Japan Tax & Accounting provides investors with accounting and tax information about the real estate investment in Japan.

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Real estate investment methods

Special Purpose Company (Tokutei Mokuteki Kaisha, TMK) Structure

As the dividends paid by an incorporated body are profit appropriation items, in accordance with the Corporation Tax Act, they shall not be included in deductible expenses. However, the distributions of profits paid by a TMK may be included in deductible expenses, if they meet certain conditions - for example, if the distributions amount to 90% or more of the distributable profit in the business year (Article 67-14 in Act on Special Measures Concerning Taxation). When a foreign investor makes an investment in real estate through a TMK structure, therefore, only a withholding tax on the dividend will be imposed.

Moreover, concerning the real estate obtained by a TMK that meets certain conditions, there are relief measures for registration license tax and estate acquisition tax, so as to promote market liquidity.

Fee ¥800,000~

d. Acquisition by a special purpose company "Tokutei Mokuteki Kaisha" (TMK) Profit is
¥8,000,000.
Profit is
¥30,000,000.
Profit is
¥100,000,000.
Profit before additional costs are posted 8,000,000 30,000,000 100,000,000
Fee for accounting firm 400,000 400,000 400,000
Fee for asset manager 600,000 600,000 600,000
Costs for planning asset liquidation/3 500,000 500,000 500,000
Profit after additional costs are posted 6,500,000 28,500,000 98,500,000
Dividend withholding tax (5%) 325,000 1,425,000 4,925,000
Profit after costs and additional costs are posted 22.8% 9.8% 6.4%

Anonymous Partnership (Tokumei Kumiai, TK) Structure

As income from partnership businesses operated on the basis of TK contracts is not attributed directly to anonymous partners (unlike voluntary partnerships), and is attributed to an operator temporarily, only the income distributed to anonymous partners by an operator shall be taxable. This means that when foreign investors invest in real estate by adopting the TK structure, only the withholding tax on distributed profits is imposed.

Fee ¥600,000~

c. Acquisition by an anonymous partnership, "Tokumei Kumiai" (TK) Profit is
¥8,000,000.
Profit is
¥30,000,000.
Profit is
¥100,000,000.
Profit before additional costs are posted 8,000,000 30,000,000 100,000,000
Fee for accounting firm 400,000 400,000 400,000
Payroll for TK operators 300,000 300,000 300,000
Fee for drafting TK contract documents/3 333,333 333,333 333,333
Profit after additional costs are posted 6,966,667 28,966,667 98,966,667
TK allotment withholding tax (20%) 1,393,333 5,793,333 19,793,333
Profit after costs and additional costs are posted 30.3% 22.8% 20.8%

Foreign Corporation Holding Structure

Since the scope of taxes imposed on foreign corporations is limited more narrowly than for residents and domestic corporations, foreign corporations' income taxes are incurred only on income originating from sources in Japan - i.e., so-called domestic source income. This means that corporate taxes will be imposed, but neither local taxes nor business taxes are imposed on foreign investors making real estate investments by adopting this structure.

Fee ¥400,000~

b. Direct acquisition by a foreign corporation Profit is
¥8,000,000.
Profit is
¥30,000,000.
Profit is
¥100,000,000.
Profit before additional costs are posted 8,000,000 30,000,000 100,000,000
Fee for accounting firm 300,000 300,000 300,000
Profit after additional costs are posted 7,700,000 29,700,000 99,700,000
Corporate tax (15% for \8M or less) 1,155,000 6,733,500 24,583,500
Profit after costs and additional costs are posted 18.2% 23.4% 24.9%

Non-resident Holding Structure

Since the scope of taxes imposed on non-residents and foreign corporations is limited more narrowly than for residents and domestic corporations, non-residents' income taxes are incurred only on income originating from sources in Japan - i.e., so-called domestic source income. So although income taxes are imposed, no residence taxes are incurred when foreign investors make investments in Japanese real estate by adopting the non-resident holding structure.

Fee ¥300,000~

a. Direct acquisition by an individual non-resident Profit is
¥8,000,000.
Profit is
¥30,000,000.
Profit is
¥100,000,000.
Profit before additional costs are posted 8,000,000 30,000,000 100,000,000
Fee for accounting firm 300,000 300,000 300,000
Profit after additional costs are posted 7,700,000 29,700,000 99,700,000
Income tax 1,135,000 9,084,000 37,084,000
Profit after costs and additional costs are posted 17.9% 31.3% 37.4%
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