1
Undergo a pre-contract review
2
Sign a basic money trust agreement
3
Deposit trust funds in a trust account
4
Instruct us to purchase real estate
5
Pay taxes and public dues
6
Receive and transfer profits
7
Reinvest or exit the SBIST scheme
5
Pay taxes and public dues
When investing in real estate in Japan, investors are required to pay taxes on any profits they earn. The table below shows how tax rates differ when investing directly in Japanese real estate, through the GK–TK scheme, and through the SBIST scheme.
Type of investor
Direct investment
- Individual
- Corporation
GK–TK scheme
- Using the Act on Specified Joint Real Estate Ventures
- Using the Financial Instruments and Exchange Act
SBIST scheme
- Individual
- Corporation
When the investment is made
Direct investment
- Individuals
Income tax: at a progressive tax rate of up to 45.945% - Corporations
Corporate tax: at a rate of 23.2%
GK–TK scheme
At least 1% to 2% of the total investment amount
SBIST scheme
When the investment is made: 0.2% of the total investment amount
At the time of real estate purchase: 0.1% of the total investment amount
While an investor owns the real estate
Direct investment
If the owned real estate is recognized as a permanent establishment: withholding tax of 20.42% (offset against the income or corporate tax, noted above, when filing tax returns)
GK–TK scheme
Almost zero
SBIST scheme
Zero
When the property is sold
Direct investment
10.21% of the sale price is subject to withholding tax, in addition to income or corporate tax (see above for rates)
GK–TK scheme
No withholding tax on the sale price
SBIST scheme
No withholding tax on the sale price
When profits are distributed
Direct investment
Investors are required to use a tax administrator (usually a Japanese tax accountant) when paying taxes
GK–TK scheme
Withholding tax of 20.42%
SBIST scheme
Withholding tax of 20.42%. However, based on tax treaties, this can be reduced to 10% for Mainland China, Hong Kong, and Taiwan, and to 15% for Singapore.
Additional information
Direct investment
Investors cannot borrow from banks, credit unions, etc.
GK–TK scheme
As GK–TK is a domestic scheme, investors can borrow from banks, credit unions, etc.
SBIST scheme
As of September 1, 2024, one financial institution can provide loans to foreign investors to use in the SBIST scheme.
The tax-savings on profit distribution available through the SBIST scheme vary depending on the investor’s country of residence.
Here are a few examples:
Singapore
If an investor resides in Singapore, tax rates can be reduced to 15%. This rate is slightly higher than that of Mainland China, Hong Kong, Macau, and Taiwan, but the biggest advantage is that income earned outside of Singapore is not subject to any taxation domestically.
Taiwan
Individual investors in Taiwan need to calculate both Integrated Income Tax (IIT) and Income Basic Tax (IBT) and pay the higher amount. IIT applies only to Taiwan-sourced income with a progressive tax rate of 5% to 40%, while IBT applies a flat 20% tax rate on the total of Taiwan-sourced and foreign-sourced income. Since income earned through SBIST is considered foreign-sourced income, it is subject to IBT. However, if foreign taxes such as Japan’s 10% withholding tax have already been levied on the foreign-sourced income, a foreign tax credit may apply under certain conditions. Additionally, under IBT, an exemption of up to 7.5 million New Taiwan dollars is available.
Hong Kong
In Hong Kong, as in Taiwan, the withholding tax on profit distribution is 10%. However, unlike Taiwan, Hong Kong residents (both individuals and corporations) are not taxed on foreign income, so the withholding tax on income earned through the SBIST scheme is limited to 10%, with no cap on the amount.
While there are differences depending on the country, overall, the tax rates are lower with the GK–TK scheme than with direct investment, and even lower with the SBIST scheme. This makes the SBIST scheme more attractive than the other two, offering substantial benefits to investors.
We encourage investors to consider investing through the SBIST scheme.
