Japan is famous for having some of the highest individual tax rates in the world.
| Brackets of taxable income | Tax rates |
|---|---|
| Under 1,950,000 yen | 5% |
| Over 1,950,000 yen or under 3,300,000 yen | 10% |
| Over 3,300,000 yen or under 6,950,000 yen | 20% |
| Over 6,950,000 yen or under 9,000,000 yen | 23% |
| Over 9,000,000 yen or under 18,000,000 yen | 33% |
| Over 18,000,000 yen or under 40,000,000 yen | 40% |
| Over 40,000,000 yen | 45% |
This does not even include municipal taxes and social insurance which could leave some people only receiving 50% of their income, with the other 50% getting paid to the tax man.
Outside of harvesting losses from unprofitable investments to offset the gains on the profitable ones, there are few tools and strategies available for investors to reduce their income tax liability.
However.
Japan does have special rules about the tax treatment of fixed assets (that’s real estate to you and me). Each piece of real estate has a “depreciation schedule” which means that every year you can claim a “loss” when submitting your tax return. The length of this annual tax break depends on the age of the property, the date it was built and its taxable value. Based on these variables, tax benefits may range from a few hundred thousand to a few million yen each year. There are also a number of “related expenses” that can be used to reduce your taxable base.
We help many of our higher tax-rate paying clients make strategic real estate investments that not only produce extra passive income but also enable them to reduce income taxes and secure an annual tax refund from the tax office.