Furusato Nouzei – Hometown Tax

Furusato nouzei literally translates to hometown tax. This is a system that allows a tax paying individual to receive a deduction of up to 20% minus 2,000 yen (a token amount that is required in all cases) of their municipal tax by receiving goods from a registered “furusato” (hometown) outlet in exchange for what is technically referred to as a donation (kifukin). This donation is then deducted from the following year’s municipal and federal income tax, depending on the method you use.

Furusato Nouzei Illustration

The 2 methods available:

– Tax return (kakutei-shinkoku)
– One-stop exception (wansutoppu-tokurei)

To determine which is suited for you depends largely on your form of income.

Tax Return Method

The tax return method is the sole option for self-employed individuals. In this case, you simply submit all your furusato-nouzei receipts (Kifukin-juryou-shoumeishou) along with the appropriate ID and your tax return between February 15th and March 15th of the following year.

There is no limit to the number of different municipalities you can “donate” to. In contrast, the One-stop method has a limit of 5.

Kakutei Shinkoku Method

1. Give donation
2. Receive goods
3. Receive receipts
4. File yearly tax return along with receipts and ID (Feb 15th to Mar 15th of following year)
5. Get designated income tax rebate
6. Get designated municipal tax deduction.

Example:

Donation to furusato (“hometown” of your choosing) = 50,000 yen.
Mandatory payment burden = 2,000 yen.
Remainder = 48,000 yen.
10% of remainder (4,800 yen) is received as a rebate directly to your bank account 1 or 2 months (April or May) after filing tax returns, while 43,200 yen is returned via a deduction in your municipal tax in June of the following year.

One-stop exception Method

A requirement for the One-stop exception method is that the individual in question is a company-employee, ie, someone that doesn’t personally file a tax return (taxes are withheld at the source and filed collectively by the employer).

In this case, you must file the application form (shinkoku-tokurei-shinseisho) to the municipality in question each and every time you make a purchase. You also have a limit of 5 different municipalities from which you can make purchases. Multiple purchases from the same municipality count as 1.

One-stop Tokurei Method

1. Give donation
2. Receive goods
3. Receive receipts
4. File tokurei-shinseisho to the municipality in question
5. Get designated municipal tax deduction in June the following year.

Example:

Donation to furusato (“hometown” of your choosing) = 50,000 yen.
Mandatory payment burden = 2,000 yen.
Remainder = 48,000 yen.
48,000 yen is deducted from your municipal tax the following June.

This contrasts with the first method in that there is no cash rebate. The entire amount is deducted from your municipal tax.

In conclusion:

Furusato nouzei is a good way to support a municipality of your choosing while receiving goods of your choosing in return. Being that this money will be taken in taxes one way or another, many people use this as a way of at least getting something in return. The only potential downside is that you have to pay the money up front (due to the nature of the scheme the price of goods are very inflated) and are only reimbursed via a deduction to your taxes several months down the line. So although technically a bargain, it’s not all that tangible.

Another thing to keep in mind is that due to the upper limit of 20% of your municipal tax for the year in which the transaction occurs, for folks with an unfixed income, it’s safer to shop conservatively. If either your income happens to be lower or your expenses higher that year, your municipal tax will be lower. Use the previous year’s tax figures as reference, but take into account any changes in income or expenses. In general, it’s safer to make your purchases at the end of the year when you know exactly how much you have to spend.

Reference:

What is Furusato Nouzei? (Japanese)


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