Do you like paying taxes? I didn’t think so; nobody does.
Unfortunately, if you live in Japan, high taxes are just a part of life. The more you earn, the higher the tax bill becomes. It’s the price you pay for residing in a country with second to none infrastructure.
But what if you had a choice of:
a) paying taxes and getting nothing in return, or
b) paying the same taxes and getting gifts in return, valued up to 30% of the value of the taxes paid?
Which one would you choose? Exactly.
Enter Furusato Nozei.
Furusato Nozei (or hometown tax) is a program created by the Japanese government to encourage taxpayers to prepay their annual income and residential taxes to municipalities, rather than to where they live.
The program was created to shift much-needed funds from wealthy cities like Tokyo and Osaka, to cash-strapped regions. To encourage people to send the money their way, these local regions offer a “gift” in return, which may have a monetary value of up to 30% of the amount of tax paid.
Gifts can be anything from rice, scheduled fruit basket deliveries, travel vouchers, and more. The gift is often associated with the local area; think king crabs from Hokkaido or grapes from Yamanashi.
Furusato Nozei is available to any Japan based taxpayer, so the expat community can also take advantage of this benefit. The one drawback is that most of the websites where you can apply for Furusato Nozei are in Japanese only, so you may want to have a Japanese friend help you if your Japanese language skills are not up to the task.
Taking advantage of this benefit is relatively easy by following the simple steps below.
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Step 1 – How much can you donate?
You will first need to calculate what your donation limit for the current year is. Several factors determine the donation limit, but the main one is your expected income for the current year. The easiest and fastest way to estimate your limit is to use an online Furusato Nozei calculator. We used the following one. It was quick and easy, and even though it’s in Japanese, our browser did an excellent job of translating on the go:
To give you a quick and rough idea of donation limits to expect, see examples below for different annual incomes.
(Please note these are rough estimates. You will need to make your own calculations, as factors like family members and dependents will have an impact.)
5M JPY income → ¥40,000 – ¥60,000 JPY donation limit
10M JPY income → ¥150,000 – ¥170,000 JPY donation limit
20M JPY income → ¥500,000 JPY donation limit
30M JPY income → ¥1M JPY donation limit
Looking at the above figures for example, you can see that someone earning ¥20M JPY per year can shift approximately ¥500,000 JPY per year of the tax they would be paying anyway, from their local tax municipality, to a region of their choice. In return, they can receive some gifts from that region.
Step 2 – Choose the region and gifts and make the payment
Now that you’ve figured out your donation limit, the next step is to choose which region you want to donate to, and how much. Of course, you don’t have to send the entire donation, and you also do not need to donate it all to one place. There is a fee of ¥2,000 JPY to participate in the program, and you only pay this once, even if you donate to numerous locations.
How you choose which region to donate to is really up to you. Some people may choose to donate to their hometown (hence the name Furusato Nozei), while others may choose to donate to a particular region to which they feel connected. You may select a region that you’ve traveled to, for example, and think that you’d like to help out. There is no requirement to take a return gift as well if you choose that option.
There are several ways to see all the participating regions and the offers available.
We find the easiest method is by donating through a compilation website that lists various municipalities participating in the program, and their respective gifts.
Some of the compilation websites you can use are listed below. Keep in mind that these are only a few of the sites available.
There are so many different and unique gifts available at different budget levels. Some contributions can be as low as ¥10,000 JPY, while others listed are as high as ¥1 Million JPY or more. Gifts can be favorite food items such as beef, rice or local fruits.
However, there are many other interesting gifts, such as local pottery, traditional custom-made furniture and even locally manufactured electric guitars. Travel vouchers are also an effective way to contribute more significant amounts, and you will typically have a year or two to use them.
We picked five gifts available as of May 2021, so you can get an idea of what to expect regarding choices.
Modern and stylish tableware set for five people, manufactured by a local company in Tsubame, Kochi-ken. Tsubame is famous for producing kitchenware for the past 100 years.
Step 3 – Keep the receipt and file your taxes the following March
Once you choose and make your donation through the website, an official receipt will be posted to your home address. The receipt should arrive several days later. Keep this receipt in a safe place, as you will need it to file your taxes and receive your tax deduction at the following year’s tax season in March.
The receipt is proof that you have prepaid a part of your due taxes through the Furusato Nozei program, so do not lose it!
To qualify for the current year, you have to make the payment before the end of the year (December 31st). Although many people wait until the very last minute to participate, we recommend that you make donations throughout the year and avoid the stress of having to rush through the process just before the deadline. It is more enjoyable to participate in the program throughout the year, taking your time to choose the regions and gifts.
As a disclaimer, please note that this article is meant to be a general guide, and you should always check with an accountant if you want to confirm your eligibility and limit amounts.
We hope you found this article helpful and that if you have not yet done so, that you will participate in Furusato Nozei this year. It’s a great way to give to communities that need funds and also get something in return for paying your taxes.
To learn more about how to minimize your taxes in Japan and maximize your wealth potential in a tax efficient way, Contact us at Argentum Wealth for a free consultation. We will be happy to help.