[REVISIT] How to do furusato nozei, Japan’s hometown tax

With the end of the calendar year marking the last chance to place orders and contribute to Japan's furusato nozei, "hometown tax," program such that related tax deductions can be claimed by the end of the current fiscal year, we're taking another look at this "how to do furusato nozei" guide. 

While time's fast running out to get some nice bits in through the program for the festive season it's all good learning for next time around, and even post-festive season deliveries might help next year get off to a fine start.

In taking a look at how to do furusato nozei  this article covers the following: 

What is furusato nozei? 

Getting started

Understanding hometown tax donation allowance

Understanding the tax deduction

Choosing gifts

Making donations

Where is my furusato nozei donation going? 

Background

Alternatively you could take this in in video form on the City-Cost Japan YouTube channel: 

What is furusato nozei? 

This week this expat wrapped up their first donation to regional Japan through the furusato nozei program and is now braced to take delivery of some fine meats, craft beers, and cakes. The process of researching, making choices and finally making the donations took but a few days … plus more than 10 years if we factor in all the dithering and wondering about what exactly it is. 

The dithering and wondering hadn’t been served well by the myriad of loose terminology loosed off in any number of article opening salvos about how to do furusato nozei, including the above mentioned “regional charity tax,” as well as the donation that gives back twice over, tax payments in exchange for gifts, tasty rewards and tax deductions, among others.  

The terms “tax” and “gift” don’t really help -- the former puts me on my guard right away, and the latter makes me think of a brutally boxed, double-plastic wrapped tiny bit of something that appears on my desk at work every now and then. 

Perhaps instead of trying to say what it is then, it would be better to phrase it in terms of what happens when we do furusato nozei. Very basically, a three-stage process: 

1) People make a “donation” to a local or prefectural government of their choice which is put into local regeneration / support projects. 

2) Based on the value of their donation, donors select a “gift” from said region to be delivered to them in return. 

3) Donors file their donation along with the rest of their taxes at the end of the fiscal year in order to qualify for a deduction that is almost equal to the amount they donated in the first place. 

We’ve put “donation” and “gift” in quotation marks to indicate that things could easily be interpreted differently and that what the furusato program is actually driven by is the chance to shop for quality produce at ridiculously low prices. Although, does this even matter? Whatever the interpretation, the practical outcome is the same -- regional Japan receives and puts money to good use, the general public gets regional product and a tax deduction. Simple.

But not so simple to explain the details of how to do furusato nozei, especially when the “tax” term likely makes many of us want to know exactly what we’re getting into before we start, to feel sure that we’re not going to fill out the wrong form, and to judge whether or not, more than any product-donation cost-performance, a trip to the tax office will be worth it. 

How to do furusato nozei: Getting started

Perhaps the best place to get started with your research into furusato nozei is by seeing what kind of “gifts” are on offer and the ways in which donations might be put to use. 

This kind of information can be found on any number of furusato nozei portal sites which handle donations for regions across Japan.  

Furusato Choice, we’re told by Japanese colleagues, is the most popular. 

Furusato Choice: https://www.furusato-tax.jp/

But there are others: 

Furusato Nozei Guide: https://furu-sato.com/

Furunavi: https://furunavi.jp/

Saofuru: https://www.satofull.jp/

Available gifts can be searched by type (meat, rice, bread, fruit, travel, events & tickets, appliances, fashion, among others), and popularity (including popularity by type).

Likewise, target regions for donations can also be searched with corresponding information provided about available gifts and donation values, as well as the choices as to how donations are to be used (that donors can select at the time of making a donation). 

At the time of writing, in the midst of the novel coronavirus pandemic, donors through furusato nozei could select items under the “Niconico Ale” campaign (pasting the Japanese in here as we’re not sure what is meant by “ale,” or should that be “yell?” - ニコニコエール) which directs donations to those businesses that have suffered significant financial losses due to the outbreak of the virus. 

https://www.furusato-tax.jp/feature/a/niconico-yell#about

Understanding your hometown tax donation allowance

If early research into regions and / or gifts has piqued your interest and you’re thinking more seriously about making a donation, the next stage might be to calculate how much money you are able to donate and thus understand the tax deduction that you can qualify for. 

This is where an early distinction should be made -- donors are free to donate as much as they want but it is only up to a certain amount of donation for which they can file for a tax deduction. This amount is determined by one’s annual income and family / household situation (married, double income, children among the factors).

The Ministry of Internal Affairs and Communications, the body behind the furusato nozei program, has published a chart detailing income brackets and corresponding household situation: 

https://www.soumu.go.jp/main_sosiki/jichi_zeisei/czaisei/czaisei_seido/furusato/mechanism/deduction.html

Single or double-income (独身又は共働き)

Married couple (夫婦)

Double-income + 1 child (high school student) (共働き＋子1人 (高校生)

Double-income + 1 child (university student) (共働き＋子1人 (大学生)

Married couple + 1 child (high school student) (夫婦＋子1人 (高校生)

Double-income + 2 children (university student & high school student) (共働き＋子2人 (大学生と高校生)

Married couple + 2 children (university student & high school student) (夫婦＋子2人 (大学生と高校生）

*"Married couple” refers to the case where the spouse of the person who donates the hometown tax has no income

**Children of jr high age or younger do not affect the donation / income bracket and so are detailed as a factor.  

So, for the sake of argument, let’s say you’re single and are on what used to be the classic university graduate-English-teacher-in-Japan salary of 250,000 yen a month before tax. Annual income before tax 3,000,000 yen. Donation allowance = 28,000 yen. This is the total donation allowance, across the calendar year 

The higher one’s annual income, the more one can donate and qualify for the corresponding tax deduction.  

Furusato nozei portal sites also have a function through which potential donors can calculate their allowance. Look out for the term シミュレーション (simulation). 

Understanding the tax deduction

Put simply, staying within the income-based donation allowance means that, after all their donations, the donor can qualify for a tax deduction roughly equivalent to the value of their total donation minus 2,000 yen.

In more retail consumption terms, all that regional produce you took delivery of? You paid around 2,000 yen for it.  

With this in mind then, we can see how cost-performance is best achieved by donating as much of one’s allowance as possible. At the time of writing, this magic 2,000 yen was largely the same (with some minor variations depending on region) regardless one’s allowance. Donate 28,000 yen, qualify for a 26,000-yen deduction. Donate 808,000 yen, qualify for a 806,000-yen deduction. 

Tax deductions are taken from both income tax (paid during the current fiscal year) and residential tax (to be paid in installments over the next fiscal year).

The calculations behind this division between the two taxations is detailed in the above mentioned chart document from the Ministry of Internal Affairs and Communications.

Receipts for donations are provided by the local government to which donations were made (they don’t come from the businesses that produced the gift).  

In order to qualify for the tax deduction, donors must use their receipts for filing along with the rest of their taxes.  

And this then, is where we start to question whether or not all of this is going to be worth a trip to the tax office. 

If you’re working freelance or gyoumu itaku (contract worker) in Japan you (or maybe a Japanese partner) will likely be familiar with the process of filing taxes (by the end of the fiscal year) so your furusato nozei donation will just be one more line of a form to complete and another receipt to look after.  

Permanent company workers may be unfamiliar with this process, their employer having always handled matters pertaining to income tax. It used to be then, that furusato nozei presented the permanent employee with the challenge of having to make an unfamiliar trudge all the way to the tax office to make a solitary claim, albeit potentially a rather large one.  

In 2015 the “One Stop” system was introduced allowing donors in permanent employment to have their hometown tax filed by those local governments to which they made donations. A form is downloaded, filled in, sent to the offices of donation recipients who then file it with a donor’s municipality on their behalf. Not surprisingly, the value of donations made that year quadrupled from the previous year. The “One Stop” system remains intact at the time of writing.

“One Stop” comes with three basic prerequisites:

Must be a salaried employee (i.e. your employer handles your taxes). **There are some exceptions here, including those with an annual income of over 20,000,000 yen (anyone?). 

Donation destinations limited to five per year (although multiple donations can be made within each destination). 

“One Stop” applications must be submitted for each and every donation (even for those made to the same municipality).  

Learn about “One Stop” here: https://www.furusato-tax.jp/about/onestop

Filing taxes in Japan is a field unto itself, requiring of a treatment that can’t be given here.

Confirmation of the tax deductions can be checked on end-of-year income tax documents, and in the breakdown table provided with residential tax invoices. 

Choosing gifts

Furusato nozei is available year-round and the choice of municipalities and gifts is close to overwhelming, although a quick glance at popularity rankings reveals a preference for meat (beef), rice and maybe crab (depending on the season). It’s probably fair to say that gifts are largely associated with meat, fruit, veg and alcohol.  

It doesn’t have to be thus. Laptops, printers, vacuum cleaners and electric kettles don’t exactly scream “local produce” but local dealers and traders, and the areas in which they do business, may still need the support. Such electrical items can be found along with clothing, accessories, accommodation packages and travel coupons, outdoor activities and lessons, cakes and confectionery, and loads more in the furusato nozei catalogue of gifts. If the donor isn’t careful, they could get trapped in a circuit of the rankings and portal sites and never make a donation.

Choosing is made easier if the donor has some affinity with a destination (and it doesn’t have to be one’s hometown) or they have their eye on a particular product type.  

Other donors may be able to do furusato nozei through sites and platforms they already frequent -- e-commerce giant Rakuten, for example, facilitates furusato nozei donations and gives points in return. Airlines may also be able to facilitate furusato nozei donations.  

Municipalities themselves may have their own furusato nozei platforms, while others may simply direct potential donors to the major portals. 

After this then, it’s just a question of managing one’s donation allowance.  

At the point of each donation / gift, information may be provided regarding the wait for delivery. At the time of writing, with the festive season drawing ever closer, deadlines were made visible for those hoping for a pre-Christmas delivery of gifts.  

Seasons need also to be taken in consideration when it comes to many consumable products. Remember, much of the consumables on offer through furusato nozei are being produced in Japan (although it’s not always the case) so donors may have to be patient in order to get gifts such as fruits at the optimal season, and then be patient once more as they wait for the end of the fiscal year to see a financial return, of sorts, from their initial outlay. 

Making donations

This expat’s experience is limited to making donations through portal site Furusato Choice. 

The flow of how to do furusato nozei was simple enough, if a little repetitive.  

After selecting an individual “gift / donation” and amount, options were then presented as to how we wished our donations to be used.

Then the form-filling begins in which one details -- full name, address, telephone number, email address ((residential) address must be that which is on your juminhyo - registry of current residential address). Thankfully we encountered no issues with entering a foreign name into the online forms of Furusato Choice. 

Options to select eligibility for the “One Stop” system were also presented. 

In paying by credit card we went through the usual form-filling that comes with such payments - credit card number, expiration date etc. Other cashless payment services as well as options to pay at convenience stores may vary from portal site to portal site, municipality to municipality.  

A quick once over of the payment summary, confirm, done. Repeat for each donation, or circumnavigate some of this process by creating a member account with the portal site.

Shortly after, we received automated emails confirming gift orders and donation payments, and already we’ve received another email from one gift supplier confirming preparation for dispatch and estimated date of delivery.  

Where is my furusato nozei donation going? 

We mentioned above that options were presented as to how we would like our donations to be used. 

Even at the initial gift / donation search level though, filters can be applied to search by ways in which donations will be used. Options may cover:

Environmental preservation

Support for NPOs / NGOs

Support for the elderly

Child welfare

Preservation of traditional culture, arts and crafts

Public facilities, sports / music facilities

Festivals

Agriculture

Disaster reconstruction

International exchange

Such options and uses vary from municipality to municipality. As we mentioned earlier though, the selection of any available options was, in our case, presented at the time of making donations. One can also select to have donation usage determined by the local authority. 

Background

The furusato nozei program was launched in 2008 under the administration of then Prime Minister Shinzo Abe. Data made available by the Ministry of Internal Affairs and Communications reveals that donation amounts remained largely stable in the early years of the program but saw a dramatic increase after 2014 through 2018, from nearly 40 billion yen to just over 500 billion yen. Donations in 2019 decreased slightly to around 480 billion yen (from around 23 million individual donations). 

The city of Izumisano, in Osaka Prefecture, in 2019 topped a ministry-compiled list of municipalities to have received the largest value of donations through furusato nozei for that year, over an eye-watering 18 billion yen (more than 170 million US dollars) from more than 300,000 individual donations. This was not far from being double the value of donations received by the municipality in second place, the city of Miyakonojo in Miyazaki Prefecture.  

Izumisano’s “top ranking,” if we will, highlighted the potential to perhaps exploit the furusato nozei program, or at least create some questionable sense of competition, by offering more enticing gifts in a bid to solicit more and higher value donations -- including Amazon gift vouchers in the case of Izumisano, according to reports. 

This sense of competition has been enough for authorities to step in and make changes, introducing a reformed furusato nozei system in June of 2019 which now requires gifts be valued at no more than 30 percent of the donation for which they are being given in return.  

In October last year the Ministry of Internal Affairs and Communications reiterated its decision to exclude Izumisano from the hometown tax due to the city’s failure to limit gifts to the above mentioned 30 percent of donation value. In June 2020 the decision was revoked by the Supreme Court which is reported to have dismissed as "illegal and invalid" the central government taking into account the past methods of local governments to solicit donations.

The competitive nature, the popularity rankings, perhaps these serve as uncomfortable reminders that what is driving furusato nozei isn’t a charitable spirit so much as it is the public’s eye for a bargain. 

As for the future of furusato nozei, well, it had looked bright under the government of Shinzo Abe, which had expanded the program in efforts to support regional revitalization, a key policy goal of the former prime minister’s government.

With the outbreak of the novel coronavirus the landscape surrounding furusato nozei looks very different in many ways. For a start, it’s no longer just rural Japan that will be in need of support and revitalization in the months, maybe years, to come. Business in the cities have been facing hardships, too, and critics of the program have prior to the outbreak of the novel coronavirus been vocal about the program taking money out of the major cities. Maybe they will become even more so during life “post-corona,” if we ever get there. 

For now though, with the festive season and the end-of-the-calendar-year deadline approaching furusato nozei appears to be all around. 

Further reference

Furusato nozei portal site from the Ministry of Internal Affairs and Communications:

https://www.soumu.go.jp/main_sosiki/jichi_zeisei/czaisei/czaisei_seido/080430_2_kojin.html

Results of survey into current status of furusato nozei (Reiwa 2), Ministry of Internal Affairs and Communications: https://www.soumu.go.jp/main_sosiki/jichi_zeisei/czaisei/czaisei_seido/furusato/file/report20200804.pdf

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Author’s note: I’m always keen not to sound too definitive when it comes to “how to” style articles. It’s just disingenuous. Research and practice of how to do furusato nozei revealed to me still more gaps in my understanding about the program, particularly the calculations behind the tax deductions and how those deductions are realized. And in the interests of honesty, I have a Japanese partner to help fill them in for me anyway, although not even they are able to be definitive in doing that. 

What I can say with some certainty is that so far the process has been simple enough -- calculating donation allowance, searching gifts / donation destinations, and making the donations. Now we await delivery, hopefully in time for the big festive kick-back, such as it is here in Japan. We’ll worry about qualifying for the tax deductions sometime in January.