When hotel investors add up holding costs, fixed asset tax is usually thought of as two items: land and buildings. Under Japan’s Local Tax Act, however, there are three classes of fixed assets: land, buildings and depreciable assets (Local Tax Act, Article 341, item 1). Guest room furniture, beds, bedding, commercial kitchen equipment, laundry machines, outdoor power receiving/transforming equipment, signage, exterior paving — a hotel is packed with this third taxable object, and it adds a cost every year separately from the fixed asset tax on the building. Depreciable assets are also the only class where the owner must file a return each year by January 31 declaring what they held on January 1 (Article 383 of the same Act).

This article breaks down this “third fixed asset tax, levied every year on things that are neither land nor buildings” on a per-room basis. The bottom line: across three models — a 100-room business hotel, a 150-room city hotel and a 40-room ryokan — first-year depreciable asset tax comes to ¥20,886 to ¥66,138 per room per year. And in the year after a full replacement of guest room FF&E, the tax bill jumps 3.53x.

How this differs from our earlier coverage. Our previous articles on holding taxes and running costs covered the fixed asset tax on land and buildings, the holding cost of undeveloped hotel land, the triennial reassessment of land and building values, and other running-cost items such as statutory inspections and electricity. None of them dealt with depreciable assets — the third taxable object — on their own. That is what is new here.

Fixed Asset Tax Has Three Parts — Land, Buildings and Depreciable Assets

Article 341, item 1 of the Local Tax Act states that “fixed assets” collectively means land, buildings and depreciable assets. Item 4 of the same article defines depreciable assets as “assets other than land and buildings that can be used for business (excluding mining rights, fishing rights, patents and other intangible depreciable assets), whose depreciation amount or depreciation expense is included in losses or necessary expenses in calculating income under the Corporation Tax Act or Income Tax Act, other than low-cost assets and other assets specified by Cabinet Order.” The taxable object is set out in Article 342, the taxable base in Article 349-2, the tax rate in Article 350, the exemption threshold in Article 351 and the filing obligation in Article 383.

Of these three, land and buildings are assessed and taxed by the municipality on its own authority using registry data and similar records (assessment-based taxation). Depreciable assets are different: the municipality cannot know about them unless the owner files a return showing each asset’s location, type, quantity, acquisition date, acquisition cost and useful life. Filing omissions happen unintentionally, yet tax can be assessed retroactively for up to five years from the day after the statutory payment deadline (Local Tax Act, Article 17-5, paragraph 5). An oversight in the business plan can surface all at once years later.

Source: Compiled by MetroEngines Research & Consulting from the Local Tax Act and Fixed Asset Valuation Standards (checked September 9, 2026)

A common stumbling block in practice is what does not count as a depreciable asset. Under the parenthetical in Article 341, item 4, vehicles subject to automobile tax or light vehicle tax are excluded. In other words, shuttle buses and limousines are outside depreciable asset tax, while large special vehicles such as snowplows and forklifts are included. Also excluded are low-cost depreciable assets under ¥100,000 expensed immediately, and assets under ¥200,000 for which three-year lump-sum depreciation was chosen. Conversely, when a small or medium-sized business filing a blue return expenses assets under ¥300,000 immediately under the Act on Special Measures Concerning Taxation, the assets must still be declared for depreciable asset tax even though they were expensed for national tax purposes. It is a classic example of local and national tax treating the same asset differently.

How Valuation Works — Half-Year Depreciation in Year One, 5% Floor

Depreciable assets are valued using the old declining-balance method. In the year of acquisition (strictly, “assets acquired during the previous year”), half a year of depreciation applies regardless of the month of acquisition; from the following year the prior year’s assessed value is multiplied by the residual-value rate. And the assessed value never falls below 5% of acquisition cost. This is a decisive difference from national tax, which allows depreciation down to a ¥1 memorandum value: for local tax, 5% of acquisition cost stays in the taxable base for as long as you hold the asset.

Source: Compiled by MetroEngines Research & Consulting from the Fixed Asset Valuation Standards (residual-value rates) and Appended Tables 1 and 2 of the Ministerial Ordinance on Useful Lives of Depreciable Assets

Here is a concrete example. If guest room furniture with an acquisition cost of ¥1 million (other hospitality-use furniture, useful life 5 years) is acquired in January, its assessed value the following fiscal year is acquisition cost × 0.8155 (half-year depreciation at a rate of 0.369; shown rounded to 0.815 in the table above) = ¥815,500. In year 2 it is ¥815,500 × 0.631 = ¥514,580. Repeating the calculation gives ¥51,475 in year 7, and in year 8 the calculated value drops below the ¥50,000 floor, so it is fixed at 5% of acquisition cost, or ¥50,000. That ¥50,000 stays in the taxable base permanently until the furniture is disposed of.

Source: Estimates by MetroEngines Research & Consulting based on the Fixed Asset Valuation Standards

This is where business plans go wrong. For national tax, depreciation expense ends after five years, but for local tax the taxable base remains at 5% forever. Fixed asset tax keeps being levied on assets whose depreciation expense has already reached zero — and this asymmetry weighs on NOI from around the tenth year of operation onward.

Where Buildings End and Depreciable Assets Begin — Hotel Kitchens and Laundries Fall on the Asset Side

Even if building services are depreciated together with the building for tax accounting purposes, the portions not included in the building’s valuation under the Local Tax Act must be declared separately as depreciable assets. The line is drawn according to classification tables published by each municipality, and for hotels the key category is “service equipment provided at customers’ request.” Chigasaki City’s classification table treats kitchen equipment that is “service equipment provided at customers’ request (restaurants, hotels, department stores, etc.)” as depreciable assets, and likewise treats laundry equipment consisting of “washers, spin dryers, dryers and similar machines, and service equipment provided at customers’ request (hotels, etc.)” as depreciable assets. Nishinomiya City similarly classifies “service equipment of hotels, restaurants, hospitals, etc.” as depreciable assets.

In other words, the same kitchen equipment may be included in the building valuation if it serves an employee cafeteria, whereas kitchen equipment in a breakfast venue or restaurant serving hotel guests is a depreciable asset. Because a hotel is essentially a bundle of such “service equipment,” its share of depreciable assets is structurally high.

Source: Compiled by MetroEngines Research & Consulting from Chigasaki City, “Classification of Buildings and Depreciable Assets for Building Services,” and Nishinomiya City, “Classification of Buildings and Depreciable Assets” (where the building and equipment have the same owner)

However, municipalities apply this line differently. For example, the treatment of shared entrance intercom systems carries different notes from city to city, and some cities include exterior works that are “structurally integrated with the building” in the building. Use the table above as a reference for typical classification patterns, and in practice always confirm with the property tax division of the municipality where the property is located.

Another point investors often overlook is fit-out installed by tenants. Building fixtures installed by someone other than the building owner can be deemed depreciable assets — even if they form part of the building — with the installer deemed the owner for tax purposes (Local Tax Act, Article 343, paragraph 10). In lease structures where the operator, as tenant, invests in FF&E and interior fit-out, depreciable asset tax arises on the operator’s side, separately from the building tax borne by the owner. When setting the economic terms of a master lease or operating lease, the contract should state clearly who bears this cost.

Three Model Estimates — ¥20,886 to ¥66,138 per Room per Year

Now to quantify it. We built three models, stacked up each asset by useful life and calculated the tax from year 1 through year 15. For construction costs we used the per-room construction cost ranges by hotel type from our earlier research, and carved out the portion accounted for by depreciable assets (FF&E, business equipment, signage and exterior works).

Source: Estimates by MetroEngines Research & Consulting (assumptions disclosed in the tables at the end)

Depreciable assets account for 14.6% of building investment at the business hotel and 14.9% at the city hotel, but a higher 18.3% at the ryokan. That is because “service equipment” — filtration, circulation and heating systems for large public and open-air baths, commercial kitchens for kaiseki cuisine, hot-spring heating equipment — is heavy relative to the number of rooms. Even at just 40 rooms, the ryokan holds ¥220 million in depreciable assets alone.

Source: Estimates by MetroEngines Research & Consulting (tax rate 1.4%; taxable base rounded down to ¥1,000, tax rounded down to ¥100)

Source: Estimates by MetroEngines Research & Consulting (standard tax rate of 1.4% applied)

First-year tax per room is ¥20,886 for the business hotel, ¥43,911 for the city hotel and ¥66,138 for the ryokan. Over 15 years the ryokan’s cumulative total reaches ¥308,962 per room, 3.6x the business hotel’s ¥85,961. Even with fewer rooms, the ryokan format carries the heaviest per-room depreciable asset tax burden. It is a structural difference that business plans easily miss.

Next, we break down first-year tax by asset. At the 100-room business hotel, the largest contributors are, perhaps surprisingly, not guest room FF&E but power receiving/transforming and outdoor electrical equipment (12.5%) and commercial kitchen equipment (12.0%). Assets with long useful lives depreciate slowly, so their assessed values stay high.

Source: Estimates by MetroEngines Research & Consulting (100-room business hotel, year 1)

Moving the Assumptions — Three Scenarios and a Two-Way Sensitivity

The figures so far are a single estimate built on a provisional, typical asset mix for each hotel type. If you put these numbers into a real business plan, you will also want to know how much the tax swings when the assumptions move. Two variables drive most of the range: the ratio of depreciable assets to building investment and the tax rate of the municipality where the property is located.

First, three scenarios. The mid case is this article’s base assumptions (depreciable asset ratio of 14.6% for A, 14.9% for B and 18.3% for C, standard tax rate of 1.4%). The optimistic case lowers the acquisition cost of depreciable assets by 20% from the base at the standard rate; the pessimistic case raises it by 20% and assumes a location in a municipality with an above-standard rate of 1.5%.

Source: Estimates by MetroEngines Research & Consulting (top = year-1 per room; bottom = 15-year cumulative per room; assumptions disclosed in the tables at the end)

Between the optimistic and pessimistic cases, first-year tax per room ranges from ¥16,709 to ¥26,853 for the business hotel, ¥35,129 to ¥56,457 for the city hotel and ¥52,910 to ¥85,032 for the ryokan — roughly −20% to +29% versus the mid case. The proportional range is the same on a 15-year cumulative basis. In a business plan, check where you sit within this band against your fixed asset ledger and local ordinance before adopting the mid-case figure.

Next, a two-way grid combining those two variables. For the 100-room business hotel (building investment of ¥1.20 billion), rows show the ratio of depreciable assets to building investment, columns show the tax rate, and each cell shows first-year tax per room.

Source: Estimates by MetroEngines Research & Consulting (shaded cell is this article’s base case; valuation by the old declining-balance method with half-year depreciation in the acquisition year; taxable base rounded down to ¥1,000, tax rounded down to ¥100)

The top-left of the grid (10.0% ratio, standard 1.4% rate) gives ¥14,322 per room; the bottom-right (20.0% ratio, 1.7%) gives ¥34,782 per room. For the same 100-room hotel with ¥1.20 billion of building investment, the combination of asset mix and municipality alone opens a 2.4x gap in first-year tax. Moving the ratio by one step (about 2–3pt) has roughly three times the effect of moving the tax rate by 0.1pt, so asset mix matters more than the tax rate. Deciding FF&E and business equipment specifications at the design stage also decides the next 15 years of holding tax.

ADR Equivalent — ¥72 to ¥302 per Room Night; 1.6% of ADR for the Ryokan

Next we convert the tax into a per-night figure: we set an occupancy assumption and divided by the number of room nights sold per year. ADR is the median of our estimated settled ADR (closed past months) by hotel type.

ADR source: MetroEngines Research & Consulting (estimated settled ADR, monthly medians for September 2025 – August 2026. A = Tokyo business hotels, N=914 properties; B = Tokyo city hotels, N=107 properties; C = Shizuoka ryokan, N=450 properties / each N is the median of monthly sample sizes)

The business hotel’s first-year 0.51% may look small in an NOI discussion. But the ryokan’s first-year 1.61% is not negligible. Of an ADR of ¥18,710, about ¥302 per night goes to depreciable asset tax, separately from the fixed asset tax on the building. For ryokan, whose GOP margins are thin to begin with, this adds up enough to move yields at the first decimal place.

And don’t forget the effect of the 5% floor. For the 100-room business hotel’s ¥175 million in depreciable assets, the floor is ¥8,750,000, which translates into ¥122,500 in tax a year (¥1,225 per room), payable indefinitely as long as that group of assets is held. It is ¥392,000 a year (¥2,613 per room) for the 150-room city hotel and ¥153,400 a year (¥3,835 per room) for the 40-room ryokan. Assuming in the terminal period of a DCF that “depreciable asset tax converges to zero” is a mistake.

The Year After a Renovation, the Tax Bill Jumps 3.53x

Depreciable asset tax bites in a business plan not in normal years but in the year after a renovation. When guest room FF&E is replaced wholesale, the old assets are disposed of and the new assets re-enter the taxable base at acquisition cost. That creates a spike.

Using the 100-room business hotel model, we estimated a case where guest room FF&E (room furniture, beds, TVs, bedding, carpets, refrigerators, etc.; original acquisition cost ¥52,000,000) is fully replaced in year 8. Allowing for construction cost inflation, the replacement cost was set at 1.20x the original, or ¥62,400,000 (¥624,000 per room).

Source: Estimates by MetroEngines Research & Consulting (100-room business hotel, full replacement of guest room FF&E in year 8)

Without the replacement, year-9 tax would have fallen to ¥265,500. With it, tax jumps to ¥936,100, or 3.53x — from ¥2,655 to ¥9,361 per room. Business plans that consider a major renovation must build into cash flow not only construction costs and ADR lift but also the increase in depreciable asset tax from the following year onward.

Also note the third line in the chart above — the case where the disposal is not reported. If the old assets are physically removed but not dropped from the return, their assessed values stay in the taxable base at the 5% floor. The excess burden from these “ghost assets” is ¥36,400 a year in this model, or ¥266,000 over 15 years (¥2,660 per room). The amount is not large, but the trouble is that it never stops unless the assets are removed from the filing, and it piles up with every renovation.

The practical fix is simple: prepare a disposal list at the same time the renovation is carried out, and reflect it in the January 31 filing the following year. It helps to make reconciling the contractor’s cost breakdown against the fixed asset ledger one of the closing items of every renovation project.

Leasing vs Ownership Changes Who Must File

Who files and who pays? The principle is that the owner is taxed (Local Tax Act, Article 343, paragraph 1). From there, three patterns emerge.

Source: Compiled by MetroEngines Research & Consulting from the Local Tax Act and “Handling of the Enforcement of the Local Tax Act (Municipal Taxes),” Chapter 3 (checked September 9, 2026)

Leasing FF&E means no depreciable asset tax on your own books, but the cost is included in the lease payments. When assessing NOI, you cannot compare against an ownership case without separating out the fixed-asset-tax equivalent embedded in lease payments. When comparing acquisition structures, accuracy improves if you request documents such as a fixed asset tax reduction calculation confirmed by the Japan Leasing Association.

When the Taxable-Base Special Measure Applies — Advanced Equipment Introduction Plans

A representative way to reduce depreciable asset tax is the special measure on the taxable base for equipment covered by an approved Advanced Equipment Introduction Plan under the Act on Enhancement of Small and Medium-sized Enterprises Business (one of the so-called “Wagamachi” local special measures). Under the FY2025 tax reform, eligibility now covers equipment acquired between April 1, 2025 and March 31, 2027.

Source: Compiled by MetroEngines Research & Consulting from the Small and Medium Enterprise Agency, “Support Through the Advanced Equipment Introduction Scheme,” and published materials from Kakogawa City and Yokohama City (checked September 9, 2026). Applies only in municipalities whose basic plan for promoting introduction has been approved, and the scope of eligible equipment may be limited by the municipality’s plan

In the 100-room business hotel model, if commercial kitchen equipment (¥20,000,000), laundry equipment (¥6,000,000) and PMS and other terminals (¥9,000,000) — ¥35,000,000 in total — qualified for the special measure, then with a 1.5% wage-increase commitment the cumulative reduction over three years would be about ¥472,600 (¥4,726 per room).

Source: Estimates by MetroEngines Research & Consulting (eligible equipment ¥35,000,000; assumes a wage-increase commitment of 1.5% or more and a 1/2 reduction for 3 years)

To avoid confusion, one more point. The SME Business Enhancement Tax Incentive (immediate depreciation or a tax credit of 10% of acquisition cost, available until March 31, 2027, with the lodging industry among the designated businesses) is a national tax measure and has no effect on depreciable asset tax. Fixed asset tax allows no reduction entries, special depreciation or accelerated depreciation, so even if immediate depreciation has brought the corporate-tax book value down to ¥1, the depreciable asset’s assessed value is calculated independently using the residual-value rate for its useful life. Fully expensing an asset for national tax does not bring local tax to zero. The national-tax framework for special depreciation of hotel buildings is a separate topic.

1.4% Is Only the “Standard Rate” — Some Municipalities Charge More

The 1.4% set out in Article 350 of the Local Tax Act is merely the standard rate, and municipalities may set a higher rate by ordinance. Izumo City in Shimane Prefecture, for instance, states in its published materials that its tax rate on depreciable assets is 1.5%. When comparing candidate sites, do not finalize numbers estimated at the standard rate. The tax rate is not the only running cost that varies by municipality; we have examined the same structure for waste disposal fees (a 2.6x gap between municipalities) and hotel water and sewer costs, which vary 2.1x by municipality.

Source: Estimates by MetroEngines Research & Consulting (100-room business hotel, based on a year-1 taxable base of ¥149,187,000). The applicable rate depends on the ordinance of the municipality where the property is located

A word on the exemption threshold as well. No depreciable asset tax is levied if the taxable base is below ¥1.5 million (Article 351). However, a hotel or ryokan is very unlikely to fall below it. For assets with a 5-year useful life, first-year value falls below the threshold only if acquisition cost is under ¥1,839,362; assuming guest room FF&E of ¥650,000 per room, the break-even point is equivalent to 2.8 rooms. Lodging facilities with three or more rooms can generally be assumed to be subject to filing and tax.

1,500 to 2,000 New Properties Enter the Filing Obligation Every Year

The filing obligation arises the moment a property opens. Counting new openings by year within our coverage gives 1,723 properties in 2022 (average 30 rooms), 2,012 in 2023 (average 22 rooms), 1,979 in 2024 (average 20 rooms), 1,745 in 2025 (average 24 rooms) and 1,494 in 2026 (average 25 rooms). Every year, 1,500 to 2,000 properties — roughly 37,000 to 52,000 rooms — are newly added to the pool of taxpayers who must file by January 31.

Source: MetroEngines Research & Consulting (based on confirmed listings on major booking sites, N=8,953 properties / 2022–2026 total)

* New opening counts are based on confirmed listings on major booking sites. Listings appear several months before opening, so counts for recent months and years will rise as further listings are reflected. In particular, the 1,494 properties for 2026 are expected to increase with additions during the year and should be treated as a lower bound of what is observed so far. Also, 719 (48.1%) of 2026 openings are vacation rental homes, some of which hold depreciable assets below the exemption threshold.

Geographically, the top prefectures for 2026 openings are Hokkaido (149), Tokyo (90), Okinawa (90), Shizuoka (84) and Kyoto (73). The heavy weighting of resort areas such as Hokkaido, Okinawa, Shizuoka, Nagano and Yamanashi reflects the large supply of vacation rentals and cottages. Small resort properties hold fewer depreciable assets per property, but their operators often lack a dedicated tax function, so their risk of filing omissions is relatively high.

Source: MetroEngines Research & Consulting (2026 openings based on confirmed listings on major booking sites, top 15 prefectures)

Building It Into Business Plan NOI — An 8-Point Checklist

Source: Compiled by MetroEngines Research & Consulting

Full List of Estimate Assumptions

The estimates in this article are built up from the assumptions below. They are not figures for any actual property but models that provisionally assume a typical asset mix for each hotel type. So that readers can recalculate using their own fixed asset ledgers, we disclose the useful life and acquisition cost of every asset.

Model A: 100-room business hotel (limited service) (depreciable assets total ¥175,000,000 / ¥1,750,000 per room)

Model B: 150-room city hotel (full service) (depreciable assets total ¥560,000,000 / ¥3,733,333 per room)

Model C: 40-room ryokan (hot spring, two meals included) (depreciable assets total ¥219,200,000 / ¥5,480,000 per room)

Source: Estimates by MetroEngines Research & Consulting. Per-room construction cost assumptions are based on ranges by hotel type from our earlier research (including per-tsubo costs based on the MLIT Statistics on Building Construction Starts)

Source: MetroEngines Research & Consulting

Summary — Putting the Third Fixed Asset Tax Into the Plan

Depreciable asset tax is levied every year, separately from fixed asset tax on land and buildings. In our three-model estimate, first-year tax ranges from ¥20,886 per room (100-room business hotel) to ¥66,138 (40-room ryokan). Over 15 years the ryokan reaches ¥308,962 per room, 3.6x the business hotel. On a per-night basis, it takes up 1.61% of ADR at the ryokan in year one.

This tax tends to slip out of plans for three reasons. First, it is confused with fixed asset tax on the building and missed on both counts. Second, the 3.53x spike in the year after a major renovation gets buried in discussions of construction costs and ADR lift. Third, because of the 5% floor on assessed value, the tax alone keeps running forever after depreciation expense has reached zero.

Put the other way, simply addressing these three points makes a business plan more accurate: sort buildings from depreciable assets using the local classification table, confirm the applicable rate in the ordinance, draw the tax curve together with the renovation plan, and make the disposal filing a closing item of every renovation. Advanced Equipment Introduction Plans cover assets acquired by March 31, 2027, and approval must be obtained before the investment decision. Whether you are developing, acquiring or underwriting, this is an area where there is still room to build it in now.

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