Even if a foreign corporation does not have a permanent establishment (PE), from the date it comes to possess domestic source income arising from the operation, ownership, or transfer of assets in Japan, or from payments such as rent from real estate, it MUST submit a “Notification of Becoming a Foreign Ordinary Corporation” to the district tax office within two months.
In addition, when a foreign individual sells a real estate located in Japan, a withholding tax will be deducted from the proceed of sales. (Unless the payment is made abroad and the payer does not have a residence, domicile, office, or business establishment in Japan.)
Furthermore, income derived from renting out real estate or providing lodging facilities in Japan by non-residents or foreign corporations is treated as domestic source income and is subject to tax, so an income tax or corporate tax return must be filed with the local tax office.
Also, income from the sale of real estate located in Japan owned by non-residents or foreign corporations is considered domestic source income and will be taxed in Japan.
Likewise, if shares of a foreign corporation with more than 50% of its total assets being Japanese real estate are sold, the capital gain will be subject to source country taxation, and therefore will be taxed in Japan.
Accordingly, individuals who are non-residents must file a final income tax return by March 15 of the year following the sale. For foreign corporations, a corporate tax return must be filed within two months after the end of the corporation’s fiscal year.
Note that when non-residents or foreign corporations rent or sell real estate, withholding tax is generally collected at the time of payment. Since there may be cases where tax refunds are applicable, it is important not to neglect the tax return just because withholding has already been made.
In addition, consumption tax may be refundable or payable in real estate transactions by non-residents or foreign corporations, so it should be reviewed separately.
According to law, when non-residents or foreign corporations file returns or pay withholding tax, they must appoint a “Tax Agent” to handle tax-related matters in Japan, and submit a “Notification of Tax Agent” to the local tax office immediately after appointing one.
For tax-related consultations for foreign corporations or non-residents, please feel free to contact BPS International Tax Accountants Corporation.
