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Furusato Nozei(ふるさと納税): Maximizing Your Tax Return Benefit

The home-town tax program, aka Furusato Nozei(ふるさと納税 => furusato nozei) is a unique tax-donation program in Japan that allows you to donate a portion of your taxes to a municipality of your choice—and in return, almost the entire donated amount (minus a small fixed fee) is returned to you as a tax deduction (+ some gifts from the municipality). This document provides a detailed breakdown of the tax benefit, the return calculation, and a step-by-step guide to participate.

Table of Contents

  1. Overview
  2. How The Tax Benefit Works
  3. Participation Process & Fee
  4. Donation Limit
  5. Return Calculation
  6. What is One-Stop?
  7. Websites for FN
  8. Donation Process
  9. References

Overview

Furusato Nozei (will refer to as FN) allows taxpayers to support their preferred municipalities by donating part of their taxes. The highlight of this system is the tax deduction: you receive nearly the entire donated amount back as a reduction in your annual tax burden, while also receiving local gifts. Essentially, the program enables you to help local communities with minimal cost to yourself. In simple term, choose a hometown of your choice, donate an amount by purchasing a gift from them, and receive the full amount minus the fixed fee(¥2000) of the donation as a tax deduction.

How The Tax Benefit Works

It is a simple 3-part process:

  1. Donation: You choose a municipality and donate an amount equivalent or less than your taxes.
  2. Tax Deduction: The donated amount minus a fixed fee(¥2000) is returned as a tax deduction.
  3. Local Gifts: The municipality gives you a gift in return for donating.

Participation Process and Fee

Order something from the below given websites as a donation gift and pay the fee for it. You became the participants of the FN donation! Its as simple as that.

“Obviously you have to submit the donation receipt for benefits!”

For getting the tax benefit out of this, A participation fee will be applied to you from the amount that you will receive as tax return. The amount is ¥2000.

Suppose, you have donated(/purchased) ¥50000 on any FN through online and submitted the donation receipt while tax filing. Then ¥2000 will be taken as the participation fee and (¥50000-¥2000)= ¥48000 will be returned to you on your tax return.

Donation Limit

Obviously you can donate any amount you want, but there is a limit to the amount that will be the ceiling for getting the maximum tax deduction benefit. And the ceiling limit is the total amount of taxes you have to pay in a year.

In the event you donate more than your maximum donation, your total out-of-pocket expense will end up being over ¥2,000. So, it’s important not to exceed your maximum donation limit to receive maximum benefits (but you can donate more than the limit if you want)!

Maximum/ceiling donation limit will differ from person to person. Your maximum donation is calculated from last year’s income. Please use last year’s income as reference when looking for how much you can donate.

Return Calculation

For example, if you have to pay taxes of ¥100,000 in a year, then the ceiling limit of donation is ¥100,000 for getting the tax deduction. If you donate ¥100,000 as a donation, then you will receive the tax deduction of (¥100,000-¥2,000=) ¥98,000 along with a gift from the municipality.

To calculate your maximum donation limit, use this website for easy estimation or this advanced calculator for more accurate value.

Note: If you do one-stop(discussed here) or your taxable income is less than 1.95 million yen, then these calculation website will work fine.

What is One-Stop?

If you gift 5 or fewer municipalities, income is less than 1.95 million yen, and you are not required to file a tax return (because the basic YETA(year end tax allowance) covers you / you do not have special circumstances), you can elect to do the “onestop” system, which allows you to avoid having to file a tax return.

You will need to:

If you do not use onestop, you must save the receipts that are sent to you for tax filing time.You will also need to submit a copy of your personal identification documents such as a MyNumber Card.

Sample of the One-Stop Application Form can be found here.

Important Note: If you do not use onestop, you must save the receipts that are sent to you for tax filing time, or file using e-tax where they are not required.

Websites for FN

There are few sites which offer easy FN options. These are:

Donation Process

Note: The gift item’s price is higher than the regular price (approximately three times the market price) because it is being purchased for donation purposes.

Donation and getting benefit from it is a 5-step process:

  1. First figure out your donation limit using above steps.
  2. Then choose a municipality you want to donate to.
  3. Browse for the Thank-you gift you want to receive from the municipality against your donation and make your payment.
  4. After processing is done then you will receive your gift and donation receipt.
  5. File the donation receipt during your tax filing time. you won’t get any tax deduction if you do not file the receipt.

This link contains a detailed process of donation process.

References

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