1. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation (Individuals Purchasing Real Estate in Japan) Grant Thornton Japan / ASG Tax Corporation

2. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Agenda 1.Resident Status 2.Taxes on Acquisition and Holding 3.Rental Income 4.Capital Gains 5.Case Study

3. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Resident Status - Classifications Resident Non-permanent Permanent Non-Resident Lived in Japan for 5 years or less of past 10 years Lived in Japan for more than 5 of past 10 years Domicile in Japan or resided in Japan for at least 1 year up to current date

4. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Resident Status - Scope of Income Permanent Resident –Worldwide income Non-permanent resident –Japan source income and income remitted into Japan Non-Resident –Japan source income only

5. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Acquisition Taxes Taxes paid on acquisition of property Real Estate Acquisition Tax4% of valuation Registration and License Tax2% of valuation Consumption Tax5% of building value Stamp TaxJPY80,000 (JPY100M - JPY500M contract) Total as % of Purchase Price5% - 8%

6. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Acquisition Taxes - Client Case Purchase Price JPY130M; Valuation JPY93M Real Estate Acquisition Tax3.7M Registration & License Tax1.8M Consumption Tax4.2M Stamp Tax0.08M Total9.8M Total as % of Purchase Price7.5% Calculation of Acquisition Taxes

7. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Holding Taxes Taxes paid through the period of ownership Fixed Assets Tax1.4% of valuation City Planning Tax0.3% of valuation Total as % of Property Value1% - 3%

8. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Holding Taxes - Client Case Purchase Price JPY130M; Valuation JPY93M Fixed Assets Tax1.3M City Planning Tax0.3M Total1.6M Total as % of Purchase Price1.2% Calculation of Holding Taxes

9. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Rental Income - Treatment How does Japan treat rental income? –Treated as “lease” or “business” income on your tax return –Taxed with other income at progressive rate

10. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Rental Income – Expenses Claim expenses against your income: –Depreciation –Repairs –Interest –Management fees

11. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Rental Income - Depreciation Purchase cost of the building can be recovered as an expense – depreciated over useful life Only buildings can be depreciated

12. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Rental Income - Depreciation of new assets Statutory useful lives for new buildings Type of StructureResidential UseOffice Use Concrete4750 Brick3841 Wood2226

13. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Rental Income - Depreciation of used assets If older than statutory useful life … –Depreciated over period equal to 20% of statutory useful life –30-year old wooden house depreciated over 4 yrs.

14. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Rental Income - Repairs and Renovations Repairs –Treated as an expense –Taxable deduction Renovations –Increase value of building –Costs added to the price paid for the house and depreciated

15. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Rental Income - Interest Interest on a loan  deductible –Building / land value ratio required –All of building portion deductible –Land portion may be deductible

16. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Capital Gains Niseko Property Buy in 20019M Sell in 200862M Capital Gain53M

17. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Capital Gains - Short term vs. Long term Non-residents pay national component only Capital Gains Tax Rates Time Property heldNationalLocal More than 5 years15%5% 5 years or less30%9%

18. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Capital Gains - Owner-occupier discount JPY30M discount on gains Must reside in the property at time of sale Joint-owners can each claim discount … gift tax

19. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Client Case (Jack) Jack is from the USA Single Annual salary JPY32M Lives in Tokyo Considering property purchase and wants to know tax implications

20. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Client Case (Jack) – Investment Property Jack's Investment Property (type/use/construction date)Wood/Residential/1987 Year of purchase2008 Purchase priceJPY80M Loan, Interest60M, 5% RepairsJPY15M over 5 years RenovationsNone Estimated rental incomeJPY3M per year Sell date/Estimated price2014/JPY100M

21. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Client Case (Jack) - Calculation Before investment Employment Income32M Deductions2M2M Taxable income30M Income Tax9.2M After investment Rental Income3M3M Expenses Interest Repairs Depreciation (2.25M) (3M) (12M) Taxable Income (Prop.)(14.25M) Taxable Income (E)30M Taxable income15.75M Income Tax3.7M Annual Income Tax Savings: JPY5.5M (5-year: JPY27.5M)

22. (c) Grant Thornton Japan. All rights reserved. Japan Real Estate Taxation Client Case (Jack) – Capital Gain Sell in 2014 for JPY100M Cost base (purchase price + depreciation) 20 Amount of gain (sale price – cost base) 80 Long-term / Non-resident CG tax payable (15%) 12 Long-term / Resident CG tax payable (20%) 16 Long-term / Resident CG tax payable (20%) with JPY30M deduction 10