Japan is an internationally well known country – that receives incoming expats from all over the world. For Swedes, investing in real estate in Japan can be an attractive option, especially considering the favourable exchange rate on the Japanese Yen. But it is important to be aware of tax aspects of owning real estate in Japan.
Tax residency for Swedes living abroad
According to Swedish tax law, one can be seen as tax resident in Sweden also after migrating from the country. If you have ‘significant affiliation’ to Sweden after your move to Japan, you will still be tax resident. There is a big number of factors, that will impact whether you have ‘significant affiliation’, such as whether you own real estate in Sweden, whether you have family left in Sweden, and whether you have interest in a Swedish business.
Also, if you spend time in Sweden after your move, for example if you are in Sweden during summer, you could be seen as having your ‘habitual abode’ in Sweden – which will make you tax resident. On top of this, Sweden has a tax treaty with Japan, that can affect your tax situation.
Taxation of rental income from Real Estate in Japan
Sweden has a tax claim on its tax resident’s global income, which means that Sweden would want to tax any rental income from renting out real estate located in Japan, if you are tax resident in Japan.
If you are a non tax resident in Sweden, there will be no Swedish tax claim. However, even if you are tax resident in Sweden, but have your so-called tax treaty residency in Japan, Sweden would not be allowed to Japanese-sourced rental income. A tax expert should be consulted to determine in which state you have your tax treaty residency. Should you have tax treaty residency in Japan, this would have to be claimed in your annual Swedish tax return by a tax professional.
On the other hand, if you are tax treaty resident in Sweden, Japan would still have a right to tax rental income. Sweden would be obligated to grant a foreign tax credit, with the Japanese tax on the income. This foreign tax credit is claimed in the annual Swedish tax return.
The Japanese taxation of rental income is dependent on the local Japanese tax legislation, which must be regarded together with the tax treaty’s provisions. Nomadtax has partner firms in Japan, that can assist with advice on local tax legislation.
Taxation of capital gains on Real Estate in Japan
If you were to sell real estate in Japan, and make a capital gain, Sweden would be prohibited from taxing this if you are tax treaty resident in Japan. Contrary, both Sweden and Japan have the right to tax a capital gain, if you are tax treaty resident in Sweden.
One should keep in mind, that the Swedish way of calculating a capital gain differs from the Japanese way, since the tax treaty do not cover this aspect.
How to get started
As earlier mentioned, Japan is an attractive jurisdiction for international buyers of real estate property. The first step in acquiring real estate, would be to contact a Japanese broker. We highly recommend you to turn to Find Hokkaido Agents, a renowned firm that especially cater to expats in Japan.
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