Purchase contract name(s) - tax relevant?

[no6una9a]

Hello,

still living in Munich/Germany my wife (Japanese) and I (German) are starting our fist step towards retiring in Japan: We are going to buy a plot of land in southern Japan where we plan to build a house and start living in about two years.

The real estate agent is currently preparing the purchase contract and is asking us the following: Who will be the one listed in the contract being the owner of the land? My wife, myself or both of us? Since we are a married couple and share equally everything from banking accounts to any other investments I suppose it does not really matter who will be the one - so we decided to list both of us in the contract.

The only thing I am thinking about: Since I am German and my wife Japanese there might be some tax related situation to prefer one (both names in the contract) over the other?! I really don't think so since - although still living in Germany for the next two years - as far as I know buying property in Japan would only imply to pay property tax in Japan and not in Germany, right?!

Maybe there are some German guys in this forum who have hands on experience with this situation? I am also thinking about asking a tax advisor but searching the internet shows a limited amount of agents in the field of German-Japan related (private-subject) tax agencies. Maybe someone has any recommendations available?

Kind regards,
Nobunaga

[Nancy]

Hi, I don't have any solid information for you, but I think in general, it is good to have both of your names on the land. It will be registered that way, and it may help your visa situation, to know that you own land in Japan. (I am just guessing this). Since you will have no income from owning the land, probably you would only be taxed with the land taxes. I think that the city government, just sends one tax bill per year. Ours has my husbands name on it, and then "sono ta". like one more person included. This way, when you go to build, you can easily put both of your names on the house too. (in Japan, you have to prove that both people contributed t the expense of the house, to get both people's names registered.

[Deep Blue]

This can be a bit tricky. The concept of marital bank accounts etc doesn't exist in Japan. When you are living here, there are limits how much money can be transferred between you without incurring taxes etc. There are no joint bank accounts here - the best that can be done is an account in one name and a supplmentary card the other is allowed to use on that account.

I was in a similar situation to you - a non-Japanese married to a Japanese, buying a property in Japan while we were both non-resident (we lived outside of Japan). Like you, I had the idea to put the property in both our names as would be the custom in my home country. However, we were advised this would be seen as a "gift" to my wife and she would have to pay gift tax on this amount. This was despite funding the purchase from our joint bank account overseas.

I would advise you to take professional advice before making a decision. Depending on how long your wife has lived outside of Japan, you might have some options.

In regard to visa's and such like, it has no bearing. Owning a house or land in Japan does not confer the right to live in japan.

[Tkydon]

As Deep Blue said, the concept of Communal Property and Bank Accounts does not exist in Japan.
Your Assets are your Assets and will be assessed as your Estate when you die, and her Assets are her Assets and will be assessed as her Estate when she dies, and the heirs and beneficiaries subject to Inheritance Tax if the value of the Estate exceeds the Standard Basic Inheritance Tax Deduction.
(It's complicated, but the Spouse can receive the greater of the Spouse's Statutory Share of the Estate under the Inheritance Law or Y160,000,000 free of Inheritance Tax)

You can put both names on the deed of a Property, but you are each expected to contribute to the costs in proportion to your stated share of ownership. Otherwise the National Tax Agency will view that as a transfer of assets from the party contributing more to the party contributing less, and the difference would be liable for Gift Tax.
If you put 50/50 split on the Deed and one party contributes 100% of the costs of the Down payment, mortgage payments and property taxes, the other party is deemed to have received their 50% of the value of the property as a Gift, and would be subject to Gift Tax.
This may not be an issue if your wife has not been resident in Japan for more than 10 years and the purchase is completed before you move to Japan. You would need to check with a qualified Tax Accountant.

Generally, there is an annual limit of Y1,100,000 of Gifts received by a Recipient that would be Tax Free in any one tax year, and all gifts over that Y1.1M exemption would be subject to Gift Tax.

There is one exception:
There is a Once in a Marriage of Over 20 Years opportunity to transfer Residential Property (or part thereof) or Funds to purchase Residential Property to your Spouse for the purpose of their Primary Residence to the value of Y20,000,000 free of Gift Tax for One Time Only. This Spouse Gift Tax Exemption can be combined with the standard Annual Gift Tax Allowance. Anything over that amount would be subject to Gift Tax.
https://laws.e-gov.go.jp/law/325AC00000 ... _2-At_21_6

Gifts between persons who have a legal responsibility to support each other are Exempt from Gift Tax, unless the gift is made for a purpose other than support or livelihood. The above would not qualify as 'support or livelihood' - 生活費等に充てられるもの.
https://laws.e-gov.go.jp/law/325AC00000 ... _2-At_21_3
Again, you would need to check with a qualified Tax Accountant.

In light of paragraph 1 above, you would be advised to clearly demarcate your assets before moving to Japan so that you don't run into issues later.
Again, you would need to check with a qualified Tax Accountant.

For other tax implications on Income, etc., you should check the Tax Treaty between Japan and Germany, particularly Articles 6,10,11,13,17,18 as appropriate.
https://www.mof.go.jp/tax_policy/summar ... any_EN.pdf
https://www.mof.go.jp/tax_policy/summar ... any_JP.pdf

As you will immediately own a property in Japan, you will be treated as a Non-Permanent Resident For Tax Purposes for your first 5 years in Japan, and from the 5th Anniversary onwards as a Permanent Resident For Tax Purposes. See the first 20 pages here:
https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
https://www.nta.go.jp/taxes/shiraberu/s ... df/060.pdf

[no6una9a]

Hi, I don't have any solid information for you, but I think in general, it is good to have both of your names on the land. It will be registered that way, and it may help your visa situation, to know that you own land in Japan. (I am just guessing this). Since you will have no income from owning the land, probably you would only be taxed with the land taxes. I think that the city government, just sends one tax bill per year. Ours has my husbands name on it, and then "sono ta". like one more person included. This way, when you go to build, you can easily put both of your names on the house too. (in Japan, you have to prove that both people contributed t the expense of the house, to get both people's names registered.

Hi Nancy, thanx for your input. Yes, for my wife and myself it makes most sense to put both names on the land. Additionaly we came across the following question: What about the house we are going to build upon the land - does it "automatically" belong 50/50 to each of us if each of us owns 50 % of the land the house is build upon?

[no6una9a]

This can be a bit tricky. The concept of marital bank accounts etc doesn't exist in Japan. When you are living here, there are limits how much money can be transferred between you without incurring taxes etc. There are no joint bank accounts here - the best that can be done is an account in one name and a supplmentary card the other is allowed to use on that account.

I was in a similar situation to you - a non-Japanese married to a Japanese, buying a property in Japan while we were both non-resident (we lived outside of Japan). Like you, I had the idea to put the property in both our names as would be the custom in my home country. However, we were advised this would be seen as a "gift" to my wife and she would have to pay gift tax on this amount. This was despite funding the purchase from our joint bank account overseas.

Hi Deep Blue, thanx for your reply. So that means a married couple where both of them are employed / earning money (still not very common in Japan but from what I heard bit by bit increasing) will need/have separate bank accounts? What if they decide to buy i.e. a new car which might in some case at least triple the amount of money we are going to spend for the land we would like to buy do they pay the amount in equal parts? Because if they don't they possibly have to pay gift tax to each other at the end of the year?

I would advise you to take professional advice before making a decision. Depending on how long your wife has lived outside of Japan, you might have some options.

Yes, that makes more and more sense to me. I contacted already two tax professionals in Germany: The first one replied that they "do not have free time to handle my request" and the other one doesn't reply a all. So I better might contact some puro in Japan.

[Nancy]

I think that as long as you both had income and have pay slips, even if the money is from a joint account, you should be OK. But as other's have said, when you come to Japan, it would be better to have separate accounts so that the source of the money can be easily understood. I'm not sure of your question about the 50/50 for the house. We needed a mortgage and it was in my husband's name, but as long as I transferred money into his account every month to pay half of it, they considered that a 50/50 ownership.

[Deep Blue]

I reiterate this

I would advise you to take professional advice before making a decision. Depending on how long your wife has lived outside of Japan, you might have some options.

I wouldn’t rely on advice from unknown strangers on the internet when making choices on life decisions like this, especially when your case is relatively niche.

Ask the real estate agent for a referral if you can’t find anyone to help in Germany. Failing that, some of the Tokyo based agencies used to dealing with foreign buyers might be able to refer some suitable lawyers/tax professionals. I used Ken Corp when buying from overseas and the whole process was very smooth - they’ve got lots of experience with similar cases.

[Nancy]

That's true. I have no legal background at all.

[Deep Blue]

None of us have! It’s a general point… I think it’s useful to provide our experiences and such like but I’m sure they are lots of nuances that we individually and collectively don’t have the knowledge to impart.

For example, provided the Japanese spouse has lived outside of Japan for a certain time (maybe ten years, I know it changed recently) then it may be possible to transfer money or other assets between each other without gift tax.

Whether this money can then be bought in Japan and used to purchase the marital land/house 50:50 isn’t something I’d be comfortable guessing at.

But chucking a few ichimans to a professional who can give a written opinion could save a lot of money and stress down the line….