As the number of foreign tourists increases, the demand for private lodgings also increases in Japan. These private lodgings are commonly referred as ‘minpaku’ in Japan and are an easy way to earn extra income. One of the well-known online websites for finding and managing these accommodations is the Airbnb.
And while it may be growing in demand, many owners are still confused on how this income should be treated. Here are a few of the guidelines surrounding Airbnb and other private lodgings in Japan.
Classification of income from private lodgings
The income earned from private lodgings may fall under the real estate income, business income or miscellaneous income.
For income from loans of real estate, it is possible to offset total profit and loss with other income in the event of a loss.
For income generated from business, there are requirements such as profitability and continuity. In the event of a loss, it is possible to total profit and loss with other income.
Miscellaneous income refers to income that does not correspond to any of the nine types of income divisions prescribed by income tax law. This includes an employee’s sideline or part-time job. It is not possible to combine profit and loss of other income even if loss occurs.
Obtaining authorization to operate lodging business
Owners need to obtain authorization to operate under one the following regulations:
|Inns and Hotels Act||Private Accommodations Ordinance||New Minpaku (Private Accommodations) Law (effective by 06/15/2018)|
|Description||For businesses that receive accommodation fees for letting people stay at lodgings.||A special case of Inns and Hotels Act.
For businesses with signed lease agreement with guests.
|This is for business not covered by the Inns and Hotels Act.|
|Equipment/Area Requirements||Equipment and area are necessary requirements||The floor space of one room is more than 25 m2||N/A|
|Allowed Length of Stay/Room Use Period||No restrictions||Within 3-10 days||Should not exceed 180 days in one year|
|1) Hotel business (10 rooms or more)
2) Inn business (5 rooms or more)
3) Simple lodging business (no restriction on the number of rooms)
|Income type||Mainly miscellaneous income (if conditions are met, then business or real estate income)||Mainly miscellaneous income (if conditions are met, then business or real estate income)||Mainly miscellaneous income (if conditions are met, then business or real estate income)|
Private lodgings based on the Inns and Hotels Act
To do a conduct business under the Inns and Hotels Act, the owner will need to obtain permission at prefectural health centers where there is an institution for lodging business.
The main types of this industry are hotel businesses, inn businesses and simple lodging businesses.
Private lodgings falling under this law has an advantage since owners can fully utilize real estate as there is no restriction on the number of days stayed.
Its income classification is mainly miscellaneous income. The possibility of being classified as real estate income is low since services such as complaints handling and hospitality services, which are related to the lodging business, are common.
In addition, since it unlikely that people who provide private lodging services will do this on a large-scale business scale, it will not fall under business income.
Private lodgings based on Private Accommodations Ordinance
Based on the National Strategy Special Zone Law, it is a private housing service based on the ordinance established by each local government.
It is considered as a special case of the Inns and Hotels Act, and is currently in-effect in Osaka City and Ota Ward in Tokyo as of 2017.
It is characterized by signing a lease agreement, not an accommodation contract with the guest.
In the case of lease contracts, owners are not obliged to manage rooms such as cleaning. Thus, the advantage is that it is easier to operate than lodgings services based on the Inns and Hotels Act.
Similarly, income classification is mainly miscellaneous income. If found that only the lease contract with the guest is signed, it corresponds to real estate income. However, since it is common to provide accompanying services such as complaint processing and hospitality as mentioned before. Thus, the possibility of it being a real estate income is low.
Private accommodation service based on the New Minpaku (Private Accommodations) Law
It is a private residence service based on Private Accommodation Business Law (New Minpaku (Private Accommodations) Law). This is effective starting June 15, 2018.
It is a condition outside the scope of the Inns and Hotels Act. Both the Ministry of Land, Infrastructure, Transport and Tourism, and the Ministry of Health, Labor and Welfare specify that the period of stay should not exceed 180 days in one year.
However, the institutions targeted for this law are not hotels and inns. The target facilities are housing and private residences like the apartments and houses rented out in Airbnb.
With this law it becomes possible to do lodging business in housing residences. Therefore, it would not be a special case of hotel business, but a homestay service in its true essence.
Income classification is miscellaneous income as well. Also, the possibility it being a real estate income is also low.
In addition, it is thought that the applicability of being a business income is low. This is because it is assumed that individuals that obtain business-scale income through private residence are very limited.
Income classification of Airbnb and other private lodging
Airbnb and other private lodging services basically falls under miscellaneous income. Miscellaneous income is subject to individual income tax on aggregate income and progressive tax rate. Furthermore, it is not possible to combine profit and loss with other income.
However, even if it falls under other income classification, it is certain that it will still be subject to income tax. Thus, either way, it is still necessary to file a tax declaration. ')}