Japan’s real estate market has drawn a large number of overseas investors in recent years, and “kotoi-zei” — fixed asset tax and city planning tax combined — is one of the key ongoing costs every property owner has to face. In 2025, Japan is applying a new fixed asset tax reduction policy to certain property holders, easing the tax burden on owners. This article breaks down the reduction’s eligibility conditions, the application procedure, and tips for saving tax, to help you understand the latest policy and lower your property holding costs.
1. Background: Fixed Asset Tax and City Planning Tax
(1) Origin of Fixed Asset Tax
Fixed asset tax (kotei shisan zei) is a local tax that the Japanese government has levied since 1950 (Showa 25) under the Local Tax Act; the tax base and valuation rules are set out in Article 349, while the rate itself is set by Article 350.
- Taxable objects: land, buildings and ancillary facilities (such as parking lots, storage sheds, etc.)
- Standard rate: 1.4% (current law sets no fixed statutory ceiling; a municipality setting a rate above 1.7% must do so by its own ordinance under Article 350)
- Tax base date: January 1 each year
(2) Origin of City Planning Tax
City planning tax (toshi keikaku zei) is a local tax levied on property holders within a “city planning area,” mainly used to support urban infrastructure such as roads, sewers and parks.
- Statutory rate: 0.3% — this is itself the statutory ceiling under Local Tax Act Article 702-4; municipalities may set a lower rate by ordinance but may not exceed 0.3%
Fixed Asset/City Planning Tax Reduction: Conditions and Scope
Timing and Eligibility Limits
The tax base date for both fixed asset tax and city planning tax is January 1 each year. As a result, the residential-land reduction generally only applies if a residential building already stood on the land as of January 1 of that year. There are, however, exceptions:
- During residential rebuilding: If an old house is demolished for rebuilding, under certain conditions the land can continue to receive the residential-land reduction during the rebuilding period. Conditions include: the land was recognized as residential land in the previous year, construction on the new building began by January 1 of the current year and is due to complete before January 1 of the following year, the rebuild is on the original site, and the ownership of the land and dwelling remains essentially unchanged.
- Vacant houses: For a poorly managed vacant house, under the Act on Special Measures for Vacant House Countermeasures, the land it sits on may lose eligibility for the residential-land reduction — a measure intended to discourage the growth in vacant housing.
Scope of Property Eligible for the Reduction
Japan’s residential-land tax reduction policy divides “residential land” into two categories:
| Category | Definition | Fixed Asset Tax Reduction | City Planning Tax Reduction |
|---|---|---|---|
| Small-scale residential land | The portion up to 200m² per housing unit | 1/6 of assessed value | 1/3 of assessed value |
| General residential land | The portion above 200m² (capped at 10 times the building floor area) | 1/3 of assessed value | 2/3 of assessed value |
Classification of Residential Land
Japan’s reduction policy for “residential land” mainly divides residential land into two types — small-scale residential land and general residential land — with different fixed asset tax and city planning tax reduction standards applying to each.
Small-Scale Residential Land (the portion up to 200m²)
Small-scale residential land refers to: the portion of land up to 200 square meters per “housing unit.” The definition of a “housing unit” includes:
- Detached houses, townhouses, apartments, rental housing, etc.
- Even a unit within an apartment building can independently count toward its own 200m² reduction.
| Tax | Reduction |
|---|---|
| Fixed asset tax | Calculated at 1/6 of assessed value |
| City planning tax | Calculated at 1/3 of assessed value |
Example: a detached house
You own a 150 square meter townhouse:
- Because the area is under 200 square meters → the entire area qualifies for the small-scale residential land reduction
- Fixed asset tax = 150m² × assessed value × 1/6
- City planning tax = 150m² × assessed value × 1/3
Example: a 300 square meter townhouse
You own a 300 square meter detached house:
- The first 200 square meters → qualifies for the small-scale residential land reduction
- The remaining 100 square meters → qualifies for the general residential land reduction
Calculation:
- Fixed asset tax = first 200m² × assessed value × 1/6 (small-scale) + remaining 100m² × assessed value × 1/3 (general)
- City planning tax = first 200m² × assessed value × 1/3 (small-scale) + remaining 100m² × assessed value × 2/3 (general)
General Residential Land (the portion above 200 square meters)
General residential land refers to:
- The portion of residential floor area above 200 square meters
- When calculating, only the first 200 square meters can receive the small-scale residential land reduction
- The portion above 200 square meters is taxed under the general residential land standard
- General residential land reduction standard:
| Tax | Reduction |
|---|---|
| Fixed asset tax | Calculated at 1/3 of assessed value |
| City planning tax | Calculated at 2/3 of assessed value |
Example: a 500 square meter townhouse
You own a 500 square meter property:
- The first 200 square meters → small-scale residential land reduction (1/6, 1/3)
- The remaining 300 square meters → general residential land reduction (1/3, 2/3)
Calculation:
- Fixed asset tax = first 200m² × assessed value × 1/6 + remaining 300m² × assessed value × 1/3
- City planning tax = first 200m² × assessed value × 1/3 + remaining 300m² × assessed value × 2/3
Multi-Unit Housing (such as Apartment Buildings or Rental Housing)
Multi-unit housing refers to:
- Apartment buildings, rental houses, collective housing and similar
- Each independent housing unit is entitled to its own 200 square meter reduction
Example: a 10-unit apartment building
You own a 10-unit apartment building, each unit 100 square meters:
- Each unit’s 100 square meters is under the 200 square meter cap → the entire area qualifies for the small-scale residential land reduction
- 10 × 100 = 1,000 square meters in total qualifies for the small-scale residential land reduction
Mixed Residential-Commercial Buildings
A mixed residential-commercial building refers to:
- A single building that contains both residential and commercial use
The scope of the reduction depends on the proportion of residential use:
| Residential Share of Total Floor Area | Tax Treatment |
|---|---|
| Over 1/2 | The entire land qualifies for the residential-land reduction |
| 1/4 to 1/2 | 50% of the land qualifies for the residential-land reduction |
| Below 1/4 | No residential-land reduction applies |
Example: a mixed-use building
A 300 square meter building:
- The residential portion is 150 square meters (50%)
- Because the share falls between 1/4 and 1/2 → 50% of the land qualifies for the residential-land reduction
- 150m² → small-scale residential land reduction (1/6, 1/3)
- The remaining 150m² → taxed at the commercial-land standard
Application Procedure and Process
To receive the residential-land tax reduction, the following application steps are generally required.
Documents That Must Be Submitted
- Certified copy of the land register
- Identity documents
- Building confirmation documents (if newly built or altered)
- A statement of residential use
When and in What Situations to Apply
In any of the following situations, the landowner needs to submit a “Notification of Residential Land, etc.” (jutaku yochi tou shinkokusho):
- When building a new house or extending an existing one
- When fully or partially demolishing a house
- When rebuilding a house
- When changing the building’s use (for example, from residential to commercial, or from commercial to residential)
- When changing the land’s use (for example, converting a residential garden into a parking lot)
Differences in Application by Region
Tokyo → handled automatically
Osaka Prefecture → must be submitted by January 31 of the following year
Fukuoka Prefecture → active self-reporting required for rebuilding or renovation
Hokkaido → a vacant house or a designated “specific vacant house” may lose the benefit
Application Process and Materials
The application process and required materials include:
- Application form: fill out the “Notification of Residential Land, etc.,” which can be downloaded from the relevant local government’s website or obtained at the tax office.
- Application timing: generally must be submitted by January 31 of the year following the change.
- Where to apply: submit to the municipal tax division (fixed asset tax department) where the land is located.
- Required materials: depending on the specific situation, this may include the building confirmation documents, registration information, floor plans and other supporting materials.
Note that some local governments may confirm residential-land status through their own investigation, and may not require a notification form to be submitted. Still, to ensure the reduction is granted smoothly, it is best for the landowner to proactively submit the application.
Special Procedures During Rebuilding
For a case where an old house is demolished and rebuilt, and the owner wants to continue receiving the residential-land reduction during the rebuilding period, the following is generally required:
- Submit supporting documents, such as the building confirmation application and confirmation certificate
- Provide proof that construction of the new dwelling has already begun (usually evidenced by the submission and approval of the building confirmation application)
- Provide a construction timetable for the rebuild, showing that it will be completed before the next tax base date (January 1)
Have a question about this guide? Leave a comment below, or ask Zagdim directly.
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