Furusato Nozei: How to Benefit from Japan's Hometown Tax
Furusato Nōzei, or the hometown tax, is a system by which taxpayers can pay their income or residential tax to a regional area, rather than the area in which they actually reside. Why pay tax somewhere else? Because under this system, regional areas will provide “gifts” as a show of thanks. These gifts can range from local produce to artisan crafts. The program provides benefit to both sides — regional areas receive more income and taxpayers receive unique and interesting gifts.
While the basic concept is easy to understand, there is a whole lot more to unpack. Keep reading as we cover everything you want to know about Furusato Nōzei.
What is Furusato Nōzei?
The Furusato Nōzei tax offset program was introduced in 2008 to revitalize and rejuvenate regional areas of Japan. Many small towns and countryside areas are declining in population as more young people move to the big cities for better opportunities in study and work. Because of this, there is a lack of residence tax being taken in by these smaller areas, which then struggle to maintain public works and services.
To combat this problem, the government introduced a program by which taxpayers can “donate” an amount of their residence tax to a regional area. Theoretically, this would be to their hometown, which is where the name “hometown tax” comes from. In practice, taxpayers can choose any area to donate to and it is not limited to those who have a regional hometown.
Taxpayers can choose to prepay part of their residence tax before the end of the year to one (or more) regional areas in exchange for a gift worth approximately 30 percent of the donation value. This prepayment is then offset when it comes time to file taxes. The gifts often include items intended to showcase the region and are always high quality as a representation of the area.
What Can You Get with Furusato Nōzei?
Some common gifts include food and drink products made in the regional areas. This can range from a box of fruits or vegetables to local soy sauce or sake, to confectionery. Some areas offer accommodation packages or unique experiences, such as a temple stay or lessons in a local craft.
It is also possible to donate to disaster relief in an area that has been subject to natural disaster. This was a common donation made after the 2011 Tohoku earthquake and tsunami. In some cases, the donator can designate how they wish their donation to be used. This can include public service areas like child welfare, environmental preservation, festivals, support for the elderly, and more.
Whether opting for a gift or donating to a needy cause, taxpayers are given a more concrete view of where their hard-earned money is going and how it is being used. Making use of the Furusato Nōzei system is a great way to support businesses in regional areas and experience some interesting and unique gifts in return.
Who is Eligible to Apply for Furusato Nōzei?
When Furusato Nōzei was first put into place, it was intended as a means for those who had left rural areas to support their hometowns and receive a touch of home in return. However, as there is no restriction on who and where the tax prepayment goes to, it quickly spread to those city-born and raised as well. Because there is no requirement on the hometown of those participating in the program, any tax-paying foreigner living in Japan can also take part.
How Does Furusato Nōzei Work?
When taking part in the Furusato Nōzei program, there are a number of steps to undertake. The first step involves deciding how much to donate. There is a limit as to how much of your tax amount can be used for hometown tax as a certain amount must still go to your area of residence. The limit differs based on income brackets.
The next step, and the most interesting one, is choosing your regions and gifts. It is possible to donate to various regions and receive various gifts. This can be done through the Furusato Nōzei website of municipalities or through one of the many websites that compile lists of the different gifts available. There is an initial cost of ¥2000 to participate in the program.
When your decision has been made, you can donate either through the regional websites or through a compilation website, and your gift will be sent to you soon after. A receipt should also be sent to you, confirming your donation to the regional area of your choice. This receipt is necessary when it is time to file taxes.
Donations must be made before the end of the year in preparation for the next tax time in March of the following year. When it comes to March, the receipt(s) are included as part of the process in filing taxes and the deductions will be made.
For salaried employees whose employers handle their taxes, there is a “one-stop system.” This limits your donations to five or fewer regions and involves an extra application form to be completed when ordering. After taxes are filed, your donations will be offset and you are free to enjoy the regional produce and gifts you receive.
How to Choose a Municipality or a Gift
You can find one by searching municipalities or gifts on the websites mentioned below, there is also a category to support businesses impacted by Covid-19. Popular gifts include Japanese Sake, Wagyu, and Rice.
Unfortunately, there are no Furusato Nōzei websites available in English at this time therefore you would need assistance if you do not speak/read Japanese.
All Nippon Airways (ANA)
Furupo by JTB
Japan Airlines (JAL)
Donation to Municipalities Affected by Natural Disaster
You may also donate to municipalities that are dealing with the aftermath of a natural disaster. You will not receive gifts however, you will be liable for a refund or deduction of residence tax and income tax since the municipal government will issue a donation receipt certificate. Check for details from this website from Satofull.
Via Furusato Choice Disaster Relief Website, you may also donate to municipalities if you do not apply for Furusato Nōzei (no tax deductions).
Take Advantage of Furusato Nōzei and Explore the Beauty of Japan
Furusato Nōzei started out with good intentions and has quickly grown into a “hometown tax” program that is popular throughout Japan. The system not only helps smaller communities maintain many of the traditional cultures, foods, and arts that the country is internationally known for, but also provides Japan residents with a chance to explore all of these treasures.