PII-38 -- Taxes on Real Estate

Personal Finance Intelligence for the Tokyo Community
Personal International Investor
Vol. 38
January 19, 2006 Tokyo

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(By Chris Cleary, Banner Japan K.K. | January 19, 2006 )

If you had invested in a particular Asia ex-Japan mutual fund
early in 1971, you would now have a profit of 14,600%.

Of course there are some assumptions going on here, and not
just those of hindsight - that you knew about the fund way back
then; that you were not only alive but old enough to invest; that
you believed in the economic prospects of a region with a reputation
for not much more than making textiles and cheap plastic toys,
and was largely perceived as Third World; that you were prepared
to put your money into the region while the Vietnam War intensified
and the domino theory was taken seriously; and that you held the
fund whatever the drawdowns, as you would have had losses of
50% or worse into January 1975, in the aftermath of the Asian
Crisis, and at the end of the US stock debacle 2000~2003.


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Taxes on Real Estate

This issue, I interrupt my review of interesting pre-IPO companies
in Japan that are looking for investment, to cover an important
housing issue - one of taxes. In November 2005, Paul Previtera
of Grant Thornton Ltd., gave a really succinct but excellent
overview of property transaction taxes in Japan at the Australia
New Zealand Chamber of Commerce, and has given us
permission to base this PII article on it. Anyone needing
more assistance on tax can get it from Paul
at pprevitera@gtjapan.com.

From Previtera's point of view, there are four distinct phases of
tax relating to property in Japan. These are: i) Acquisition,
ii) Holding, iii) Rental, and iv) Disposition (Selling). For the
purpose of this article, I'm going to assume that the reader
is resident in Japan and is taxable here.

Acquisition Taxes:
The Japanese Real Property Acquisition Tax (Fudosan Shutoku-zei)
for a residence is currently 3% of the assessed value of your
property. However, if you are the owner-occupier - the condition
under which most home loans are made anyway - then only
half the assessed value will be calculated into the tax equation.
The tax only applies to the land, not the building. Note that the
tax amount will increase to 4% from April 1st, 2006, thus giving
you yet another reason (rising interest rates and property prices
are the others) to move quickly if you plan to invest in your
own place.

An example of the acquisition tax at work is as follows. You
buy a property with an existing home for JPY75m, for you,
your spouse and kids to live in. You have the land value
assessed at JPY50m. The tax will then be
JPY50m/2 = JPY25m x 4% = JPY1m. From my understanding
after talking to a mortgage banker, an "owner occupier" means
a member of your immediate family, which I was told could
apply to the grandparents (without your necessarily having
to live there).

Two more taxes that apply on a purchase are Consumption
Tax (Shohizei: 5%), which applies to the building value only,
and Registration/Licence Tax (Toroku Menkyo-zei: 0.3%),
which is calculated on the statutory valuation of both the
land and building. The "statutory valuation" amount is variable
and changes depending on the locality, type of structure,
size, type of use, and some other factors - so you will need
proper tax advice if you want to be fully prepared. However,
as an absolute number, the actual tax amount is not large.
The statutory valuation generally tends to be less than the
actual purchase price, sometimes 30-50% less.

In our example, the Consumption Tax will be
JPY25m x 5% = JPY1.25m. The Registration/Licence Tax will
be somewhere around JPY75m x 0.3% = JPY225,000.

The last tax on a purchase is the Stamp Tax (Inshi-zei),
literally for the stamp that goes on the purchase contract.
This is calculated on the basis of a fixed schedule and for
any amount between JPY50m - JPY100m, it is
JPY60,000 flat rate.

Holding (Ownership) Taxes
Once you've bought your dream home, you have the yearly
cost of paying taxes to the local municipality. These taxes
function similarly to "rates" and other local levies applied in
the West and are reasonably priced considering the capital
value of the properties being taxed. Of course, the actual amounts
are payable on top of your principal and interest repayments -
and so where you have heavily leveraged yourself to buy a property,
it may be a consideration which makes/breaks your decision to buy
rather than rent.

There are two annual ownership taxes, the Fixed Asset Tax,
which is 1.4% of the statutory valuation of the property, and the
City Planning Tax, which is 0.3%.

(Next issue we discuss rental taxes and disposition (sales) taxes)

Terrie Lloyd
...Investor in Training/

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Team Tokyo Forex Weekly
Januay 7, 2006

Welcome back to a new year of PII (Personal International Investor)
This year I am set to analyze the best short term and long term
investment opportunities that will make you a strong investor.

Not many people are aware but there have been many infamous
reporters telling us what we should be focusing on.

Let's reflect on the past 5 years and the events that have
surrounded the evolution of the world markets we live in.

It is true that I have primarily reported on Forex movements in
the market place. Mathematics also plays an important role in
this so let me summarize the "State of the Union", so to speak
on hot investments that will propel your working cashflow into
profits beyond imagination.

I presented to you a basic scenario last year.

We are cycling into a new investment era. The U.S dollar
dominated the show and quite right it should as it hit the mark
with parallel timing as we cycle through this new business era
here in Japan. If you attended one of Terrie Lloyd's seminars you
will already be in the front runners pack as Terrie quite clearly
pointed out we are entering into a positive growth cycle of new

Let's highlight the indicators that brought us to these conclusions.
Let's begin with the tell tale signs that the American populas
were clearly uncertain if their own constitution remains intact
since the new form of country management took place after 9/11.

9/11 was set to destroy the world economy, but failed and
brought about great scientific conclusions as 3 days of grounded
flights cleared the skys and those studying Global Diming realised
that reducing pollution in fact created faster depletion of time that
is required to further study green house emissions which cause
"Global Warming". We learnt that each of these issues need to
be studied at a level that addresses the root cause. Global
dimming and the cleaning up of environmental pollution actually
contributes to the increase of Global Warming? Yes it does.

Anyone that knows how to use the internet knows our mission
are more complicated than we really think.

Forceful takeover of Iraq brought about fierce competition of
conspiracey activists which is worth taking a look at as the U.S
was condemed and it drove general laymen and money makers
alike to create fantastical documentaries surrounding the evolution
of the U.S government.

How does all of this bare any relevance to the investors world
one might ask?

Well it holds great relevance as we are the financial supporters of
all institutions that endeavour to make us rich through our investment
in their ventures.

Let's make a pact that as investors we would like to see fairness
and equality that balances our fragile co-existance.

2005 saw natural resources as our mandate of future survival, this
has always been so. My wish is that 2006 creates a much more
reasonable and strategically morale way of co-exhisting with
each country around the world.

In financial news we saw the half day trading of Japan's dedut
into 2006 reach a 5 year high and a decline in the U.S dollar,
we expect to see more of this as the Fed rationalizes it's postion
and will continue to withdraw to fight another day. Focus on the
Asian markets will be the corner stone of 2006.

Something I would also like to see in this news group is a focus
on local business opportunities. There are many great entrprenuers
here in Japan that can see the 'Next big thing' so I hope to do more
than Forex reporting and make 2006 a creative year for investors.

Happy New Year to you all.

The editor
Forex Weekly
Jason Bainbridge

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Start a Company in Japan
Entrepreneur's Handbook Seminar
Feb 4, 2006

If you have been considering setting up your own company, find
out what it takes to make it successful. Terrie Lloyd, founder of
over 13 start-up companies in Japan, will be giving an
English-language seminar and Q&A on starting up a company
in Japan. This is an ideal opportunity to find out what is involved,
and to ask specific questions that are not normally answered
in business books. All materials are in English and are

For more details: http://japaninc.com/handbook_seminar3/


Foreign Executive Women (FEW)
Apr 22, 2006

presents the 14th Career Strategies Seminar aimed at foreign
women who are seeking to achieve success in their careers
in Japan.

Inspirational presentations will be made by foreign professional
women who have made their mark in the Japanese business
world. In addition to the keynote speeches, there will be a series
of interactive workshops which will provide in-depth information
on selected industries and fields.

Date: Saturday, Apr 22 2006
Time: 9:00am - 6:00pm.
Venue: Temple University, Japan
For information and to register,
email fewcss2006@yahoo.com or visit http://www.fewjapan.com


ICA Event
Feb 16, 2006

Speaker: Yosuke I. Itoh III, Director, CSP and
Media Industry Services, Abeam Consulting LLP.

Title: Japan's Mobile Commerce Boom! A Driver for Marketing
Loyalty Program Consolidation

RSVP Complete event details at http://www.icajapan.jp/
Date: Thursday, February 16, 2006
Time: 6:30 Doors open, buffet dinner included
Cost: 3,000 yen (members), 5,500 yen (non-members),
Open to all - Location is Foreign Correspondents'
Club http://www.fccj.or.jp/static/aboutus/map.php

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Edited by Burritt Sabin (editors2@japaninc.com)

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