Furusato Nozei (Hometown Tax)

Introduction

Furosato Nozei (Hometown Tax) is a system that allows you to donate tax money to cities and towns other than that of where you live. These donations can then be used as deductions when you file for taxes, just like any other donations.

Essentially, then, you could donate 100,000 JPY this year and claim it when you file your taxes. You would then receive some income deduction for your national income taxes in the current year, followed by a reduction in your local municipal taxes in the following year. (Municipal taxes always lag a year behind).

Why would you do this?

Advantages

• You can choose to support your actual home town, or any city or town in Japan you like.
• This allows you to support communities who have dwindling tax income as a result of many young people moving to the major cities.
• You can specify how the donation is used in many cases.
• Many localities will send you a gift as a thank you present. This can include rice, sake, fruits and vegetables, and more.

Disadvantages

• As with any donation, there is a time lag between when you donate the money and when you get it back in the form of reduced taxes.
• You need to file a tax return (kakutei shinkoku) or use the one stop program. If you forget completely, then of course the money will not come back.
• The first 2,000 of your donation is not eligible as a deductible.
• The amount you can claim on your taxes depends on your income and what other deductibles you are already claiming. For example, if you make 10M JPY per year, you can possibly claim up to 200,000 JPY, but if you only earn 5M JPY per year, the amount you can claim will be significantly less. Many of the sites have calculators that let you estimate the amount you can contribute. You should check this before making any donations.
• This program makes taxes less efficient overall, since any amount the local governments spend on gifts and processing fees lowers the amount that actually goes towards revitalization, education, infrastructure, etc.

Personal Experience

I have donated around 50,000 per year to my actual hometown, and received rice in return. I have included this when I files for taxes, so my taxes are reduced by 49,800. I have not used the one stop program.

Links & References