Understanding Japan Rental Income Property Tax for Landlords
Whether you’re a resident or non-resident landlord, understanding Japan rental income property tax obligations is essential for maximizing your investment returns. This comprehensive guide covers everything you need to know about rental income taxation in Japan—from withholding rates and deductible expenses to blue return benefits and filing requirements.
📅 Last Updated: February 2026 (reflecting current National Tax Agency guidelines)
| Quick Reference | Details |
|---|---|
| Non-Resident Withholding Rate | 20.42% |
| Resident Income Tax | 5-45% progressive |
| Local Inhabitant Tax | 10% |
| Blue Return Max Deduction | ¥650,000 |
| Filing Period | February 16 - March 15 |
Japan’s rental income tax system treats residents and non-residents differently. Getting these rules right from the start can save you significant money and avoid penalties with the National Tax Agency of Japan.
Japan Rental Income Property Tax: Residents vs Non-Residents
Your tax obligations depend entirely on your residency status. Here’s how Japan classifies taxpayers:
Resident: You have a domicile in Japan OR have lived in Japan continuously for one year or more.
Non-Resident: Anyone who doesn’t meet the resident criteria above.
Tax Treatment for Residents
Residents pay progressive national income tax on rental income at rates from 5% to 45%, plus 10% local inhabitant tax. Your rental income combines with other income sources (salary, business income, etc.) to determine your total tax bracket.
| Income Bracket | Tax Rate |
|---|---|
| Up to ¥1,950,000 | 5% |
| ¥1,950,001 - ¥3,300,000 | 10% |
| ¥3,300,001 - ¥6,950,000 | 20% |
| ¥6,950,001 - ¥9,000,000 | 23% |
| ¥9,000,001 - ¥18,000,000 | 33% |
| ¥18,000,001 - ¥40,000,000 | 40% |
| Over ¥40,000,000 | 45% |
Additionally, Japan imposes a 2.1% reconstruction surtax on your income tax amount (effective through December 31, 2037). This means your actual rate is slightly higher than the bracket rates shown above.
Tax Treatment for Non-Residents
Non-residents face a flat 20.42% withholding tax on rental income from Japanese properties. However, there’s a critical distinction many landlords miss: withholding requirements depend on who your tenant is.
💡 Pro Tip: Individual tenants renting your property for personal residential use do NOT need to withhold the 20.42% tax. Only corporate tenants or individuals renting for business purposes must withhold.
The 20.42% Withholding Tax Explained
The 20.42% rate combines 20% national income tax plus the 2.1% reconstruction surtax. Understanding when this applies is crucial:
Withholding IS Required When:
- Corporate tenants rent your property (regardless of use)
- Individual tenants rent for business or commercial purposes
- Property management companies collect rent on your behalf
Withholding is NOT Required When:
- Individual tenants rent solely for personal residential use
- The tenant uses the property as their personal home
This distinction trips up many foreign landlords. If you rent to a Japanese company for employee housing, the company must withhold 20.42% and remit it to the tax office by the 10th of the following month. But if you rent directly to an individual for their personal residence, no withholding applies—though you still owe taxes.
Withholding Mechanics
When withholding applies, your tenant (or property manager) must:
- Deduct 20.42% from rent payments
- Remit withheld tax to the District Tax Office by the 10th of the following month
- Submit a “Statement of Collected Income Tax on Non-residents” with each payment
As a non-resident landlord, this withheld amount serves as a credit against your final tax liability when you file your annual return.
Deductible Expenses for Landlords
Both residents and non-residents can reduce taxable rental income by claiming necessary expenses. Maintaining proper records throughout the year makes tax filing straightforward.
Full List of Deductible Expenses
| Expense Category | Examples |
|---|---|
| Property Taxes | Fixed asset tax, city planning tax |
| Insurance | Fire insurance, earthquake insurance |
| Loan Interest | Mortgage interest (principal repayment is NOT deductible) |
| Depreciation | Building depreciation (land is not depreciable) |
| Management Fees | Property management company fees |
| Condominium Fees | Monthly management fees, repair reserve fund |
| Repairs & Maintenance | Normal repairs, cleaning, pest control |
| Professional Fees | Tax accountant (zeirishi) fees |
| Utilities | If paid by landlord |
| Advertising | Vacancy listing fees |
| Travel | Property inspection trips (reasonable expenses) |
💡 Pro Tip: Keep all receipts and documentation. The National Tax Agency may request proof of expenses during an audit.
What You Cannot Deduct
- Loan principal repayment
- Personal travel expenses
- Improvements that extend building life (capitalized and depreciated instead)
- Expenses unrelated to rental operations
Blue Return Benefits: The ¥650,000 Deduction
Japan’s blue return (青色申告) system rewards landlords who maintain proper accounting records with special deductions not available to white return filers.
Blue Return vs White Return Comparison
| Feature | Blue Return | White Return |
|---|---|---|
| Special Deduction | Up to ¥650,000 | None |
| Recordkeeping Required | Double-entry or single-entry | Basic records |
| Loss Carryforward | 3 years | Not available |
| Family Employee Wages | Fully deductible | Limited deduction |
Qualifying for the Full ¥650,000 Deduction
To claim the maximum blue return deduction, you must meet ALL these requirements:
- Scale requirement: Own 5+ rental houses OR a building with 10+ rental rooms (the “5-10 rule”)
- Accounting method: Maintain double-entry bookkeeping records
- Documentation: Attach an income statement AND balance sheet to your tax return
- Application deadline: Submit blue return application by March 15 of the filing year (or within 2 months of starting rental operations)
If you don’t meet the scale requirement or only maintain single-entry records, you can still qualify for a reduced ¥100,000 deduction.
According to K&S Accounting Japan: “To claim the maximum 650,000 yen deduction, you must maintain double-entry accounting records and attach an income statement and balance sheet to your tax return.”
Is Blue Return Worth It?
For landlords with significant rental income, absolutely. The ¥650,000 deduction directly reduces taxable income. At a 23% marginal tax rate, that’s ¥149,500 in tax savings annually—well worth the accounting effort.
Depreciation Rules for Rental Properties
Depreciation is often the largest deductible expense for rental property owners. Japan uses the straight-line method for buildings, with statutory useful lives varying by construction type.
Depreciation Periods by Building Type
| Building Type | Useful Life | Annual Depreciation Rate |
|---|---|---|
| Reinforced Concrete (RC) | 47 years | 2.1% |
| Heavy Steel Frame | 34 years | 2.9% |
| Wooden Structure | 22 years | 4.5% |
| Light Steel Frame | 19 years | 5.3% |
Important: Only the building portion is depreciable. Land never depreciates. When purchasing property, your contract should allocate the purchase price between land and building—this allocation affects your annual depreciation deduction.
Calculating Depreciation
Annual Depreciation = (Building Purchase Price) × (Depreciation Rate)
For example, a wooden apartment building purchased for ¥20,000,000 (building only):
- Useful life: 22 years
- Depreciation rate: 4.5% (1 ÷ 22 years)
- Annual deduction: ¥900,000
For used buildings, you calculate remaining useful life based on age and original useful life. If more than 80% of the useful life has passed, the remaining life is 20% of the statutory period.
2021 Rule Change for Overseas Properties
Since January 1, 2021, Japan restricts losses from overseas second-hand rental property. The depreciation expense portion cannot be offset against other income types.
According to Grant Thornton Japan Tax Advisory: “The portion of the loss that corresponds to depreciation expense on overseas second-hand rental property is disallowed and cannot be offset against other income.”
This change specifically targets the practice of using accelerated depreciation from overseas property to shelter Japanese income.
Filing Requirements and Deadlines
Annual Tax Return Filing
The tax filing period runs from February 16 to March 15 of the year following the income year. For rental income earned in 2025, you file between February 16 - March 15, 2026.
Required Documents
For Blue Return Filers:
- Final tax return (Form B)
- Income statement (収支内訳書)
- Balance sheet (for ¥650,000 deduction)
- Supporting receipts and documentation
For White Return Filers:
- Final tax return (Form B)
- Income statement (収支内訳書)
- Supporting receipts and documentation
Non-Resident Filing Requirements
Non-residents must take additional steps:
-
Appoint a Tax Representative: You must designate a tax representative (zeirishi or resident relative) residing in Japan by submitting a “Notification of Tax Agent” to the District Tax Office with jurisdiction over your property.
-
File Returns Through Representative: Your tax representative handles all filings and correspondence with the tax office.
-
Departure Rule: If leaving Japan without designating a tax representative, you must file your return and pay all taxes before departure.
💡 Pro Tip: Finding a bilingual tax accountant (zeirishi) who understands both Japanese tax law and foreign property owners’ situations makes the process significantly smoother.
Consumption Tax on Rental Income
Japan’s 10% consumption tax (消費税) has important implications for landlords.
Residential Rentals Are Exempt
Residential rental income is exempt from consumption tax, provided:
- The lease clearly states residential purpose
- The lease term is at least one month
This exemption makes residential rentals tax-efficient compared to commercial properties.
Commercial Rentals May Be Taxable
If you rent commercial property and your annual taxable sales exceed ¥10,000,000, you may become a consumption tax payer. This requires separate registration and quarterly or monthly filing.
Tax Representative Requirements for Non-Residents
As a non-resident landlord, you cannot handle Japanese tax matters directly. The law requires appointing a tax representative residing in Japan.
Who Can Be Your Tax Representative?
- Licensed tax accountant (zeirishi)
- Family member or friend residing in Japan
- Property management company (some offer this service)
Tax Representative Responsibilities
Your representative will:
- Receive official notices from the tax office
- File tax returns on your behalf
- Handle tax payments and refunds
- Respond to any tax office inquiries
The notification of tax agent must include the representative’s name, address, and relationship to you. Submit this to the District Tax Office with jurisdiction over your rental property.
Common Mistakes and How to Avoid Them
Mistake 1: Misunderstanding Withholding Requirements
The Problem: Assuming all tenants must withhold 20.42%.
The Fix: Remember that individual tenants renting for personal residential use don’t withhold. Only corporate tenants and commercial rentals require withholding.
Mistake 2: Missing Deductible Expenses
The Problem: Not claiming all allowable deductions, especially depreciation.
The Fix: Track every expense throughout the year. Depreciation alone often creates paper losses that reduce or eliminate taxable income.
Mistake 3: Late Blue Return Application
The Problem: Deciding to file blue return after the deadline passes.
The Fix: Apply for blue return status by March 15 of the year you want it to take effect (or within 2 months of starting rental operations).
Mistake 4: Incorrect Land/Building Allocation
The Problem: Not properly splitting purchase price between land and building.
The Fix: Work with your agent and accountant during purchase to establish reasonable allocation. Higher building value means larger depreciation deductions.
Mistake 5: No Tax Representative
The Problem: Non-residents attempting to file directly.
The Fix: Designate a tax representative immediately upon acquiring Japanese property. The tax office cannot communicate with you directly.
Frequently Asked Questions
Is rental income taxable in Japan for non-residents?
Yes, non-residents earning rental income from Japanese properties are subject to a 20.42% withholding tax. However, this withholding does not apply when individual tenants rent the property solely for personal residential use. Non-residents must file a final tax return through a designated tax representative in Japan.
How is rental income taxed in Japan for residents?
Residents pay progressive national income tax (5-45% depending on total income) plus 10% local inhabitant tax on rental income. Rental income is added to other income sources, and taxable income is calculated after deducting necessary expenses and applicable deductions like the blue return special deduction.
What expenses can landlords deduct from rental income in Japan?
Deductible expenses include: building depreciation, fixed asset tax and city planning tax, fire and earthquake insurance, loan interest (not principal), property management fees, condominium management fees, repair and maintenance costs, and tax accountant fees. Maintaining proper documentation throughout the year is essential.
Do I need to pay consumption tax on rental income in Japan?
Residential rental income is exempt from Japan’s 10% consumption tax, provided the lease clearly states residential purpose and the term is at least one month. Commercial property rentals are subject to consumption tax if your annual taxable sales exceed ¥10,000,000.
What is the difference between blue return and white return for rental income?
Blue return filers who maintain double-entry accounting records can claim up to ¥650,000 special deduction (or ¥100,000 with single-entry records). White return is simpler but offers no special deductions. For the full ¥650,000 deduction, you need 5+ rental houses or a building with 10+ rooms, plus double-entry bookkeeping with income statement and balance sheet.
Related Guides
Understanding rental income tax works best alongside these related topics:
- Japan Property Tax Guide for Foreigners - Covers fixed asset tax and city planning tax, both deductible from rental income
- Complete Guide: Foreigners Buying Property in Japan - Foundational guide for foreign property buyers
- Buying Property in Japan as an American - Country-specific guidance including US-Japan tax treaty considerations
Official Sources
- National Tax Agency - Real Estate Income of Non-Residents
- National Tax Agency - Blue Return System
- National Tax Agency - Scope of Necessary Expenses
- JETRO - Overview of Individual Tax System
- National Tax Agency - Overview of Depreciation
Final Thoughts
Japan’s rental income tax system rewards landlords who understand the rules and maintain proper records. Key takeaways:
- Know your residency status - It determines your entire tax treatment
- Understand withholding rules - Not all tenants must withhold the 20.42%
- Maximize deductions - Depreciation and expenses significantly reduce taxable income
- Consider blue return - The ¥650,000 deduction is worth the accounting effort
- Appoint a tax representative - Required for all non-residents
With proper planning and professional support, you can structure your Japan rental investment for optimal after-tax returns. Consider working with a bilingual tax accountant experienced in foreign landlord matters to ensure full compliance while minimizing your tax burden.
This guide was last updated in February 2026. Tax laws change periodically, so please verify current rates and requirements with the National Tax Agency or a licensed tax professional.