Selling Guide
Table of Contents
Things You to Know When Selling Your Property from Offshore
Selling Flowchart
Necessary Items for Selling
Costs to Sell
Withholding Tax
Capital Gains Tax
Selling Your Property While Residing in Japan
Selling your home or your investment property in Japan should not be too hard after having gone through the rather difficult buying process once. But what might be important to know before selling your property is the possibility of having to pay tax on your capital gain (譲渡税 Jo-tow-zei). This tax is imposed on the capital gain, which is the difference between the selling price of your asset and its original price including the costs incurred for acquiring and disposing your asset. How much will be taxed depends on how long you have possessed your property, and whether it is your primary residence or not will greatly affect whether you will pay at all. See below to find out if you will need to pay capital gains tax.
Capital Gains Tax
Capital gains tax is a tax levied to individuals and corporations on the profit earned from the sale of their real estate property. Please take note that this is not imposed on your sale proceeds but on the gain only, so if there is no gain then you do not get taxed. Plus, Japan provides exemption that allows homeowners to exclude up to 30 million yen of their gain from being taxed when they sell their primary residence (自己の居住用 Jiko-no-kyo-ju-yo), so you may not need to pay the tax at all if this applies to you. Calculating capital gains tax involves determining the taxable capital gain and then applying the applicable tax rate which varies depending on the holding period, in other words, whether the gain is short-term or long-term. Taxable capital gain can be obtained by using this formula below.
Taxable capital gain = Proceeds from sale – ( acquisition fees + conveyancing fees ) － special tax reduction for primary residence*
Acquisition fees
-
Purchase price, construction cost, renovation fee, with depreciation cost deducted
-
Registration tax, acquisition tax, stamp duty
-
Surveying fee and land preparation costs
-
If you do not know or cannot prove your acquisition fees, only 5% of the proceeds from your sale can be counted.
Conveyancing fees
-
Agency fee
-
Stamp duty
-
Eviction fee to sell your property vacant
-
Demolition fee to knock your house down in order to deliver as vacant lot
Capital Gains Tax for Primary Residence
If the property you are selling is your primary residence, a 30 million yen special tax reduction or exemption is available to apply towards your capital gain regardless of the number of years of your residence. Furthermore, if you have owned your primary residence for more than 10 years and your gain is greater than 30M, 14.21% is taxed on gain up to 60M, and 20.315% on any gain beyond. Otherwise, the remaining gain after the 30 million yen reduction is taxed at the same short-term/long-term rate as a non-primary residence.
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If you take this special tax reduction for primary residence, you will not be eligible for the housing loan tax credit (住宅ローン控除 Jyu-taku-loan-kojo) when buying your next home using a mortgage loan for the next 2 years.
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If you have used this special tax reduction within the last 2 years, you cannot use it again this time.
-
You are eligible for this special tax reduction only when you sell your primary residence within 3 years from the time you stopped residing there.
Capital Gains Tax for Non-primary Residence
Short-term possession
If your holding period is 5 years or less (counting from Jan 1st of the year of purchase, not 5 years from the purchase date)
Taxable capital gain × 30.63% (+9% of municipal tax)
Long-term possession
If your holding period is more than 5 years (counting from Jan 1st of the year of purchase, not 5 years from the purchase date)
Taxable capital gain × 15.315% (+5% of municipal tax)
Municipal tax will not be imposed in both long-term and short-term sale if you are a non-resident. However, in principle, this only applies if you do not possess any properties whatsoever in Japan as of January 1st of the following year of the sale. If you possess an office, a business facility, or any other real estate in Japan which can be used as residence, municipal tax will apply.
Capital gains tax must be paid, and tax reduction application reported between Feb. 16 – Mar. 15 of the following year of the sale at your nearest local tax office.
Summary of Capital Gains Tax Rates (including both national and local/municipal tax)
※tax rates include the Tohoku Disaster tax
Avenue Far East is neither qualified nor authorized to give legal or tax advice, and any such advice shall be obtained from an appropriate, qualified professional advisor of your own choosing. Moreover, the stated requirements may be revised at any time and the information may not be up to date or accurate.
Selling Flowchart
Receive an assessment and decide on your selling price
Discuss strategy and your schedule with your agent
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Move out and sell or sell while still residing
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Decide when to move
Sign representation agreement (媒介契約 Baikai-kei-yaku) with agent and get your property listed on the market
Receive periodic reports of sales activity from your agent and adjust sales price if needed
When an offer comes in, review the buyer’s conditions with the guidance of your agent
Sign the sales contract and receive the deposit (手付金 Tetsu-kay-kin) from the buyer
Initiate your next move
-
If the property is a collateral of your loan, arrange with your lending bank for a full repayment of your loan on the agreed closing date with your buyer
-
Prepare necessary items for selling
-
Arrange for moving company and start packing
Receive final settlement from the buyer and in exchange deliver your property
Wait for the judicial scrivener (司法書士 Shiho-shoshi) to process registration of ownership title transfer and mortgage settlement (if you have a loan) immediately after closing
Necessary Items for Selling
Necessary Items
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Seal certificate (印鑑証明書 Inkan-shomei-sho)
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Title deed (登記識別情報 Toki-shiki-betsu joho)
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Registered seal (実印 Jitsu-in)
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Residence Certificate (住民票 Ju-min-hyo) ＊ if there is need to change address on the ownership registration
When will you need it
Upon signing sales contract and at closing
Costs to Sell
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Stamp duty (収入印紙 Shu-new-inshi)
-
Mortgage settlement tax (抵当権抹消登記費用 Teito-ken-massho-toki-hiyo) ＊if you have a loan
-
Land survey fee (the land needs to be surveyed, and all adjacent boundary points must be marked before the handover)
-
Address change fee on the ownership registration only if the displayed address is not your current address
-
Agency fee {(Sale price×3%) + 60,000 yen} + consumption tax
Avenue Far East is neither qualified nor authorized to give legal or tax advice, and any such advice shall be obtained from an appropriate, qualified professional advisor of your own choosing. Moreover, the stated requirements may be revised at any time and the information may not be up to date or accurate.
Selling Japan Real Estate from Offshore
Whether you are selling your property from abroad or coming to Japan to participate in all critical events, depending on who your buyer is, you may need to entrust someone with all or part of powers to sell your property. Here are some particular cases where you may need to entrust certain powers to a third party when selling your Japanese property.
Things You Need to Know When Selling Your Property from Offshore
When the buyer is taking out a loan
If the buyer is taking out a loan and you have never possessed or no longer have a Japanese bank account, you will have to entrust a third party with a Japanese bank account to receive the purchase payment for you. Since the buyer’s lending bank will not execute the loan to a seller who has only a non-Japanese account.
However, the buyer may feel uncomfortable about settling the purchase payment with someone you entrust, in which case they may ask you to deposit your title deed with a judicial scrivener (司法書士 Shiho-shoshi) appointed by them and approved by you.
This might be the same even when the buyer is buying with cash and wiring their money to your overseas account, as overseas remittance may take time and they may want reassurance that the ownership title will not be transferred to someone else while their money is being sent.
However, there is not a generally accepted way of coordinating this, so finding a middle ground comfortable for both the seller and the buyer is always essential.
When signing the contract
Some buyers may prefer not to do a round-robin contract signing (持ち回り契約 Mochi-mawari-keiyaku) and request the contract to be signed in person. If you cannot set foot in Japan for the contract signing, it is essential that you entrust a friend, family member, an attorney, your agent, etc. to sign on behalf of you. At the contract signing, your power of attorney (委任状 E-nin-jo) and signature and residence certificates notarized by a notary public (certified by your embassy if you live outside of your home country) must be presented by the person you have entrusted.
When the buyer is required to withhold tax
If your buyer is required to withhold tax (源泉徴収税 Gensen-choshu-zei) then you will need to appoint a tax representative (納税管理人"No-zei-kanri-nin") after-sale to appropriate any sufficiency or insufficiency of capital gains tax (譲渡税 Jo-tow-zei) arising from your sale, by filing income tax returns (確定申告 Kakutei-shin-koku) between Feb. 16 – Mar. 15th of the following year of the sale (refer to the below section Withholding Tax to see what types of buyers are subject to this tax obligation).
Selling Flowchart
Receive an assessment and decide on your selling price
Decide the scope of powers you will entrust to a third party (family, friends, agent, lawyer, etc.) to take part in your property sale
Sign representation agreement (媒介契約書 Baikai-keiyaku-sho) with agent and get your property listed on the market
Receive periodic reports of sales activity from your agent and adjust sale price if needed
When an offer comes in, review the buyer’s conditions with the guidance of your agent
Sign the sales contract and receive the deposit (手付金 Tetsu-kay-kin) from the buyer. Check if the buyer accepts a round-robin contract (持ち回り契約 Mochi-mawari-keiyaku) signing if you cannot come to Japan. Plus, check if the buyer is required to withhold tax (源泉徴収税 Gensen-choshu-zei), since if they are, the deposit you will receive will be less the amount of tax withheld. This applies likewise when receiving the outstanding settlement from the buyer upon closing (refer to the below section Withholding Tax).
Start to prepare for closing
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If your property is a collateral for your loan, arrange with your lending bank for full repayment of the loan on the agreed closing date with the buyer
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Communicate via meetings, calls, email, etc., with the judicial scrivener (司法書士 Shiho-shoshi) who will be transferring your ownership title, etc., which is mandatory prior to closing, for the purpose of verifying your identity as the property seller
-
Prepare necessary items for selling
Receive final settlement from the buyer and in exchange deliver your property
Wait for the judicial scrivener to process registration of ownership title transfer and mortgage settlement (if you have loan) immediately after closing
Appoint a tax representative (納税管理人 N0-zei-kanri-nin) to file your income tax returns on your behalf between February 16 and March 15 of the year following the sale, if the buyer paid any withholding tax or if you have a capital gain from the sale.
Necessary Items for Selling
Necessary Items
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Signature and residence certificate notarized by a notary public in your country (or by the embassy if you live outside of your home country now)
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Title deed (Kenri-sho or Toki-shiki-betsu-joho)
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ID copies (passport, driver’s license, or other photo IDs)
When will you need it
Upon signing the sales contract and at closing
Costs to Sell
-
Stamp duty (収入印紙 Shu-new-inshi)
-
Mortgage settlement tax (抵当権抹消登記費用 Teito-ken-massho-toki-hiyo) if your property is a collateral for your loan with a Japanese banks
-
Land survey fee (the land needs to be surveyed, and all adjacent boundary points must be marked before the handover)
-
Address change fee for the ownership registration only if the displayed address is not your current address
-
Agency fee {( Sale price×3%) + 60,000 yen} + consumption tax
Withholding Tax
When a non-resident (非居住者 He-kyo-jusha) sells a property in Japan, the buyer is required to withhold 10.21% of the purchase price and pay it to the tax authorities before the 10th day of the following month of the sale. This withholding tax (源泉徴収税 Gensen-choshu-zei) serves as an advance payment towards the seller's potential capital gains tax liability. If the paid tax is different than the actual capital gains tax (譲渡税 Jo-tow-zei), the seller or seller’s appointed tax representative (納税管理人 No-zei-kanri-nin) will have to appropriate the sufficiency or insufficiency by filing income tax returns (確定申告 Kakutei-shin-koku) during Feb. 16 – March 15th of the following year of the sale. However, under certain circumstances, withholding tax is not required, so check below to see whether it is applicable to your buyer or not.
Capital Gains Tax
Capital gains tax ( 譲渡税 Jo-tow-zei) is a tax levied to individuals and corporations on the profit earned from the sale of their real estate property. Please take note that this is not imposed on your sale proceeds but on the gain only, so if there is no gain then you do not get taxed. Plus, Japan provides exemption that allows homeowners to exclude up to 30 million yen of their capital gain from being taxed when they sell their primary residence (自己の居住用 Jiko-no-kyo-ju-yo), so you may not need to pay the tax at all if this applies to you. Calculating capital gains tax involves determining the taxable capital gain and then applying the applicable tax rate which varies depending on the holding period, in other words, whether the gain is short-term or long-term. Taxable capital gain can be obtained by using this formula below.
Taxable capital gain = Proceeds from sale – ( acquisition fees + conveyancing fees ) － special tax reduction for primary residence
Acquisition fees
-
Purchase price, construction cost, renovation fee, with depreciation cost deducted
-
Registration tax, acquisition tax, stamp duty
-
Surveying fee and land preparation costs
-
If you do not know or cannot prove your acquisition fee, only 5% of the proceeds from your sale can be counted
Conveyancing fees
-
Agency fee
-
Stamp duty
-
Eviction fee to sell your property vacant
-
Demolition fee to knock your house down in order to deliver as vacant lot
Capital gains tax for primary residence (or when less than 3 years have elapsed since you stopped residing in the property as your primary residence)
If the property that you are selling is your primary residence, a 30 million yen special tax reduction or exemption is available towards your capital gain regardless of the number of years of your residence. Furthermore, if you have owned your primary residence for more than 10 years and your gain is greater than 30M, 14.21% tax (+4% municipal tax) will be imposed on gain up to 60M, and 20.315% tax (+5% municipal tax) on any gain beyond. Otherwise, the remaining gain after the 30 million yen reduction is taxed at the same short-term/long-term rate as a non-primary residence.
-
If you take this special tax reduction for your primary residence, you will not be eligible for the housing loan tax credit (住宅ローン控除 Jutaku-loan-kojo) when buying your next home using a mortgage loan for the next 2 years.
-
If you have used this special tax reduction within the last 2 years, you cannot use it again this time.
-
You are eligible for this special tax reduction only when you sell your primary residence within 3 years from the time you stopped residing there.
Capital gains tax for non-primary residence (or when more than 3 years have elapsed since your stopped residing in the property as your primary residence)
Short-term possession
If your holding period is 5 years or less (counting from Jan 1st of the year of purchase, not 5 years from the purchase date)
Taxable capital gain × 30.63% (+9% of municipal tax)
Long-term possession
If your holding period is more than 5 years (counting from Jan 1st of the year of purchase, not 5 years from the purchase date)
Taxable capital gain × 15.315% (+5% of municipal tax)
Municipal tax will not be imposed in both long-term and short-term sale if you are a non-resident. However, in principle, this only applies if you do not possess any properties whatsoever in Japan as of January 1st of the following year of the sale. If you possess an office, a business facility, or any other real estate in Japan which can be used as residence, municipal tax will apply.
Capital gains tax must be paid and tax reduction application reported between Feb.16 – March 15 of the following year of the sale at your nearest local tax office.
Avenue Far East is neither qualified nor authorized to give legal or tax advice, and any such advice shall be obtained from an appropriate, qualified professional advisor of your own choosing. Moreover, the stated requirements may be revised at any time and the information may not be up to date or accurate.
Selling and Repurchasing
For most people, selling and repurchasing a home are events aligned in close successions as that is the most economical way to go about it. However, if you wish not to rush into buying or want to sell at the best possible price, you may want to move to a rental property first and take your time selling. You must factor in the added expenses of renting and the hassle of moving twice though. If you have the financial capability to take out a second loan or do not mind using a bridge loan which would be borrowing at a higher interest rate than a regular home mortgage, then you can buy first and take your time selling.
Since for most people selling and repurchasing happen concurrently, here are some key aspects that should be taken into consideration when coordinating the 2 events.
What You Should Care About When Coordinating Your Selling and Repurchasing
Timing
Coordinate concurrent closings between the buying and selling of your home to be on the same day, and if you are financing then likewise align the full loan repayment and the new loan execution one after the other. To make this happen, you will need to start searching for your new home after you have signed a contract with your buyer, so make sure your buyer agrees to a delivery date X number of months after the sales contract to provide sufficient time for your new home search. It should be noted that a delivery date too far from the contract date may decrease your chances of quickly finding a buyer as a good half of the people who are seeking to buy are eager to move in. However, this all depends on how favorable your home is to prospective buyers and how the market conditions are at the time.
Contingency
Make sure to have your buyer agree to a contingency saying that should you not achieve your next property purchase by reasons not attributable to you, such as your new mortgage loan being denied, then you can cancel the contract without paying a breach of contract penalty.
Post-Sale Occupancy
Include a post-sale occupancy (引渡猶予 He-ki-watashi-yuyo) clause in the sales contract granting a few days of overstay after closing in order to have extra time to close on your next property purchase and to move directly into your new home without needing to temporarily move elsewhere.
Selling Flowchart
Receive an assessment of your current home to understand how much equity you have in the property and how much you can afford for the new one. Get pre-approved for a mortgage to know your purchasing power.
Strategize your sale
-
Buy first then sell or sell first then repurchase
-
Move out and sell or sell while still residing
Sign representation agreement (媒介契約 Baikai-keiyaku) with your agent and get your property listed on the market
Receive periodic reports of sales activity from your agent and adjust sales price if needed
When an offer comes in, review the buyer’s conditions with the guidance of your agent
Sign the sales contract and receive the deposit (手付金 Tetsu-kay-kin) from the buyer
Initiate your next move
-
If you are taking out a loan for your new home and simultaneously paying back your current loan, align your loan execution and full repayment to take place on the same day as your agreed closing date with your seller and buyer.
-
Prepare necessary items for closing
-
Arrange for a moving company and start packing
Receive final settlement from buyer and in exchange deliver your property (or move out within the post-sale occupancy period)
Wait for the judicial scrivener (司法書士 Shiho-shoshi) to process registration of ownership title transfer and mortgage settlement (if you have loan) immediately after closing
Necessary Items for Selling and Repurchasing
When will you need it
Upon signing sales contract and closing
Costs to Sell
-
Stamp duty (収入印紙 Shu-new-inshi)
-
Mortgage settlement tax (抵当権抹消登記費用 Teito-ken-massho-toki-hiyo) *if you have loan
-
Land survey fee (the land needs to be surveyed, and all adjacent boundary points must be marked before the handover)
-
Address change on the ownership registration only if the displayed address is not your current address
-
Agency fee {( Sales price×3%) + 60,000Yen} + consumption tax rate
