Tokyo Market Overview Why Central Tokyo & Why Now? Tokyo Market - - PowerPoint PPT Presentation

Tokyo Market Overview

Why Central Tokyo & Why Now? Tokyo Market Report

Tokyo has the LARGEST GDP of all major cities in the world.

Tokyo Market Report

Tokyo has the highest GDP of City as of 2013 at USD 1.52 trillion or JPY 156 trillion

(Figures in billions of USD, taken from 2013 GDP figures)

Population trends in Tokyo have been increasing steadily for over the past 60 years.

3.5 7 10.5 14 1920 1945 1970 1995 2020 3.7 4.49 5.41 6.37 7.35 3.49 6.28 8.04 9.68 10.87 11.41 11.67 11.62 11.83 11.86 11.77 12.06 12.59 12.85 13.08 13.18 13.29

Tokyo Market Report

Tokyo Population as of 2013 was 13,290,000 Population of Greater Tokyo was 37,555,000 (2014)


(Figures rom Ministry of Internal Affairs and Communications and Tokyo Metropolitan Government)

Tokyo and Suburban Area Historical and Growth Population Projections

Tokyo Market Report

Source: Tokyo Metro

¡ ¡ 50,000 ¡ ¡ ¡ 162,500 ¡ ¡ ¡ 275,000 ¡ ¡ ¡ 387,500 ¡ ¡ ¡ 500,000 ¡ 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Tokyo Market Report

Foreign Population also increases.

But.... Foreign Population in Tokyo 23rd wards is 3.96% Dubai is 83.02%, Hong Kong is 42.59%

As of Jan. 1 2014, there were 394,410 foreigners in Tokyo

Tokyo Market Report

Foreigner Bank in Tokyo.

(Figures from Tokyo Metropolitan Government)

0.00 ¡ 2.50 ¡ 5.00 ¡ 7.50 ¡ 10.00 ¡ 1990 1998 2005 2013 2020

Tokyo Market Report

Decreasing in Tokyo Office Vacancy Rate

Japan Growth Potential
 
 


Abenomics
 2020 Tokyo Olympics
 Special Economic Zones
 Casino and Integrated Resort 
 Tourism Business

Japan Growth Potential

Abenomics has 3 arrows of implementation: 1) A massive financial stimulus 2) Aggressive monetary easing from the BOJ 3) Structural reforms to boost Japan’s competitiveness So, how’s it going so far?

LDP landslide

Nikkei 225 (NKY)

JPY 8,000 JPY 15,000 LDP Landslide Victory

Tokyo Market Report

Stock Market UP. Double

USDJPY FX Rate

JPY 80 JPY 100

Tokyo Market Report

Weaker JPY 20% Down

Real – Estate Price

Tokyo Market Report

Real-Estate Price will follow REIT index.

• Tokyo taking advantage of improvements on already

top class infrastructure. ¡

• Potential economic impact of 3 trillion Yen (29.7

billion USD) ¡

• Creation of over 150,000 jobs ¡
• Construction budget of over 383 billion yen for 11

new facilities and renovation on existing facilities

Tokyo Market Report

International Sports Event in Tokyo, 2019 and 2020

Both Events will take place within a compact 8km radius.

The Tokyo Metropolitan Government launched the Special Zone for Asian Headquarters project as a new plan to attract foreign companies to Tokyo, with the aim to make Tokyo the preferred site in the Asian region for regional headquarters and R&D centers.

Tokyo Market Report

Proposed Special Economic Zones: Asian Headquarter District

• Tax Incentives ¡
• Low interest Loans ¡
• Quicker immigration process ¡
• Business and Living Support ¡
• Multiple Languages Support

• Profits will be heavily taxed, which will be used to lower government dept., and increase public
• spending. ¡
• Major Casinos have made plans to invest; Wynn resorts will consider of investing more than 4 billion
• USD. ¡
• Bloomberg Industries Analyst indicated that Japan has the potential of becoming the ‘next big thing’

beyond Macao.

Tokyo Market Report

Proposed Casino and Integrated Resort

10million Visitors to Japan in 2013 2013

Tokyo Market Report

Improvement in Tourist Business

Country # Tourists in 2012 Japan 8,358,000 (exceeded 10,000,000 in Dec 2013) France 83,013,000 United Kingdom 29,282,000 Hong Kong 23,770,000 Singapore 11,098,000 USA 66,969,000 Australia 6,146,000

Tokyo Market Report

Improvement in Tourist Business

Tokyo Market Report

What’s coming after 2020?

Comparison 
 International Real Estate Market

Source:Global Property Guide

Tokyo Market Report

Comparison on International Real-estate market

Source:Global Property Guide

Tokyo Market Report

Tokyo Rent is Same as Hong Kong, but Double in Price.

Property Bed Gross Unit Area (sq ft) Tenure Price (SGD) Price per sq ft (SGD) Scotts Square 1 3 635 1,249 Freehold $2,250,000 $4,800,000 $3,543 $3,843 Orchard Residence 3 1,808 99 years $6,500,000 $3,600 Draycott 8 4 2,900 99 years $7,250,000 $2,500 Property Bed Net Unit Area (sq ft) Tenure Price* (SGD) Price per sq ft (SGD) Roppongi Hills Residence 2 3 1,224 1,249 Freehold $3,125,000 $2,525,000 $2,553 $2,022 Park Mansion Roppongi

• 3

3 1,305 1,723 Freehold $3,375,000 $5,000,000 $2,587 $2,902 The Westminster Roppongi 2 3 1,263 1,622 Freehold $2,937,500 $4,000,000 $2,326 $2,466

Source: Mitsui Fudosan Realty, Grosvenor

Scotts Square Orchard Residence Draycott 8 Roppongi Hills Residence Park Mansion Roppongi The Westminster Roppongi

* Converted at JPY80 = 1 SGD

Tokyo prime residential is very attractive compared to Singapore as: (1) Most common property ownership type is freehold (vs. leasehold in Singapore); (2) Price is expressed on a NET AREA basis (vs. GROSS AREA basis in Singapore).

Tokyo Market Report

Tokyo Prime Residential in Comparison to Singapore

6,000,000 12,000,000 18,000,000 24,000,000 1985 1994 2003 2011 2020

Land Price Fluctuation for Ginza 3-chome

Tokyo Market Report

From the lowest point in 2000, there has been a growth of 30% in 2006 land prices. 200% UP 230% UP

Data series indexed to 1986 price. Sydney Established Homes data, Tokyo Residential Land Price data, HK apartment prices 100-160sqm Source: ABS, Japan MITT and Ratings and Valuations Department

0.0 400.0 800.0 1,200.0 1,600.0 1983 1988 1993 1998 2003 2008

Sydney ¡Established ¡Houses HK ¡Apartment ¡Prices Tokyo ¡ResidenHal ¡Land

Tokyo Market Report

What is Japan Bubble?

DOUBLED IN PRICE

Tokyo Market Report

What is happened in mini Bubble?

Roppongi Hills Residence

What happen this time?

Tokyo Market Report

What is current trend in Tokyo real-estate market?

Construction Cost UP Land Value UP Anticipation on Rise in New Apartments UP

Tokyo Market Report

What is the rental market look like in Tokyo now?

High potential to see an increase in rental prices in the following years

September 27, 2014 Investing in Japanese Real Estate

Company ¡Overview

Our ¡Company ¡is ¡Active ¡in ¡the ¡Following ¡Areas

YOUR LOGO Japan Non-Resident Tax Filing Japan Resident Tax Filing Japan Corporate & Consumption Tax Treaty Based Taxation Individual U.S. Expat Tax Filing

Canadian Income Tax (Resident & Non Resident)

Corporate

Tax Services

Investing ¡In ¡Japanese ¡Real ¡Estate

Presentation ¡Overview

2

Rental Income

3

Withholding Tax

4

Capital Gains – Short Term vs Long Term

5

Other ¡Taxes Introduction

1 6

Tokumei Kumiai (GK-TK)

7

Conclusion – Q&A

YOUR LOGO

Investing ¡In ¡Japanese ¡Real ¡Estate

Tax ¡planning ¡& ¡Practical ¡Considerations

YOUR LOGO Overview

• One of the most difficult investment decisions is purchasing property, more so when that

property is in a foreign country.

• ▪

Because tax and legal systems differ with each jurisdiction, investors need to understand the local implications of their proposed property transactions before investing.

• ▪

In order to maximize investment opportunities, it is vital for investors to consider tax planning opportunities and specific tax obligations.

• ▪

Both resident and non-resident individuals or companies may invest or purchase property in Japan.

• Tax planning opportunities and the level of tax compliance required are based on the

residency status of the individual and whether the individual chooses to hold the property in their name or a local or offshore entity.

• Currently, both Japanese and foreign banks are becoming more proactive in the lending

market, allowing more options for investors interested in Japanese real estate.

Investing ¡In ¡Japanese ¡Real ¡Estate

Tax ¡planning ¡& ¡Practical ¡Considerations

YOUR LOGO Overview

• Because Japan's tax rates are among the highest in the world,

it is imperative that the correct structure is implemented to ensure tax efficiency.

• Hybrid investment structures, such as Tokumei Kumiai (TK),

are available to investors who provide for planning

• pportunities. A TK is most often used by investors who want

to reduce their onshore tax liability and simplify their tax liability / compliance on any income distributions to non-resident investors.

• Japan has experienced a wave of foreign investment due to

low interest rates, reduction of property taxes, and availability

• f investments properties.

Rental ¡Income ¡Taxation

Investing ¡In ¡Japanese ¡Real ¡Estate

YOUR LOGO Overview

▪ Rental income from Japanese property is generally included with investors' other Japanese source income and taxed at marginal rates. ▪ Marginal Tax rates are high in Japan

• National Tax 5% to 40%
• Local Tax 10%
• Earthquake Surtax 2.1% (on Income Tax amount)
• ▪ Can deduct expenses from gross income such as interest,

depreciation, maintenance, property management fees, etc.. ▪ Withholding tax is deducted from payments to non-resident investors and is treated as a prepayment of the investor's income tax liability. ▪ Marginal National Tax Rate to Increase to 45% in 2015 on income > 40,000,000 JPY

Rental ¡Income ¡Taxation

Investing ¡In ¡Japanese ¡Real ¡Estate

YOUR LOGO Example

Japan Resident Property owner earns 10,000,000 JPY in Salary income and 2,000,000 JPY in NET Rental Income (Gross Income – Expenses) Salary Income taxed at 33% Marginal Rate + 10% Local Tax

• Rate. Rental Income also included in total income and taxed at

33% Marginal Rate.

• Salary

10,000,000 JPY Rental income 2,000,000 JPY Total Income 12,000,000 JPY Marginal Tax Rate (National) 33% Marginal Tax * 3,960,000 JPY

• *NOTE: Effective tax rate will be lower when including deductions

for employment , dependents, etc.. For Demonstration purposes

• nly

Marginal ¡Tax ¡Rates

Investing ¡In ¡Japanese ¡Real ¡Estate

YOUR LOGO

Marginal ¡Tax ¡Rate ¡% Income ¡Tax ¡Bracket ¡(mil ¡JPY)

50 18 9 7 3.3 2

40 33 23 20 10 5 10 20 23 33 40

D AT A ¡ D

Withholding ¡Tax

Withholding ¡Tax ¡Requirements ¡on ¡Rental ¡Income

YOUR LOGO Overview

• Withholding Tax is deducted from payments to non-

resident investors and is treated as a prepayment

• f the investor's income tax liability.
• The withholding tax rate on rental income is

20.42%

• If the tenant is a corporation, the tenant must

withhold 20.42% of the monthly rent and pay it to the tax office by the 10th day of the following month.

• If the tenant is private individual, they are not

required to withhold any rent.

• The individual Taxpayer must file a tax return to

claim back any excess Withholding tax withheld at source over the course of the year.

Capital ¡Gains ¡Taxation

Investing ¡In ¡Japanese ¡Real ¡Estate

YOUR LOGO Overview

• Tax levied on any capital gain from the sale of property will fluctuate based on whose name the property

is in, whether the owner is a resident of Japan, and how long the property has been held.

• Capital Gains is calculated on following formula:

Taxable Income = Selling Price – (Purchase Price + Sales Cost) – Special Deduction*

• For individuals, both gains and losses are taxed separately from other income.
• Gains on property held by a resident of more than five years are taxed at 20% (15% National + 5% Local

Tax) ,

• Gains on Properties held for five years or less are taxed at 39% (30% National Tax + 9% Local Tax)
• 2.1% Earthquake surtax added to both short term & long term capital gains.
• For individual resident investors, capital losses can only be offset against capital gains in that tax year.

For owner-occupiers, a capital loss can be carried forward three years and offset against other income, provided the taxpayer purchases a new residence within the expressed timeframe.

• For resident corporations, capital gains from the sale of real property are included with its other income

and taxed at the corporate level. Can range between 35% to 42%.

Capital ¡Gains ¡Taxation

Investing ¡In ¡Japanese ¡Real ¡Estate

YOUR LOGO Example – Long Term

▪ Resident taxpayer purchased apartment in 2006 for 80,000,000 JPY and sold in 2014 for 100,000,000 JPY. Taxpayer incurred 5,000,000 JPY of selling costs. ▪ Resident Taxpayer held property for over 5 years. ▪ Taxed at 15% National Tax & 5% Local Tax ▪ *Earthquake surtax of 2.1% on Income Tax not included in calculation below.

Selling ¡Price ¡ 100,000,000 ¡JPY Purchase ¡Price ¡(-­‑) 80,000,000 ¡JPY Selling ¡Costs ¡(-­‑) 5,000,000 ¡JPY Taxable ¡Income ¡(GAIN) ¡ ¡(=) 15,000,000 ¡JPY Tax ¡Rate ¡(National ¡+ ¡Local) 20% Total ¡Tax ¡Due 3,000,000 ¡JPY

Capital ¡Gains ¡Taxation

Investing ¡In ¡Japanese ¡Real ¡Estate

YOUR LOGO Example – Short Term

▪ Resident taxpayer purchased apartment in 2012 for 80,000,000 JPY and sold in 2014 for 100,000,000 JPY. Taxpayer incurred 5,000,000 JPY of selling costs. ▪ Resident Taxpayer held property for over 5 years. ▪ Taxed at 30% National Tax & 9% Local Tax ▪ *Earthquake surtax of 2.1% on Income Tax not included in calculation below.

Selling ¡Price ¡ 100,000,000 ¡JPY Purchase ¡Price ¡(-­‑) 80,000,000 ¡JPY Selling ¡Costs ¡(-­‑) 5,000,000 ¡JPY Taxable ¡Income ¡(GAIN) ¡(=) 15,000,000 ¡JPY Tax ¡Rate ¡(National ¡+ ¡Local) 39% Total ¡Tax ¡Due 5,850,000 ¡JPY

Other ¡Taxes

Other ¡Taxes ¡On ¡Real ¡Estate ¡Purchases

YOUR LOGO Acquisition Tax

▪ Real Estate Acquisition Tax 4% on assessed

• value. Currently reduced to 3% until March 31,

2015 ▪ 2% Registration Tax on the acquisition of real property based on assessed value. ▪ Stamp Duty up to 600,000 JPY. Varies by purchase price.

Consumption Tax

▪ 8% Consumption Tax on Building only after April 1, 2014 ▪ 5% Consumption Tax on Building only prior to March 31, 2014

Holding Tax

▪ 1.4% Fixed Asset Tax paid on assessed value of the property. (In Most cases, Market value greater than assessed value) ▪ 0.3% City Planning Tax

Other Taxes

▪ Gift Tax ▪ Inheritance Tax ▪ Transfer Taxes

Tokumei ¡Kumiai ¡(TK) ¡

Special ¡Purpose ¡Entity ¡(SPE) ¡for ¡Efficient ¡Tax ¡Planning

▪ Used as effective tax planning tool to mitigate high corporate tax rate in Japan > 40% ▪ Contractual agreement between two parties (TK Investor & TK Operator) under Japan Commercial Code. Not a legal Entity. ▪ Tokumei Kumiai can deduct its distributions to Investors as a deductible expense. ▪ TK Operators generally hold the beneficial interest in the properties in the TKs under a trust beneficiary certificate issued by a trust bank licensed in Japan which holds legal title to the properties ▪ TK Investor and TK Operator must maintain Arm’s length agreement. i.e. there should be no relationship between TK investor and TK Operator. ▪ TK Investor taxed only on distribution of 20.42% (Dividend Income)

Tokumei ¡Kumiai ¡(TK) ¡– ¡Godo ¡Kaisha ¡(GK) ¡ ¡

Special ¡Purpose ¡Entity ¡(SPE) ¡for ¡Efficient ¡Tax ¡Planning

▪ Godo Kaisha (GK)– New Business type introduced in 2006 ▪ Requires Investors and Partners and incorporated in Japan under Corporations Act. ▪ Can decide freely to distribute profits. No retained earning requirements such as K.K. ▪ TK Investor is limited to their contribution. Similar to U.S. LLC. ▪ GK will act as the borrower and the holder of the assets to be invested. ▪ Under new rules, TK-GK is easier to administer than tokutei mokuteki kaisha (TMK) (another SPE used in Japan Real Estate) ▪ *** Several Conditions must be met .

QUESTIONS ANSWERS

&

Contact ¡Information ¡

YOUR LOGO

Eric La Cara


Managing Partner
 


Capital Tax K.K.

7F Toranomon 40MT Bldg, 5-13-1 Toranomon Mintato-Ku, Tokyo Japan 105-0001

• Tel. +81-3-4530-9755 


eric@capitaltaxltd.com

The facts in this presentation is issued in summary form exclusively for Information purposes only and should not be used or relied upon as a substitute for detailed real estate tax

• advice. Accordingly

Capital Tax K.K. accepts no responsibility for any loss that occurs to any party who acts on the information contained herein without further consultation with us.