If you work for a company in Japan, you may have already heard of the “Furusato Nozei” program as a way to reduce your taxes. But is the program really a way to reduce tax? Technically, the answer is “no”- it simply enables you to use your tax payment to buy things. The alternative? Pay the tax you owe and get nothing in return. Although largely misunderstood, the program has an obvious appeal- let’s learn how it works and how to use it…
Understanding Origins Of The Furusato Nozei Program
Furusato Nozei is a unique system that allows individuals to make donations to various cities, towns, or villages of their choice and receive certain benefits in return. Introduced in 2008, this program aims to address the issue of citizens leaving their hometowns to pursue careers in major metropolitan areas, which leads to a decline in economic contributions to their original communities as Tokyo sucks up all the tax revenues and the rest of the municipalities starve.
How Does The Furusato Nozei System Work?
Furusato Nozei loosely translates to “hometown tax payment” in English. Through the program, taxpayers in Japan can receive tax deductions and regional gifts in exchange for prepaying a portion of their taxes as donations to the regions of their choosing. In essence, the program helps distribute taxes from highly populated municipalities to more underpopulated ones. In this way, the program aims to revitalize areas experiencing declining populations and struggling with a lack of tax revenue.
By donating to a specific area, individuals can support local communities and help fund public services or assist in disaster relief efforts. In return for their contribution, donors receive a gift worth 30% of their donated amount and a reduced tax bill in the following year, providing an incentive for individuals to financially support Japan’s declining small towns.
Who Can Contribute to Furusato Nozei?
The concept of “hometown” in Furusato Nozei goes beyond the literal meaning of the word and refers to a place that forms a connection with your self-image or speaks to you- so feel free to “identify” as somebody that pays taxes in a location with good Wagyu beef or organic Mikan. Any taxpayer, whether foreign-born or local, can choose any municipality in Japan as the recipient of their taxes.
Donations through the Furusato Nozei system are limited according to each individual’s family structure and income. The program also requires a yearly ¥2,000 fee for participation. Despite these limitations, however, the program’s benefits make participating worth it. Here are a few reasons why:
- -Effective Tax Reduction: Although at first glance it may seem that the Furusato Nozei system is little more than a tax-transfer system, the gifts received help you offset the taxes paid. In other words, you can think about it as though you are shopping for regional Japanese gifts with a percentage of your tax payments.
- -Customization of Your Gifts: Many regions are known for specific goods that they produce, such as fruit or wagyu beef. There are multiple sites online whereby you can go “shopping” for gifts and make donations in exchange for items of your choosing.. As such, you can choose a municipality based on the type of product you would like to receive, effectively customizing your gift.
- -Purpose-Driven Tax Donations: When donating through Furusato Nozei, certain regions offer the option to select the specific purpose for your contribution. When contributing to these regions, you can direct your tax bill toward causes that are personal to you, such as supporting healthcare initiatives, preserving nature, or aiding in disaster relief efforts.
In essence, the Furusato Nozei system allows any resident of Japan to direct a portion of taxes you pay toward causes you support in exchange for products you desire. Although it may not seem like much at first, the program is a powerful way for those living in Japan to maximize their benefits and make the most out of their taxable income.
How to Use the Furusato Nozei System as a Company Employee
The process for using the Furusato Nozei system is relatively straightforward. These days, there are many websites that can help you through each step, from calculating your donation limits to choosing your gifts. Company employees, however, have the additional benefit of access to a website (called the “One Stop Exception System”) that enables them to avoid having to file an end-of-year tax return to get their deductions. Here’s how it works…
The first few steps to using the Furusato Nozei system will be the same for everyone, regardless of whether you are a company employee, freelance worker, or otherwise. These steps are as follows:
- Step 1: Determine your donation amount based on your income: Typically, the amount you can donate will be around 1/3 of your resident tax bill. To help with calculations, you can use online Furusato Nozei calculators. Although most calculators are in Japanese, you can use a browser translator to understand the page better.
- Step 2: Choose the town you want to support and the website you want to use: Many websites allow you to search by location or filter based on the gifts you wish to receive. These platforms provide a comprehensive list of participating municipalities and gift options. Create an account on your chosen website (Rakuten is a good start), making sure that your details match your ID’s exact name and address. Then, start exploring your desired cities, causes, or gift categories.
- Step 3: Make your donation before December 31st: This is the deadline for submitting your application. Because Furusato Nozei has gained so much popularity, user-friendly websites now make the donation process straightforward.
Once the donations have been made, non-company employees will have to track their donation receipts and necessary paperwork for tax filing the following year. This is where the process differs for company employees who wish to use the “One Stop Exception System”, who will have to complete a few additional steps:
- Step 4: Receive and fill out your application for the “One-Stop” system: In addition to your contribution certificate, the municipality that receives your donation will send you a One-Stop Exception System application form. Most cities process this information and send the forms in 2-3 weeks. The application form is in Japanese, so you may need the help of a translator or a bilingual adviser to make sure your form is accurate and complete.
Note: Each donation you make requires a separate application. This is true whether you donate to separate municipalities or multiple times to the same municipality.
- Step 5: Mail the required documents and await your gift: Send the completed application form and a copy of your My Number card to the municipality where you made your donation. Once the city processes your payment, they will send you the promised gift as a token of appreciation for your donation.
- Step 6: Verify your tax deduction: As a company employee, you will receive a Notice of Resident Tax from your employer in June each year. Check the tax exemption column (labeled as “税額控除額” in Japanese) on this notice to confirm the amount of tax deduction you received from Furusato Nozei.
When Not to Use the “One-Stop Exception System”
Employees with additional tax deductions, such as medical or mortgage expenses, as well as those who have made over five donations through Furusato Nozei, should not use the One-Stop Exception System. These expenses must be claimed on a tax return, and the One-Stop Exception System application becomes invalid if an income tax return is filed. Employees who miss the “One-Stop” application deadline of January 10th will also need to file the tax deduction on their tax return.
If you find yourself in any of the above situations, or if you aren’t sure you meet the specific criteria to use the “One-Stop” system, you may want to consult a financial expert. An experienced adviser can provide personalized guidance based on your unique situation, ensuring that you have all the information you need about Furusato Nozei deductions and maximizing your tax benefits.