Transfer of Privately-owned Real Estate to a Corporation in Japan

March 13, 2020

Question:

Are there any tax benefits when ownership of personal property is transferred to corporate ownership?

Answer:

You may be able to enjoy tax saving benefits due to the difference in tax rates between individuals and corporations.

Explanation:

In Japan, the effective income tax rate for corporate entities in Japan is approximately 30%. On the other hand, income tax levied on individuals, assuming they are a resident of Japan, would be somewhere between 0% to 55%. Therefore, when the income tax rate on individuals is higher than the effective tax rate of the corporation, if you transfer the property ownership from an individual to a corporation, you can enjoy the tax saving benefits of real estate income consisting of rental income.

Incidental to the transfer of property is the need to look into the tax levied on the process of transferring ownership itself. If the real estate ownership period is more than 5 years as of January 1 of the year the transfer occurred, the long-term capital gains tax rate will be 15% (plus 5% inhabitant tax). Otherwise, tax levied on the short-term capital gain will be 30% (plus 9% is inhabitant tax). Therefore, if a short-term capital gain is expected to be generated by the sale of real estate in the future, one can enjoy tax saving benefits by transferring personal property to corporate property. Conversely, if a long-term capital gain is expected to occur, a corporation can benefit from tax savings by not owning real estate as a corporation.