Japan Enterprise Tax for Landlords Abroad: 5% Over ¥2.9M

Taxes landlords living abroad pay now, and taxes they do not

Even at the same scale and the same rent, a landlord living in Japan and a landlord living abroad face a different number of taxes.

The individual enterprise tax is levied by the prefecture where the business's office or place of business is located. MIC's guidance states that an individual with no principal office in Japan can be taxed only if they have a "permanent establishment", such as a branch, in Japan. For a business run without an office, the person's address or residence is treated as the office, but people living abroad have no such address in Japan either. [MIC, Notice on the Handling of the Local Tax Act (prefectural taxes), Ch. 3, Sec. 3, 1-4]

What surprised me while researching this was that, for income tax, there is already a system in which the tenant deducts 20.42% from the rent and pays it to the national government. It applies when a company or business rents the property; an individual renting a home for themselves or relatives does not withhold. [NTA No.2880] So income tax is hard to escape, while the local residence tax and individual enterprise tax are not charged at all.

This is often seen as "foreign owners carrying a lighter tax burden", but the difference comes from where people live, not their nationality. Japanese nationals posted abroad who rent out a condominium in Japan are treated the same way. How to file the income tax return is covered in Taxes on Japanese real estate for foreigners and non-residents.

Covered from 10 apartment units or 10 parking spaces

Not all property rental is subject to the individual enterprise tax. It applies only when the scale reaches what the prefecture recognises as a "real estate leasing business" or "parking lot business". The thresholds in MIC's guidance are:

• Apartments, rented rooms, etc.: 10 units or more
• Detached houses for rent: 10 houses or more
• Parking (open-air lots without a roof or building): 10 spaces or more. Parking in a building is covered regardless of the number of spaces

Prefectures add their own criteria. Osaka Prefecture, for example, sets 5 buildings for detached structures such as warehouses and 10 contracts for land leases, and also covers lettings of 600 square metres or more with annual rent of ¥10 million or more even if the unit count falls short. Vacant units are counted. [Osaka Prefecture: Recognition criteria]

This is separate from the "5 buildings or 10 units" test for income tax, so for detached houses the guide is 5 for income tax but 10 for the individual enterprise tax. The difference is explained in Business-scale real estate income (5 buildings, 10 units).

Estimated tax: ¥105,000 a year for 10 units and ¥5 million income

The individual enterprise tax is calculated by deducting the ¥2.9 million proprietor's deduction from the previous year's rental income and applying the standard rate of 5% to the rest. Income is taken before the blue-return special deduction (a deduction available for income tax only). [Tokyo Metropolitan Bureau of Taxation: Individual enterprise tax]

Calculated as (rental income − ¥2.9 million) × 5%. If the business ran for less than a year, such as the year it started, the ¥2.9 million is prorated by month. Individual enterprise tax paid is a necessary expense for income tax in the year it is paid.

A landlord in Japan with 10 apartment units already pays the same ¥105,000. What is under review is not a new tax, but bringing people who were left out only because they live abroad into the same calculation as landlords in Japan. The calculation and the businesses exempt from the tax are covered in What is the individual enterprise tax.

When payments would start: the outline comes in December, payment no earlier than around August 2028

• December 2026: The ruling coalition compiles the FY2027 tax reform outline. This first decides whether the change is included
• Spring 2027: If included, a bill amending the Local Tax Act goes to the Diet
• Application: The individual enterprise tax is charged on the previous year's income, with payments due in August and November. If 2027 income is covered, the first payment would be around August 2028

At the reporting stage, it is not yet known which prefecture would levy the tax (the one where the property is?) or whether a tax agent would handle filing and payment. Foreign corporations work the same way, with no corporate enterprise tax unless they have a permanent establishment in Japan, but this report covers individual landlords. We will update this article when the outline is published.

What landlords renting out property in Japan from abroad should check now

• Count your units and spaces: Including vacant ones, do you reach thresholds such as 10 apartment units or 10 parking spaces? If not, you are not covered under the current thresholds
• Are you filing an income tax return? Prefectures calculate the individual enterprise tax from the income tax return. Even if you live abroad, rental income must be reported through a tax agent [NTA No.1926]
• Is your rental income above ¥2.9 million? Check the amount before the blue-return special deduction

Summary

• MIC is considering extending the individual enterprise tax to landlords living abroad, aiming for the FY2027 tax reform outline (Nikkei)
• At present, people with no office or address in Japan cannot be taxed and do not pay residence tax (income-based portion) either. They do pay income tax
• Coverage depends on where you live, not nationality, and includes Japanese nationals posted abroad
• The tax applies from a scale of 10 apartment units or 10 parking spaces, at (income − ¥2.9 million) × 5%. For 10 units and ¥5 million income, that is ¥105,000 a year
• The outline comes in December. If 2027 income is covered, the first payment would be around August 2028

Sources

• Nikkei: Tax on rental business income of overseas residents' Japanese property; MIC considers it for fairness (31 October 2026, in Japanese)
• MIC: Notice on the Handling of the Local Tax Act (prefectural taxes), posted by the Tokyo Metropolitan Bureau of Taxation (in Japanese)
• e-Gov: Local Tax Act, Articles 24, 72-2 and 72-49-11 to 72-51 (in Japanese)
• Tokyo Metropolitan Bureau of Taxation: Individual enterprise tax (in Japanese)
• Osaka Prefecture: Recognition criteria for real estate leasing and parking lot businesses (in Japanese)
• NTA No.1926: Real estate income while working abroad (in Japanese)
• NTA No.2880: Paying rent to non-residents (in Japanese)

This article is general information based on press reports and current law as of 1 November 2026. The report describes a proposal under review; coverage, timing and the method of taxation will be decided in the tax reform outline. It does not refer to any particular nationality or individual. For individual decisions, consult a prefectural tax office, a tax office or a tax accountant.