Renting Out Your Japanese Property as a Non-Resident: The 20.42% Nobody Warns You About

Letting the property is the obvious answer to an empty house in Japan. It covers the holding costs, it keeps the building in use, and it stops the slow decay that empty houses suffer.

Then the first rent arrives and it is about a fifth short.

Nothing has gone wrong. Japan taxes rent paid to a landlord living overseas at source, and the tenant is the one who has to do it. This guide explains who withholds, who does not, what you get back, and what else changes when you become a non-resident landlord.

At a glance

Question	Short answer
How much is withheld?	20.42% of the rent (income tax plus the reconstruction surtax).
Who takes it out?	The tenant, or the agent paying the rent to you. Not you.
When is it paid over?	By the 10th of the month following payment.
Is anyone exempt?	Yes — an individual renting the property as a home for themselves or a relative.
Is that the end of the tax?	No. You file a return and settle up; a refund is common.
Do I need a tax representative?	Yes, to file and pay from outside Japan (納税管理人).
Is consumption tax charged on rent?	Not on residential rent. It is exempt.
Can I get the property back when I want it?	Not easily under an ordinary lease. Consider a fixed-term lease instead.

The rule

Rent for real estate in Japan is Japanese-source income, and Japan collects tax on it from a non-resident at the point of payment. The payer — your tenant, or whoever pays the rent to you — deducts 20.42% and sends it to the tax office by the 10th of the following month. You receive the remaining 79.58%.

The rate is 20% income tax plus the 2.1% reconstruction surtax levied on top of it, which is where the odd-looking 0.42% comes from.

It applies to rent for land and buildings, and it is the tenant's legal obligation, not a courtesy. A company that fails to withhold is liable for the tax itself, which is why corporate tenants get this right.

The exception that decides your situation

The National Tax Agency states it directly: withholding is not required where the rent is paid by an individual who rented the property as a home for themselves or a relative.

So the practical dividing line is:

Your tenant	Withholding?
A family renting your house to live in	No — you receive the full rent
An individual renting it for a business, or as an office	Yes, 20.42%
A company, whatever it uses the property for	Yes, 20.42%
A company renting it as housing for an employee	Yes — the payer is a company
A sublease or master-lease operator paying you	Yes — the payer is a company

That last row matters more than it looks. Many owners let through a management company on a master lease (サブリース), where the company rents the property from you and lets it on. In that arrangement the payer is a company, so 20.42% comes out — even though the person living there is an ordinary family.

Being exempt from withholding does not make the income tax-free. It only means nothing is taken in advance; the tax is settled on your return.

Getting it back

Withholding is taken from the gross rent. Your actual tax is charged on the net — rent minus the costs of earning it. Since the costs are real and often substantial, the amount withheld is frequently more than the tax due, and the difference comes back as a refund when you file.

Deductible costs typically include:

• Management and letting fees
• Repairs and maintenance
• Fixed asset tax and city planning tax
• Building insurance
• Depreciation of the building (not the land)
• Loan interest attributable to the property
• Fees paid to professionals, including a tax accountant

Depreciation is the one overseas owners most often overlook. It is a deduction you take without spending cash in that year, and on an older wooden house the annual figure can be large relative to the rent.

The filing itself

The Japanese tax year is the calendar year, and the return is filed between 16 February and 15 March for the year before. Real estate income is assessed with your other Japanese-source income at progressive rates, the tax already withheld is credited against the result, and any excess is refunded to a Japanese bank account.

Filing from outside Japan is where the practical problem sits: the tax office deals in paper, in Japanese, with a Japanese address, and a refund is paid to a Japanese account. That is what a tax representative is for.

You will need a tax representative

A non-resident who has Japanese tax obligations appoints a 納税管理人 — a person or company in Japan who receives correspondence from the tax office, files on your behalf and pays on your behalf. The appointment is made by filing a notification with the tax office that covers the property.

Most overseas owners already need one for fixed asset tax, which arrives every spring as a paper notice with four payment slips. Letting the property adds the income tax return to the same arrangement. Our guides explain how to appoint a tax representative and how the role differs from a domestic manager and a contact address.

Three more things that change when you let

1. Consumption tax: residential rent is exempt

Rent for residential accommodation is exempt from Japan's consumption tax, so you are not adding 10% to a family's rent and you are not filing consumption tax returns on it. Rent for offices, shops and other non-residential use is a different matter and is taxable.

2. Japanese tenancy law protects the tenant, strongly

Under an ordinary lease (普通借家契約), the tenant has a statutory right to renew, and a landlord who wants the property back needs "just cause" — a demanding test that usually involves months of notice and, in practice, a payment to the tenant. The contract saying it runs for two years does not mean you get the house back in two years.

The alternative is a fixed-term lease (定期借家契約), which genuinely ends on its end date. It has to be set up correctly — in writing, with a separate written explanation given to the tenant before signing — or it collapses back into an ordinary lease. If there is any chance you will want the property for yourself, or to sell it with vacant possession, decide this before the first tenant moves in.

3. It changes your position on the empty-home rules

A property that is genuinely let is not an empty house. That matters for Kyoto's incoming non-resident housing tax, where property in business use — including a property that is rented out — falls outside the tax, and it takes the building well away from the national rules on neglected vacant houses.

What it looks like in practice

An illustration, using round numbers rather than a real case:

	Company tenant	Family renting it as their home
Monthly rent	¥120,000	¥120,000
Withheld at 20.42%	−¥24,504	—
You receive each month	¥95,496	¥120,000
Withheld over the year	¥294,048	¥0
Annual rent	¥1,440,000	¥1,440,000
Costs (management, repairs, tax, insurance, depreciation)	−¥700,000	−¥700,000
Taxable income	¥740,000	¥740,000
At filing	Tax due is well under what was withheld — the balance is refunded	Tax is paid with the return

Two owners, the same property, the same final tax position — but one of them lends the tax office ¥294,048 for a year without meaning to, and only gets it back by filing. The lesson is not to avoid company tenants; it is to expect the cash flow and to file.

Before you let

• Decide the lease type. Ordinary or fixed-term. This is the decision that is expensive to change later.
• Ask who will be paying the rent — an individual, or a company. That determines whether 20.42% comes out.
• Appoint a tax representative before the first rent is paid, not in the following February.
• Keep every receipt. Deductions you cannot evidence are deductions you do not get.
• Check the insurance. A let property is a different risk from an owner-occupied one, and the insurer needs to know — see fire and earthquake insurance for overseas owners.
• Work out how the money reaches you, and what the transfer costs, before you set the rent.

How Japan YES helps

We act as your tax representative (納税管理人) and your contact address in Japan: the tax office's letters, the fixed asset tax notices and the management company's post come to us, we scan and translate them so you can see what they say, and we pay what needs paying from funds you send us.

We are not a tax accountant, and a rental income return is work for a 税理士 — we will introduce one and work alongside them rather than pretend otherwise.

Tell us about the property and what you are planning, or compare plans — from ¥66,000 a year, tax included.

This article explains the rules in general terms and is not tax advice. Your own position depends on the tax treaty between Japan and where you live, and on the facts of your case.