Furusato nozei [ふるさと納税] – It’s the kind of donation that gives back twice over.
While it is improper to expect anything in return when you donate to charity, the “furusato nozei” or hometown tax in Japan may just be an exception to this rule. Furusato nozei is a kind of charitable activity that lets you donate to a Japanese municipality or prefecture of your choice. In return, the beneficiary sends you items such as produce, handicraft or even a tour package in their town as a form of gratitude. The donation is also tax-deductible so you also get to benefit from contributing towards the economic growth of Japan’s countryside.
What is Furusato Nozei?
Furusato nozei was first introduced in 2008 through provisions in Section 37 of the Regional Tax Law. It was created with the primary objective of boosting the local economies and development of rural areas in Japan. Under this scheme, taxpayers can select a furusato (hometown), municipality or local government project to support. The donation will then be deducted from their annual tax bill, up to a certain amount and depending on the individual’s income and family structure.
Furusato nozei was originally created to motivate individuals to contribute to the economic development of their hometowns. In Japan, it was common for younger citizens to leave their hometowns after graduating from college to pursue careers in the bigger cities. This contributed to the subsequent “brain drain” in the rural communities.
Since its rollout in 2008, furusato nozei has proven to be quite popular as a way for individuals to get discounts on their taxes every year. It was effective during the earthquake that hit the Kumamoto and Oita prefectures in 2016 as it channeled taxpayer funds directly to the areas that needed it most. The donation scheme caught much traction as individuals received gifts in return from the chosen region aside from the tax deductions reflected in their annual bill.
Perks for urbanites
The rising popularity of furusato nozei in the recent decade has pushed rural districts in Japan to rethink marketing efforts to invite donations. Many have gone quite creative in the gifts that they send out in exchange for contributions.
Furusato nozei presents an opportunity to sustain small towns and villages and keep them from falling into decline. Beneficiaries offered a variety of thank you gifts in return for the contributions and this can range from choice meat cuts and local food products to services and experiences catering to tourists visiting the area.
Individuals looking to make contributions usually choose municipalities offering certain products or services they may be interested in. For instance, if you enjoy a good local liquor, you can look up the municipality that provides this product and make a donation to that community.
What can I buy? This “furusato nozei website” lists some great items from all around Japan.
How Furusato Nozei Works
The Furusato Nozei was originally designed to entice city-dwellers to take an interest in Japan’s countryside most of the population are eligible to participate in this tax scheme. Even foreign nationals who are residents in Japan are allowed to contribute tax money to their chosen communities and prefectures.
- Determine how much you are eligible to donate. The amount that you can donate under this scheme depends on your household income.
- Choose a Japanese city. Pick a city you want to support. This can be a city you have visited in the past or a place you have lived in at some point. Depending on the period when they are donating, some people select towns that were recently hit by natural disaster. Others base their selections on the items that the city or town offers. Note that there may be restriction regarding donating to your own local government where you currently reside.
- Make a donation and receive the goods. Send your donation to the city of your choice and in return, the city will offer you local goods that they happen to have available at that time. Some cities offer a choice of goods or services depending on your contribution.
- Report the donation for tax deduction. When the tax billing season comes, you can report all donations that you have made throughout the year and get them deducted from your income and local tax.
Furusato Nozei for Foreign Nationals Living in Japan
Nothing in the tax law says that foreigners are barred from donating to Japanese cities under the furusato nozei. As long as you pay income and residential taxes in Japan – and you should if you work in the country – you are considered eligible to participate in this tax donation scheme. Some foreign nationals may not be aware of this because most of the information on furusato nozei is usually in Japanese. Navigating through the entire process may sound easy to a local Japanese but may be a bit confusing to a foreigner who may not have cultural or emotional ties to a specific rural community or prefecture.
Choosing a beneficiary
People go about choosing a destination or program for furusato nozei in different ways.
- Local government projects and causes – local projects such as environmental protection drives or children’s education programs
- Disaster rehabilitation – cities and towns hit by natural disasters such as tsunamis, earthquakes and typhoons
- Donating to small cities and towns – donations to specific destinations based on the product or service they offer as part of the furusato nozei.
Filing your tax return
The more complicated part of the furusato nozei is at the end when you need to report your income tax return to claim a discount from your bill. Before you get started with this, it is important that you keep the receipts that you receive from the municipality you donated to along with any other documents related to the gift that you got from them.
- Income Tax Return – you can claim your donation tax when you file your income tax return through the National Tax Agency Japan website. The site is purely in Japanese so you may need the assistance of a professional for lodging your income tax return and reporting your donation through this site. Essentially, the site will ask for your donation details such as the date of the donation, the receiving agency or body, the type of donation you made, the donation amount and how you want to receive your deduction (e.g. through your bank account).
- One Stop Exemption – the One Stop Exemption System for furusato nozei was implemented in 2015 to make it easier for taxpayers to report and claim their deduction from their residential tax. It is processed every time you make a donation. Claiming through this route is subject to eligibility, however. This only applies to salaried employees who have donated to a maximum of 5 different donation destinations in a single calendar year.
Furusato nozei allows you the perfect opportunity to give back and contribute to Japan, letting you choose the municipality or program that will receive your taxes. It is not limited to Japanese nationals. Salaried employees in Japan, even students and foreigners can participate in this donation tax scheme. By choosing to contribute to a local community or a rural prefecture, you are also eligible for discounts on your annual income tax or residential tax bill.
While the main purpose of participating in the hometown tax is to help boost development in the Japanese countryside, it doesn’t hurt that when you extend a contribution to a community of your choice, you get a token of thanks from the local government in the form of interesting items such as meat and even a guided tour around their locale. So if you’re looking for a program or a Japanese town to support, it also makes sense to look up the items that you may be getting in return for your donation to make the gesture more worth it.
Furusato Nozei FAQ's
Where am I able to donate hometown tax and where can I browse thank you gifts?
All donations can be made through the website https://en.furumaru.jp here you can also search by gift item as well as the cause to which your money will be donated towards.
Am I able to donate to several different governments?
Yes, making multiple donations to different causes is allowed under the furusato nozei. But you need to make sure that you keep track of all your donations in a given year. Also, while there is no limit to how much you’re allowed to donate in a year, there is a maximum amount that you can deduct from your tax bill depending on your specific tax structure.
Am I able to pay hometown tax where I currently reside?
It depends on the local government. Please contact the local government in your area for more information. Additionally, depending on the local government, you may not be able to receive a thank you gift.
When is the best time to do this?
You can send out donations throughout the year but you need to get all the documentation ready for when you file your income tax by March 15 of the following year. If you’re doing the One Stop Exemption System, you will need to send your deductions by January 10.
When do I get the thank you gift?
The thank you gifts are usually delivered a few weeks after confirming the donation but there are certain items that may take more time getting to you. For instance, fruits may only be shipped when they are in season.
When will I get my tax refund?
After filing your income tax return, refunds typically get processed and sent out about 6 weeks from the deadline of filing. Please refer to the National Tax Agency website for more information.
How do I receive the refund?
Refunds can be sent via your bank account or you can pick them up through the Japan Post Bank or the post office. You will need to indicate on the income tax form how you want to receive the refund.
Can I use my credit card to contribute for furusato nozei?
Yes, some local governments and organizations accept credit card payments but there are still communities that opt to receive donations in cash or cheque. Please check with the municipality or town office for more details.
If I make a donation and claim through the One Stop Exemption Scheme and I change addresses during the year, do I need to update the local government who received the donation?
Yes, you need to submit a notice of change of address to the prefecture or municipality.