When buying Japanese real estate from someone living overseas,the buyer withholds 10.21% of the price and pays it to the government.There is an exception where an individual buys a home, buttwo conditions apply.

Income covered

Article 161(1)(v) of the Income Tax Act.

Consideration for the transfer of land or rights over land, buildings and attached facilities, or structures located in Japan（excluding those prescribed by Cabinet Order。）

It is not limited to land.It includes rights over land, such as leasehold rights, buildings, attached facilities, and structures.

The rate is 10.21%

Article 213(1)(ii) of the Income Tax Act.

Article 161(1),item (v),specified therein: domestic source income on that amount,ten percentis applied to calculate the tax.

Special Income Tax for Reconstruction is added. Article 28(2) of the Reconstruction Finance Act defines it as“the amount of income tax”multiplied bya rate of 2.1%.Thus, 10% × 1.021 = 10.21% It is.

The 10.21% applies to the full transfer consideration, not the gain.Withholding applies even if the seller makes a loss.

The exception applies only when both conditions are met

The parenthetical exclusion in item (v), “excluding those prescribed by Cabinet Order,” is specified in Article 281-3 of the Order for Enforcement of the Income Tax Act, titled “Consideration for Transfers of Land and Similar Property Located in Japan.”

The consideration prescribed by Cabinet Order under Article 161(1)(v) of the Act (Domestic Source Income) is consideration for a transfer of land or similar property (...),excluding amounts exceeding ¥100 million,paid byan individual who acquired the property for use as a residence for themselves or their relatives.Such payments qualify.

There are two conditions.

Withholding is unnecessary only when both conditions are met.

Condition (1) says “excluding amounts exceeding ¥100 million.”Exactly ¥100 million is not excluded and remains eligible for the exception. More than ¥100 millionexceeds the threshold.It falls outside the exception.

The buyer in condition (2) must be an “individual.”If a corporation buys the property, withholding is required regardless of the amount.The purpose must be “use as a residence.”An individual buying for investment must withhold even if the price is ¥100 million or less.

Note that “relatives” are included.A purchase to provide a home for a child or parent may also qualify for the exception.

Who pays the tax?

Article 212(1) of the Income Tax Act.The “person making the payment” is the buyer.

……The person making the paymentmust,at the time of payment,with respect to this domestic source income,withhold income tax and pay it to the government by the tenth day of the month following the month of withholding.。

The buyer is the person liable to pay.It is not the real estate agent or judicial scrivener. Even an individual buyer has this obligation unless the exception above applies.

It also applies to deposits.Because withholding occurs “at the time of payment,” it applies separately when paying the deposit, any interim payment, and the balance.

The seller settles the tax through a final return

The 10.21% is a prepayment.The seller, Non-resident as a nonresident, calculates capital gains, files a final tax return, and settles the tax withheld.

If there is a capital loss, the amount withheld is refunded.If the gain is large, additional tax may be payable.Paying 10.21% does not end the matter.

Situations easily overlooked

• I bought without knowing the seller was a nonresident.The buyer has the withholding obligation.Check the seller's address before signing the contract.
• The registered address is in Japan, but the seller actually lives overseas.The test is whether the seller is a nonresident under the Income Tax Act.
• An heir living overseas sells inherited real estate.The seller is a nonresident.
• The property is co-owned, and only some co-owners are nonresidents.The consideration paid to those persons is covered.
• The buyer is a corporation.Withholding is required regardless of the amount.
• The price is exactly ¥100 million.The exclusion is for amounts “exceeding ¥100 million,” so the exception remains available; no withholding is required if the other conditions are met.

Practical sequence

1. Before signing, confirm whether the seller is a nonresident.

2. If the seller is a nonresident,check whether the exception applies: ¥100 million or less and acquisition by an individual for residential use.

3. If it does not,include a withholding provision in the contract.

4. Withhold 10.21% at each payment and remit it by the tenth of the following month.

If you forget to withhold and transfer the full amount, the buyer must pay the tax out of pocket.If you are buying real estate from a seller living overseas, consult us before preparing the contract.

Legal basis

• Article 161(1)(v) of the Income Tax Act (Domestic Source Income)
• Article 212(1) of the Income Tax Act (Withholding Obligation)
• Article 213(1)(ii) of the Income Tax Act (Amount to Be Withheld)
• Article 281-3 of the Order for Enforcement of the Income Tax Act (Consideration for Transfers of Land and Similar Property Located in Japan)
• Article 28(1) and (2) of the Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction Following the Great East Japan Earthquake

This article does not cover capital gains calculations, final return procedures for nonresidents, or tax treaty the application of these provisions. Individual determinations require confirmation of the seller's residence and transaction terms.