Japan’s Hometown Tax Program: How to Benefit and What to Do
Japan’s hometown tax donation program is called ふるさと納税 = furusato nozei. Before 2021 is up, find out how to prepay some taxes to the city of your choice and get free goods in return.
Furusato nozei, translated to English as “hometown tax,” is a system launched in 2008 to help fund regional revitalization. Income earners in Japan, including non-Japanese, can use this program to reduce upcoming tax payments by donating a portion of their taxes to a designated city—with the added benefit of receiving gifts in exchange for their tax donation.
This article takes a look at Japan’s hometown tax plan and what you should do before the end of 2021 to get a tax deduction in 2022.
Purpose, origins, and benefits
Part of Japan’s tax system is a residence tax that goes to local governments to fund their public works. This, however, creates problems for municipalities in rural areas with an aging population and job seekers who leave to find better prospects in metropolitan areas.
Rural areas must then deal with increasingly less tax funding as their young people move to the city, perpetuating a cycle of decline. To combat this issue, the government created the hometown tax system to push funds into Japan’s rural regions.
Individuals can send a percentage of their taxes to a municipality of their choosing—often to their hometown, but not limited to it either—to be used toward the city’s initiatives.
In exchange for designating their tax to a city of their choosing, the city will then send the individual a gift equal to 30 percent of the tax donation. The city will also send them a certificate to prove the amount that can be deducted from their tax payments when taxes are filed the next year.
To summarize, the hometown tax system allows you to make a monetary donation to a city of your choice. In return, the city sends you goods worth 30 percent of your donation, and the donation can be used to offset your upcoming tax payments.
Essentially, you are prepaying a part of next year’s taxes—this year. And in exchange, you get some free goodies.
How Japan's Hometown Tax works
There isn’t a limitless amount you can donate. The amount of taxes you are allowed to offset using this system is calculated based on your family structure, taxable income, and specific deductibles. There is also a one-time ¥2,000 registration fee per year to participate in the hometown tax system, which is non-deductible against your taxes.
Even experts have difficulties explaining the government’s formula that dictates how much you can spend within the hometown tax system. They suggest using online calculators like this one (Japanese) to get the approximate amount you can offset against next year’s taxes.
Unfortunately, English versions of these online calculators are not available, but the following chart (English machine translation) by the Ministry of Internal Affairs and Communication provides approx. amounts based on family structure and yearly income.
The deadline for donations made within the hometown tax system is the end of December of each year, which is then offset against taxes filed in March of the next year.
In other words, if you want to be eligible for tax deductions in the upcoming March 2022 tax season, make your hometown tax donations before December 31, 2021!
How do I apply for furusato nozei? A step-by-step guide
Step 1: Find out the amount you can spend within the hometown tax system, which you are allowed to offset against next year’s taxes.
Step 2: Choose a site that will serve as your portal for donating to a city of your choice. Previously, individuals had to find the city’s official website and begin the process there, but sites such as Rakuten’s Furusato Nozei streamline the whole experience, making it more like shopping than donating, where you can choose where your donation goes based on the amount you want to spend and the type of gift you wish to receive. Other sites that serve as portals for cities participating in the hometown tax system include Satofull.jp and Furunavi.jp. These sites are helpful if you don’t know which city to donate to but you want to offset your upcoming taxes.
Step 3: Once you have chosen the site you will use, create an account (making sure to use the exact name and address as listed on your ID) and begin your search for a city you wish to donate to—or the type of goods you want to receive. Popular goods include scallops from Monbetsu City, Hokkaido, and Wagyu beef from Kamimine Town, Saga Prefecture. For a ranked list of the most popular goods received through the hometown tax system, check out this list (Japanese, but the pictures are universal). Make your donation by December 31, 2021—in time for the March 2022 tax season.
Step 4: Receive a certificate sent via postal mail from the city you donated to, confirming your donation. Your goods should also arrive at the same time or a little bit after.
Step 5: File your income taxes during 2022’s tax season and include the certificate proving your donation.
The One-Stop special system
Furusato nozei one-stop system is primarily for those who fall under both of the following categories:
Those who don’t file taxes themselves (such as company employees)
Those who plan to make less than 5 donations within a fiscal year
If both of these points apply to you, you are eligible to apply for the One-Stop Special System without needing to file a tax return to offset next year’s tax payments. For example, if you are a company employee and your company withholds taxes from the salary you receive, you can take part in the hometown tax system by using the One-Stop Special System, allowing you to get your free goodies and a tax deduction.
To apply for the One-Stop Special System, you will need to fill in this application and send it to the local government you have donated to through one of the above sites. You will be asked to include a copy of your My Number card or other accepted forms of ID.
Want us to help you with the hometown tax system?
TokyoMate’s bilingual virtual assistants can ensure your One-Stop Special System documents are error-free to avoid needing a do-over, or we can assist you in calculating the amount you can donate within the hometown tax system.
Once we do that for you, we can help you donate to the city of your choosing, get some luxury goods, and offset next year’s taxes!
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