Many ROI spreadsheets I review for prospective short-term rental buyers in Japan get cleaning fees, OTA commissions, and utilities right, but fixed asset tax (固定資産税, kotei shisan zei) is often under-budgeted. It’s not exotic or hidden; it’s just easy to underestimate if you’ve never owned property in Japan before, and it lands every single year whether the property is occupied or not.

If you’re comparing a gross yield number on a listing sheet against your actual holding costs, fixed asset tax is one of the recurring gaps between the two. Here’s what it actually is, roughly what it costs, and the one wrinkle that catches minpaku operators off guard.

TL;DR

  • Fixed asset tax (固定資産税) is an annual municipal tax on land and buildings you own as of January 1, charged at a standard rate of 1.4% of assessed value; city planning tax (都市計画税) may also apply to land and buildings in 市街化区域等 (urbanization promotion areas), capped at 0.3%, and is often billed together with fixed asset tax.
  • Assessed value (評価額) is set by the municipality and is typically well below market price, especially for buildings, but it’s re-evaluated roughly every three years and can rise.
  • Small residential land (up to 200m² per unit) gets a special reduction (住宅用地の特例) that cuts the taxable base to one-sixth of assessed value for fixed asset tax (one-third for city planning tax) — but converting a property to a formally licensed simple lodging (簡易宿所) can put that reduction at risk if the assessor reclassifies the building’s use.
  • Bills typically arrive between April and June and are payable in four installments or as a lump sum; the exact months vary by municipality.
  • This is a fixed annual cost regardless of occupancy, which is exactly why it belongs in your break-even math, not just your best-case yield math.

What Is Fixed Asset Tax and Who Has to Pay It?

Fixed asset tax is an annual tax owed by whoever owns land or a building as of January 1 of that year, billed by the municipality where the property sits (except in Tokyo’s 23 wards, where the Tokyo Metropolitan Government levies it as a metropolitan tax). It applies to essentially all real estate in Japan — there’s no exemption for foreign ownership, and no exemption for a property being used as a short-term rental rather than a primary residence. If you close on a property in February, the seller was the owner of record on January 1 and technically owes that year’s tax, but in practice buyers and sellers almost always prorate it at closing so the buyer effectively covers their portion going forward.

The standard rate is 1.4% of the property’s assessed value (評価額), which is set by the municipality — not the price you paid. City planning tax (都市計画税) may also apply on top, at up to 0.3%, for land and buildings located in 市街化区域等 (urbanization promotion areas) — not simply anywhere within a city’s broader urban planning area — and the two are usually combined into a single bill.

How Much Should You Budget for Fixed Asset Tax?

Budget based on assessed value, not purchase price, because the two are rarely the same number. Municipal assessed values for buildings are generally lower than market price and depreciate over time on their own schedule; land assessed value is determined under the fixed-asset valuation standards and generally runs around 70% of public-notice land prices (公示地価) — not to be confused with the National Tax Agency’s inheritance-tax 路線価, a separate valuation system — and in hot markets like central Tokyo or Kyoto it also tends to run below what buyers actually pay. That gap is good news for your tax bill, but it’s not something you should estimate — the assessed value is stated on the annual tax notice, and your real estate agent or the seller can usually show you the prior year’s figure before you buy.

One thing to watch: assessed values are revalued roughly every three years (評価替え), so a number that looked favorable at purchase can drift upward later, particularly in areas where land prices are climbing.

Does Running a Minpaku Change Your Tax Bill?

A minpaku operated under the Housing Accommodation Business Act doesn’t automatically remove your property’s residential-land special treatment (住宅用地の特例) — but it doesn’t automatically preserve it either. The taxing authority is expected to assess the actual use of the building (or the relevant part of it), including whether it’s genuinely used for continuous residence, so confirm your specific situation with the municipality before relying on the reduction. The clearer risk is for operators who license a property as a proper 簡易宿所 (simple lodging) under the Hotel Business Act instead. That reclassification can shift the building’s legal use category, and with it, eligibility for the residential land special reduction — a rule that, for small residential land (up to 200m² per unit), cuts the taxable base to one-sixth of assessed value for fixed asset tax (one-third for city planning tax). Lose that reduction and the land portion of your tax bill can increase meaningfully, independent of anything happening to the building itself.

This isn’t a reason to avoid a simple-lodging license — it’s often the right call for a dedicated STR business — but it’s a line item to ask your municipality or a tax professional about before you convert, not after the next tax notice arrives.

Why This Matters for Your ROI Calculation

Fixed asset tax is a fixed annual cost, which means it hits your numbers hardest in exactly the scenario you should be stress-testing for: a slow season or a bad year of occupancy. Unlike cleaning fees or OTA commissions, it doesn’t scale down when bookings do. When we built japan-invest, our hotel/guesthouse ROI calculator, this was one of the categories we made sure wasn’t an afterthought line — because the gap between a headline gross yield and what you actually keep is almost always a stack of small fixed costs like this one, not one big surprise.

If you’re evaluating a property today, ask for the current fixed asset tax amount specifically, not just an estimate based on the assessed value ratio — municipalities differ enough in their assessment practices that a rough percentage guess can be off by a meaningful margin.

FAQ

Q: Do I owe fixed asset tax if my short-term rental sits empty all year?

Yes. Fixed asset tax is based on ownership as of January 1, not on occupancy or income, so it’s owed regardless of how the property performed that year.

Q: Is fixed asset tax the same everywhere in Japan?

The standard fixed asset tax rate is 1.4%, and many municipalities use it (plus up to 0.3% city planning tax in applicable areas), but confirm the local rate and any city planning tax — the assessed value that rate is applied to, and the exact billing and installment schedule, is also set locally, so actual amounts vary by city.

Q: Can I deduct fixed asset tax as a business expense?

If the property is used for a short-term rental business, fixed asset tax is generally treated as a deductible operating expense, but how it’s apportioned (especially for mixed-use properties) depends on your specific situation.

This post is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified professional for your specific situation.