it into use exceeds 百分の五十, fifty per cent, of its acquisition cost, item (ii) is not available. A building bought cheaply and then rebuilt at greater cost than the purchase price can therefore fall outside the short life its age would otherwise give it.

The part of a rental loss that cannot leave the rental

A rental bought with borrowing can show a loss on paper, and the ordinary rule would set that loss against other income. Art.41-4(1) of the sozei tokubetsu sochi ho (租税特別措置法) — the Special Taxation Measures Act — takes part of it back out. Where the expenses of the year include interest on borrowing used to acquire the land, the corresponding part of the loss is 生じなかつたものとみなす — deemed not to have arisen — for the loss-relief provision and for income tax generally. The building interest is not touched.

Art.26-6(1) of the enforcement order does the measuring in two cases: where the land interest exceeds the loss, the whole loss goes; where the land interest is equal to or less than the loss, the amount matching the interest goes. On a loss of ¥1,200,000 of which ¥800,000 is land interest, ¥800,000 is disallowed and ¥400,000 survives to meet other income. On a loss of ¥600,000 with the same ¥800,000 of land interest, the whole ¥600,000 is disallowed and nothing survives. Both are our arithmetic applied to the two limbs of the article.

The ¥650,000 deduction has a word in front of it

Art.25-2 of the Special Taxation Measures Act gives an approved blue-return filer a deduction against property income. It comes in three sizes, and they are not three grades of the same thing. Paragraph 1 gives 十万円, ¥100,000, to an approved filer with property income. Paragraph 3 gives 五十五万円, ¥550,000, but it is written for an approved individual 不動産所得又は事業所得を生ずべき事業を営むもの — one carrying on a jigyo (事業), a business — who keeps books under Art.148(1) of the Income Tax Act recording the transactions in detail. Paragraph 4 substitutes 六十五万円, ¥650,000, where one of two further requirements is met: the prescribed books are kept as electronic records under the electronic books preservation act, or the return and its balance sheet and profit and loss account are sent through e-Tax by the filing deadline. Paragraph 6 requires the return claiming the ¥550,000 route to be filed by the deadline with those accounts attached.

The word 事業 in paragraph 3 is doing the work, and the statute does not say how much letting amounts to one. That test lives in item 26-9 of the National Tax Agency's basic circular on the Income Tax Act, which puts it as whether the letting is carried on 社会通念上事業と称するに至る程度の規模 — on a scale that would be called a business in ordinary social terms. The two counts it then gives are the circumstances in which that test is taken as met 特に反証がない限り, unless there is evidence to the contrary: おおむね, approximately, ten or more independent lettable rooms for flats and rooms, or approximately five or more separate houses. A circular is an instruction from the agency to its officials. It is not legislation and does not bind a court, and the words おおむね and 特に反証がない限り are in the text rather than added by us.

Whether a non-resident can file a blue return at all is answered in Art.166, in the middle of its list of substitutions: it reads Art.143, Art.144 and Art.145 across, replacing 業務 with business limited to the Japan-source income listed in Art.164(1). Art.144 sets the application deadline as 15 March of the year concerned, or within two months of starting the business where it is started on or after 16 January of that year.

Residential rent sits outside consumption tax

Art.6(1) of the shohizei ho (消費税法) — the Consumption Tax Act — provides that the items in Appended Table 2 are not charged to consumption tax, and item 13 of that table is the letting of a dwelling. The table defines the dwelling as a house, or the part of a house, used for a person to live in, and confines the item to lettings where the contract makes residential use clear — or where the contract is silent on use and the circumstances make it clear anyway.

The exclusion at the end of item 13 is filled in by Art.16-2 of the enforcement order, and it names two cases: a letting for a period of less than one month, and a letting that amounts to the letting of facilities for the hotel business under Art.2(1) of the ryokan gyo ho (旅館業法), the Hotel Business Act. Short-stay and lodging arrangements — the field the jutaku shukuhaku jigyo ho (住宅宿泊事業法), the Private Lodging Business Act, also governs — are a separate regime with their own licensing and their own local by-laws, and this page does not deal with them.

Letting commercial space is a different matter, because it is not within item 13. Art.9(1) exempts a business from paying consumption tax where its taxable sales in the base period are 千万円以下, ¥10,000,000 or less, and the parenthesis in that paragraph takes a registered invoice issuer — 適格請求書発行事業者 — out of the exemption regardless of size.

The local tax has a different trigger

Local resident tax is charged by a different act with a different entry point, which is why it does not follow the national position automatically. Art.294(1) of the chihozei ho (地方税法) — the Local Tax Act — says how the municipal tax is made up for each class of taxpayer. A person in item (i) owes both the kinto wari (均等割), the per-capita portion, and the shotoku wari (所得割), the income-based portion. A person in item (ii) owes the per-capita portion alone.

Item (i) is an individual with a domicile in the municipality. Item (ii) is an individual with no domicile there but with an office, a place of business, or a 家屋敷 — the characters read as house and premises — in it. We give the literal sense of that last term rather than a definition, because the articles we read do not define it; what turns on the word is set out at the end of this page.

So the income-based portion runs off having a 住所 in the municipality, which Art.294(2) ties, for a person the Basic Resident Registration Act applies to, to being recorded in that municipality's resident register. Art.318 fixes the date the question is asked: 個人の市町村民税の賦課期日は、当該年度の初日の属する年の一月一日とする — 1 January of the year in which the fiscal year begins. Item (ii) is the reason owning something in a municipality can still bring a charge without a residence there, and it is the per-capita portion only.

What we could not confirm

Each of these is a question we went looking for an answer to and did not find one we were willing to print.

• ■Whether a property let to a tenant is a 家屋敷 for Art.294(1)(ii). The articles we read do not define the word, and we did not trace a definition or read the local-tax circulars. We have set out what item (ii) charges and have not applied it to a let property.
• ■How a part-year is handled in the used-building formula. Art.3(1)(ii) states the two-year floor and nothing about rounding a fractional result, which is why every worked example above was chosen to come out in whole years.
• ■Whether key money, renewal fees and service charges are within the withholding. Art.161(1)(vii) speaks of the 対価, the consideration, for the letting. We did not find a provision breaking that down into components, and we have not treated the question as settled either way.
• ■Which income category a short-stay or lodging arrangement falls into. Art.26(1) excludes income that is 事業所得 from property income, and the consumption tax order excludes hotel-business facilities from the residential exemption. Where any particular arrangement sits is a question of fact under statutes we have not worked through, and this page does not answer it.
• ■Tax treaties. We read no treaty for this page. A treaty between Japan and another country can change what either may tax and at what rate, and nothing above accounts for one.

Sources

Every statutory text below was read on 18 August 2026 through the e-Gov law search service maintained by Japan's Digital Agency, at the version in force on that date. The circular was read on the National Tax Agency's own site the same day. Where a figure is our arithmetic rather than a number printed in a source, we say so both here and in the body.