Recovering Japanese Consumption Tax on Your Resort Investment

By MISAWA Masaki, Certified Tax Accountant (Zeirishi, Reg. No. 157367) — formerly of Japan’s tax authorities · Published July 11, 2026 · Reviewed July 17, 2026

Let us first explain how Japanese consumption tax works. The consumption tax a business must pay is calculated by deducting the tax on its purchases (input tax) from the tax on its taxable sales (output tax) — the input tax credit. If the result of the deduction is positive, the business pays that amount; if it is negative, the difference is refunded upon filing a return.

Consumption tax when buying a building

The discussion below concerns the consumption tax treatment where you purchase and operate real estate in Japan. The 10% consumption tax paid on acquiring a building is a substantial amount, so whether it can be taken as an input tax credit has a major impact on the return on the investment. (See our note: Depreciation of Japanese Buildings.)

Residential leasing vs licensed lodging

As a rule, whether the consumption tax on a building qualifies for the input tax credit is determined by whether the business conducted in the building is the leasing of housing or something else. The leasing of housing (where, among other cases, the contract makes clear that the property is to be used as a residence) is exempt from consumption tax, and purchases attributable to exempt sales are not creditable. In addition, under the 2020 tax reform, input tax on a residential rental building — meaning any building other than one clearly not to be used for the leasing of housing — was excluded from the input tax credit across the board. As a result, for an ordinary apartment building or a condominium let on a long-term residential lease, the consumption tax on the building is, in principle, not creditable.

By contrast, an accommodation facility operated with a license under the Hotel Business Act (a condominium-hotel, lodge and the like) is a business asset that generates taxable sales in the form of room charges, and, as a building clearly not to be used for the leasing of housing, it falls outside that across-the-board exclusion. For the very same resort property, the manner in which it is let — leased as housing, or operated as licensed lodging — directly determines whether the credit is available.

A worked example of the refund

An illustration (assumptions: building acquisition price of ¥330 million including tax, of which consumption tax is ¥30 million; the property is operated as a licensed hotel business; output tax on taxable sales for the taxable period is ¥2 million; no other creditable purchases are taken into account): the tax due is ¥2 million minus ¥30 million, i.e. minus ¥28 million, meaning a refund of ¥28 million.

Becoming a taxable person before purchase

To receive a refund, you must be a taxable person. Under the Consumption Tax Act, a business whose taxable sales in the base period (the second preceding year for an individual; the second preceding business year for a corporation) exceed ¥10 million is a taxable person, while a business at or below that threshold is, in principle, exempt from the obligation to file and pay consumption tax (an exempt business). An exempt business files no consumption tax return and therefore cannot receive a refund. An exempt business may, however, elect to become a taxable person by submitting a Report on the Selection of Taxable Proprietor Status for Consumption Tax. As a rule, this report must be submitted before the start of the taxable period for which the election is to apply (or during that taxable period, in the case of a newly opened business). Missing the deadline means losing the refund opportunity itself, so the structure needs to be settled before the property is purchased.

This article describes the general treatment under the laws in effect at the time of writing. The Consumption Tax Act is amended frequently; for any specific transaction, we recommend consulting a tax professional.