Practical Process for Foreign Investors Buying, Operating, and Selling Real Estate in Japan

In Japan, foreign investors are permitted to purchase real estate. However, the practical difficulty rises substantially when the investor is a non-resident or lacks the necessary domestic infrastructure in Japan for banking, tax administration, and registration.

Our role is to support overseas investors considering STR investment in Japan by designing the entire process end to end, from pre-acquisition planning to licensing, regulatory coordination, operating structure, and exit strategy. From that perspective, this article explains the practical process across three phases—acquisition, operation, and exit—and examines how the process differs depending on whether the property is held by an individual, a newly incorporated Japanese company, or an existing Japanese company acquired through M&A.

1. Acquisition

At the acquisition stage, the first issue to design is not the contract terms themselves, but where the settlement funds will land. In Japanese real estate practice, final closing usually assumes that the purchase price has already arrived in Japanese yen within Japan. Accordingly, by the settlement date, the investor must have in place a safe structure capable of handling yen settlement domestically.

1-1. Practical Matters Common to All Acquisition Structures

Whether the buyer acquires as an individual or through a company, several issues must be resolved before signing. The first is the settlement account structure. The second is the identity verification and address documentation acceptable to the judicial scrivener. The third is the framework for reliably receiving tax notices within Japan after acquisition.

If overseas remittance is used, settlement timing must also be planned carefully. Where a foreign purchaser does not maintain a Japanese domestic bank account and funds the transaction by international transfer, it is common for the remittance to require two to three business days to arrive. This means the transaction timetable must allow more buffer than a standard domestic Japanese closing.

1-2. Acquisition by an Individual

The central question in an individual holding structure is whether the buyer can maintain a personal bank account in Japan. In practice, it is generally easier to open a personal account in Japan if the person is working in Japan or has lived in Japan for more than six months. For a person residing entirely overseas, opening a domestic account is not straightforward.

The important point is that an investor can still purchase property in practice even without a Japanese personal account or a Japanese company. Broadly speaking, there are two ways to do so.

The first is a direct remittance from overseas into the seller’s Japanese bank account. Major Japanese banks generally provide for inward remittances to be credited to the designated recipient account, and if the receiving account is a yen account, the funds are converted into yen at the bank’s prescribed exchange rate. Therefore, if the seller holds an account capable of receiving inward remittances, it is possible in practice to complete the purchase through a direct international transfer.

The second is to use a trust account or settlement agent structure. In practice, funds remitted from overseas may be held by a judicial scrivener or another professional acting as a settlement agent, who manages both the payment to the seller and the filing of the registration application. This structure can function in a manner similar to escrow and makes it easier to align the payment of funds and the transfer of title as closely as possible.

From the investor’s standpoint, the greatest caution should be exercised where the funds are to be paid in advance into an ordinary brokerage company account. It is not correct to say that every such case is inherently unsafe, but there is a major legal and practical difference between an ordinary operating bank account of a sales company and a trust account, escrow-type managed account, or a clearly defined settlement agent account. In our view, even where the investor proceeds as an individual, the key question is not simply whose account receives the funds, but under what legal structure that account is managed.

In registration practice, when an overseas-resident foreign buyer acquires property individually, the basic supporting documents typically include proof of address issued by the government of the home country or country of residence, or a notarized affidavit together with a copy of the passport. If the materials are in a foreign language, Japanese translations are required. In practice, it is essential to coordinate the required document format with the judicial scrivener before the contract is signed.

1-3. Acquisition Through a Newly Incorporated Japanese Company

The principal advantage of acquiring through a newly incorporated Japanese company is that ownership, operations, payments, and accounting can be centralized within a domestic corporate vehicle. Under Japanese company law practice, company registration itself is possible even where all representatives reside overseas.

However, from an investment execution perspective, incorporation itself is less important than whether the company can open a corporate bank account after formation. Banks may require not only a corporate registry certificate and seal certificate, but also company materials, proposals, specifications, and related documents, and they may review the business purpose, purpose of account opening, and beneficial ownership. Accordingly, incorporating a Japanese company does not automatically secure a settlement account.

Where the investment contemplates STR operations or other business activity, the newly incorporated company structure is often highly rational for investments above a certain scale. The reason is that it allows the investor to preserve consistency of the investment vehicle across post-acquisition rental operations, accommodation revenue, cleaning and operating expenses, tax filings, and future asset management. However, if the investor focuses only on incorporation and underestimates the bank review process, the fund flow may become blocked at the acquisition stage. For that reason, where a newly incorporated company is used, it is more important to prepare the business plan, target property, proposed operating structure, and source-of-funds materials early than to focus only on the incorporation documents.

1-4. Acquisition Through M&A of a Company With an Existing Bank Account

Acquiring an existing Japanese company and using that company to purchase real estate may appear highly attractive because, in theory, it allows the investor to leverage existing bank accounts and contractual relationships. For overseas investors in particular, the idea that “buying a company with an existing bank account may allow us to bypass the first bottleneck” is a natural one.

That said, this structure involves two major caution points. First, the investor effectively assumes the legal, tax, and compliance risks of the acquired company. It is therefore necessary to investigate whether the company has properly filed taxes in the past, whether it has violated any applicable laws, and whether it has unpaid liabilities or other hidden issues. One cannot assume that legacy risk is zero.

Second, the existing bank account may not remain usable after the acquisition. If a foreign investor acquires the shares of a Japanese company, the transaction may qualify as inward direct investment under the Foreign Exchange and Foreign Trade Act, and depending on the facts, prior filing may be required. In addition, whether the bank will continue to permit use of the company’s existing account after the shareholder change is a separate issue. In practice, a new application and renewed review are often required.

1-5. Tax Notice Arrangements That Should Be Put in Place at the Acquisition Stage

One point that is often overlooked at acquisition is where tax notices will be received. In practice, where the owner resides overseas, it is common to appoint a tax agent in Japan so that notices for fixed asset tax, city planning tax, and similar local taxes can be received domestically.

Although this may appear to be a post-acquisition issue, it is in fact something that should be decided before the purchase is completed. If it is unclear whether the recipient of those notices will be the tax accountant, judicial scrivener, property manager, or another trusted person in Japan, local tax notices are more likely to be delayed or mishandled after acquisition.

2. Operation

During the operating phase, operational consistency becomes even more important than at acquisition. From an investment perspective, the headline yield alone is not the decisive issue. What matters is whether there is a clear framework showing where income is received, who pays expenses, which legal entity files taxes, and how capital is ultimately returned to the investor. Without that clarity, stable and compliant operation becomes difficult.

In this section, we first examine the differences by operating vehicle—individual ownership, newly incorporated corporate ownership, and ownership through an acquired company. We then conclude with the tax filing and tax notice structure that is important regardless of whether the owner is an individual or a company.

2-1. Operation by an Individual

Where a non-resident earns domestic-source income from Japanese real estate, such as rental income, a Japanese tax filing may be required. In that case, it may also be necessary to appoint and notify a tax agent. Under an individual holding structure, this tax issue continues alongside the ongoing question of where operating income will be received.

Where a management company is involved, the income structure usually falls into one of three categories: simple management arrangement, rent collection agency arrangement, or sublease arrangement. In particular, where rent for Japanese real estate is paid to a non-resident owner, the payer may be subject to a 20.42% withholding obligation. For that reason, this issue becomes especially important in a sublease structure where the management company acts as tenant.

In our view, individual ownership tends to become more burdensome during operation than at the acquisition stage. In STR operations in particular, the revenue and expense structure is more complex than in ordinary long-term leasing, because it involves OTA revenue, cleaning costs, operating fees, consumables, and guest communication costs. For an overseas individual investor, continuing to manage this structure over the long term through a personal account and personal tax filings may be legally possible, but it is not always efficient from an operating standpoint.

2-2. Operation Through a Newly Incorporated Company

The greatest advantage of operating through a newly incorporated company is that income receipt, payments, accounting, and taxation can be integrated at the corporate level. If the company has a corporate bank account, it becomes easier to centralize the receipt of settlement proceeds from the management company, rental income, and accommodation revenue, while also improving transparency in accounting, taxation, and cash management.

That said, having a corporate bank account is only the starting point. Banks may continue to review the beneficial owner and the nature of transactions over time, and if the actual transaction flow diverges materially from the business purpose originally explained to the bank, that may interfere with continued operation. In STR operations, funds are often received from a mix of OTAs, payment processors, and management companies. For that reason, it is particularly important to ensure that the accounting design is consistent with the explanations provided to the bank.

In our view, where the investor intends to operate rather than merely acquire, a newly incorporated company is the most straightforward vehicle to design. If the holding period is medium to long term and the investor expects not only to acquire the property but also to operate accommodation or rental activity and potentially acquire additional assets later, corporate ownership functions not merely as a tax planning tool but as an operational infrastructure for long-term investment execution.

2-3. Operation Through a Company Acquired by M&A

Where the operating entity is a company acquired through M&A, the bank may conduct renewed identity verification after the change in shareholders or representatives. If that review can be passed without issue, the practical operation flow is not materially different from that of a newly incorporated company.

If the investor can acquire a company with a clean operating history and stable continuity of contracts and bank accounts, this may in practice become the shortest route. However, if those assumptions are incorrect, the post-acquisition restructuring may become more complicated than simply using a newly incorporated company from the outset.

2-4. Tax Filing and Tax Notice Structure Common to Both Individuals and Corporations

At this stage, it is useful to separate out the operational framework that remains necessary regardless of whether the property is held by an individual or a company. The legal taxpayer and type of return differ between individuals and corporations, but at minimum, both structures require a function in Japan to handle tax filing obligations and a domestic point of contact capable of receiving local tax notices and arranging payment.

During operation, the owner must be prepared not only for income tax or corporate tax filings, but also for the reliable receipt of notices relating to fixed asset tax, real estate acquisition tax, and other local taxes. Where the owner resides overseas, it is especially important to establish a domestic window for receiving and paying such notices.

For that reason, in our view, when designing the operating structure, it is not enough simply to appoint a tax accountant. The investor should distinguish between the function that prepares and files national tax returns and the function that receives local tax notices and handles payment in practice. Keeping the roles of the property manager, tax accountant, and asset manager clearly separated is a critical factor in maintaining operational continuity.

3. Exit

At the exit stage, unlike at acquisition or operation, tax rules that directly affect the amount of cash ultimately recovered come to the forefront. In particular, where the owner is a non-resident individual, the buyer may bear a withholding obligation, which means that the full sale price is not necessarily remitted back to the seller in cash at closing. This must be anticipated from the time of acquisition.

3-1. Exit by an Individual

If a non-resident sells Japanese real estate, Japanese tax consequences generally arise on the capital gain, and a Japanese tax return is generally required. In addition, as a general rule, 10.21% is withheld from the sale price.

There is an exception where the sale price is JPY 100 million or less and the buyer is an individual acquiring the property for the residence of the buyer or the buyer’s relatives. In such a case, withholding is not required. However, this exception is usually not available in investment transactions or where the buyer is a corporation. For overseas investment cases, the safer working assumption is therefore that withholding will apply.

This withholding is not the final tax liability. The actual tax burden depends on the acquisition cost, selling expenses, and other factors. Accordingly, if the withheld amount exceeds the final tax due, the seller may recover the excess through a subsequent tax filing and refund process.

3-2. Exit Where the Property Was Held by a Newly Incorporated Company

Where the property is held by a newly incorporated company, the seller is that company. In practice, the company recognizes the gain on sale, files the relevant corporate tax returns, and then returns capital to the investor through a second step, such as dividends, repayment of shareholder or director loans, or liquidation distributions. In other words, the exit must be designed as a two-step capital recovery process.

At the same time, the investor may also choose to sell the company itself rather than only the underlying asset. That logic overlaps with the M&A-style exit structure discussed below.

3-3. Exit Where the Property Was Held Through an M&A Structure

Even where the property has been held through an M&A structure, there are still two possible exit routes: selling the asset itself or selling the shares of the company. If the property is sold, the transaction can be analyzed as an ordinary asset sale. If a share sale is chosen, however, the value will depend directly on the condition of the company’s contracts, tax history, bank accounts, and licenses at the time of exit.

A company that was attractive at entry because “it already had a bank account” will be evaluated through the same lens at exit. For that reason, an M&A holding structure should be designed not only for convenience at acquisition, but also with a view to whether the condition of the company can later be explained and transferred cleanly to a third-party buyer.

4. Our Overall View

When the above issues are translated into practical investment execution, the central question for overseas investors acquiring Japanese real estate is not simply whether they are legally permitted to buy. The real question is whether they can build an operating structure that remains sound across acquisition, ownership, and exit. Even where the investor has neither a Japanese personal bank account nor a Japanese company, it is still possible in practice to complete an acquisition through direct overseas remittance to the seller’s account, a trust account, or a settlement agent structure. However, that does not merely mean that funds can be transferred. It means that yen settlement, transactional security, registration, tax notice handling, and future income remittance must be designed as one integrated system.

In our view, the core issue for STR investment in Japan is not surface-level legal eligibility but the internal consistency of the structure. Individual ownership may be rational for investors who already maintain a residential and banking base in Japan, but for non-resident investors it often creates more friction during operation and exit. A newly incorporated company requires more design work at the entry stage, but it is often the clearest structure for medium- to long-term operations and future acquisitions. An M&A structure can be effective, but only where the investor has a clear strategy for inheriting an existing business, license framework, or operating platform.

Accordingly, the first question an investor should answer is not simply whether to invest as an individual or through a company. The more important question is which holding vehicle can connect acquisition settlement, operational income management, and exit-stage capital recovery with the least friction. In Japan’s STR market, results are often shaped less by formal legal barriers than by the precision of the execution design. On that basis, the most important step in protecting investment performance is to design the full structure—across legal, tax, banking, and operations—before the acquisition is completed.