Japan Business Law: The New Private Lodging Business Act to be Enforced

In recent years, “Private Lodging” where individuals lend part of their homes to travelers are attracting attention in Japan.
Following this, the “Private Lodging Business Act ” will be enforced on June 15, 2018.

Until now, in order to operate a private lodging business, a “lodging business license based on the Inns and Hotels Act” and “accredited national strategic special zone for accommodation business for foreign tourists” were required. However, conditions and procedures will be simplified by the enforcement of new Private Lodging Business Act.

This article introduces the advantages and points to be cautious of when making private lodging a side business.

Ease Conditions to Run a Private Lodging Business!

A private lodging business, a service renting out a room at home (detached · condominium) or a holiday house for a fee, has gradually become prevalent due to the popularization of intermediary services such as Airbnb.

When the new Private Lodging Business Act is enforced, individuals will be able to begin a private lodging business with relatively easier application procedure than before.

For the Tokyo Olympics in 2020, the government has a great hope that the private lodging business will facilitate the reuse of vacant houses and solve the lack of accommodation facilities due to an increase in tourists visiting Japan.

The main requirements for obtaining permission to run a private lodging business under the new Private Lodging Business Act are as follows.

・Accommodation is a residence.*1
・The accommodation has Kitchen/Bathroom/Toilet/Washroon.*2
・Necessary documents are attached.*3

As the application procedure will be easier than before, individuals will be able to start a private lodging business in a general residence without large-scale repair work.
From now on, more people will make use of vacant rooms and empty houses, and run the private lodging as a side business.

Not only the houses where lenders live but also vacant houses, vacant rooms and holiday houses are included.

The facilities mentioned above need to be in the notified residence but are not necessary in each room.

In the case of a rental property, a document stating that “a plan of the facility and sublease approval”. In the case of condominiums, management agreement etc.

Be aware of “Type of Income”!

When salaried workers operate a private lodging business as a side business, in addition to the company-issued year-end tax adjustment, in principle (* 4) it is necessary to apply for a final tax return by themselves.
In addition, the most important point to note when declaring tax for the private lodging business is “income classification”.

Generally, “lending vacant homes and rooms” is classified as real estate income.
However, the National Tax Agency defines the private lodging business in the following terms – “as it involves the safety and sanitation management of users, and the provision of a certain level of tourism services, unlike real estate leasing, the income is not categorized as real estate income but miscellaneous income.”

Therefore, generally, the income from a private lodging business will be registered under miscellaneous income in the final tax return.
Regarding the calculation method of income, in terms of “subtracting expenses from income,” there is no difference between real estate income and miscellaneous income, but the following points differ greatly.

· A blue return special deduction when applicants becomes a blue return form user.
· In case of a loss, whether or not to sum up income with other income.

Both items are regulations that “cannot be applied” in the case of miscellaneous income, so please be aware.

In addition, usually the private lodging business is defined as providing accommodation temporarily or as a one-off.
However, please be aware that if the private lodging business is operated repeatedly, continuously and at a certain scale, it may be recognized instead as “business income”.
Nevertheless, if a salaried worker runs a private lodging business with only for one room, it would be appropriate to consider it as “miscellaneous income”.

Please note that the following items are considered to be expenses for a private lodging business.
· Fixed property tax, rent or depreciation, loan interests, property insurance premiums
・ Intermediary service provider fees
· Utility expenses such as gas, water, and electricity bills
・ Communications expenses for the private lodging business such as telephone lines and Internet lines
・ Purchase cost of furniture / bedding etc. for customers.

It is recommended to consult with experts for any concerns or for inquiries regarding final tax returns for the private lodging business.

In addition to salary income, if obtaining an income (=Amount of deducting necessary expenses from income) of 200,000 yen or more annually, a final tax return needs to be submitted.