PII-39 -- Taxes on Real Estate Part II

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P E R S O N A L I N T E R N A T I O N A L I N V E S T O R
Personal Finance Intelligence for the Tokyo Community
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Personal International Investor
Vol. 39
March 15, 2006 Tokyo

For the full HTML version, go to:
http://japaninc.typepad.com/personal_intl_investor/2006/02/vol39_.html

CONTENTS
+ From the Editor
+ Yen Watch
+ Events
+ Job Watch

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FROM THE EDITOR

Taxes on Real Estate Part II

Again, Iユd like to acknowledge the valuable contribution of Grant
Thortonユs Paul Previtera in making this article possible. Today
we talk about taxes on rental income and sale of your property.
Please remember, that before acting on any information in this
article, you should get the advice of a proper tax consultant.

Renting out property may sound like a good idea, but once you
look at both the cost of money and tax, you might have second
thoughts and start an Internet business instead! Remember that
banks donユt make home loans for property you plan to rent out.
Of course there are various degrees of subtlety that let you
massage this position a bit, such as renting out rooms to
students, or even letting immediate family live there and having
them pay you something on the side. But read your loan contract
carefully, because it will normally be very restrictive about just who
can live in your premises in order for you to get a low-interest
housing loan.

If you decide that renting is the way to go, then apart from loan
restrictions, the main issue is tax. On income from property rental,
you are levied at the same rate as other income that you might
earn. This extra income is included in your gross income figure
and taxed at the marginal rate, which ranges from 10% to 50%
depending on your base income. The same as for Australia
(メnegative gearingモ concept), you can claim the costs of
maintaining the rental property as deductions on your
rental income.

If you are a non-resident individual receiving rental income from
Japanese real estate and which is being paid within Japan,
then you are required to file a Japanese tax return. You will pay
tax at the applicable marginal rate - ranging between 10% and 37%
(37% being the highest). The tax levels are substantially lower
than for residents since you do not have to pay local taxes.

If you are a non-resident being paid overseas (versus in Japan),
then you will pay a flat 20% withholding tax. It is the responsibility
of the leasee to deduct the withholding tax and pay it to the tax
office. Note that the withholding tax applies irrespective of
whether you have other Japan income or not - it is the cross-border
component that invokes the withholding requirement. In any case
tax hit can be credited against income tax if you are earning other
taxable income in Japan - just make the claim on your Japanese
tax return.

Probably of greater interest to readers is what happens when you
sell your property, ready for the big move back home (overseas),
or to upgrade to somewhere better. Basically the Japanese tax
office considers 5 years as being the point at which you have
shown commitment as an owner, rather than behaving like
a speculator. Accordingly, the tax rate for property held for more
than 5 years is 20% flat and for property held less than 5 years
is 39%. This is a big difference, and points to the fact that in
terms of home loans, the minimum term loan you should be
looking at is 5 years. This capital gains tax is levied independently
of your other income and thus is not affected by it.

If you are non-resident and selling, then if you are earning
in-country income in Japan your tax rates will be 30% for 0-5
years, and 15% for 5 years or more. If youユre not earning income
in Japan, then you pay 10% withholding tax on the capital gain.

If you want the real last word in Japanese tax, check out:
http://www.mof.go.jp/english/tax/taxes2005e_c.pdf

Terrie Lloyd
...Investor in Training/

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EVENTS

ICA Event
March 22, 2006

Speaker: Brian Mitchell, Senior VP, Strategy,
Business Planning and Mergers and Acquisitions,
for Asia Pacific and Japan, Oracle Corporation
Topic: The Rapid Consolidation and Evolution of
the Global Software Industry

Details: Complete event details at
http://www.icajapan.jp/ (RSVP Required)
Date: Wednesday, March 22, 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

-------------------------

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

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JOB WATCH

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- Data Cabling Manager (Negotiable)
- Tokyo GD/Earnings and Fundamentals/Japanese Market Analyst (Negotiable)
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- Product Controller (Negotiable)

Check out these and other jobs like these here!
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SUBSCRIBERS: 1004 as of March 15 2006

Edited by Burritt Sabin (editors2@japaninc.com)

---(C) Copyright 2006 Japan Inc Communications KK. All Rights Reserved.---

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