First, Japan has residence tax, which you need to pay next year for the place you lived in last year. For example, I currently live in Shibuya in 2020, I am paying the residence tax to Shibuya ward for 2019. Residence tax is about 10% of your annual income0. You’ll start paying residence tax in 2nd year after you live Japan for a year.
Greater Tokyo area has 38.1 million people, everyone comes to work at Tokyo, which is about 30% of Japan’s population. That means all their residence tax go to Tokyo. Which is not so great, because Tokyo is already the center of economic. Tokyo is wealthy and well developed, while other smaller city/prefecture is struggling to improve.
People who grew up in small towns, born and raised by regional government’s residence tax money. Now they all go to Tokyo to work there. Paying residence tax in Tokyo. This is not a very good news for their hometown.
Japan has a Hometown Tax system, which is called ふるさと納税 in Japanese. It is a incentive system to let people decide, where their residence tax money should go. I can donate money to a village in Hokkaido. In return, that village thanks me for donation by giving me local retreats back. The money I donated will be deducted in next year’s residence tax. It’s like a pre-payment of my residence tax, but I get things in return!
- Donate to a Group (¥2000 fee)
- Group sent you thank-you Gift and forms
- You finished forms and send back to Group
- The Donation Amount will be deducted next year
That’s how Japan’s Hometown Tax work.
All famous food from any place in Japan except where you’re living. If you’re living in a town called 北海道紋別市, if you still donate to 北海道紋別市, you WILL NOT get the gift.3
Categories of Gifts:
- Food (Meat, Seafood)
- Rice/Vegetables
- Alchohol/Beverages
- etc.
You can also make your donations to help with Coronavirus, disaster recovery.
The products of donation are usually more expensive than what you can usually get in the market. It makes sense because usually those money only go to tax, but now you pay your taxes and get some gifts back.
Return Rate = ( Price of Product ÷ Donation Price ) * 100
For example, if 1kg watermelon costs ¥3500, donation price is ¥10,000. The Return Rate is 3500/10000 = 35%! The higher this rate is, the better performance of the donation product. Usually this rate is around 20-40%. But there are also products which Return Rate is >100%!!
Edit: 2019 fiscal year introduced a new policy that return rate cannot be higher than 30%...
If you search for "ふるさと 還元率", then there will be sites telling you what is the best product to buy based on the return rate. Be careful those sites contain affiliate links. Where you click the link, then go through them, they’ll make 3-8% money from the marketplace.
Depends on all sort of variables of you in the previous year. The formula has these variables involved:
- Your Annual Income
_ Your Dependant’s Annual Income - Stock Profits (Public)
- Stock Profits (Private)
- Do you have legal spouse/partner?
- Are you a widow?
- Do you have disability?
- Are you supporting family members (child, parents)?
- How much was your Social Insurance deductions?
- How much was your Life Insurance deductions?
- How much was your Earthquake Insurance deductions?
- How much was your Medical Expense deductions?
- How much was your Housing Loan deductions?
To simplify,
- For a single person made 3 million annualy. ¥28,000.
- For a single person made 4 million annualy. ¥43,000.
- For a single person made 5 million annualy. ¥61,000.
- For a single person made 6 million annualy. ¥77,000.
- For a single person made 7 million annualy. ¥109,000.
- For a single person made 8 million annualy. ¥131,000.
- For a single person made 9 million annualy. ¥153,000.
- For a single person made 10 million annualy. ¥177,000.
- For a family of two, made 8 million annualy, ¥120,000.
- For a family of 3, made 15 million annualy, 368,000.
You can donate up to roughly 10% of your annual income.
You can simulate the donation limit at here:
- Complete Simulation
- Simplified Simulation — to get rough ideas
Use translator like DeepL to help you understand.
Don’t donate over your limit (Nothing stops you, but better save those money to buy those products directly.)
Popular donation marketplaces:
Most of these sites are in Japanese.
The benefit of ふるなび is they send you 1% back as Amazon Gift cards.
These sites also have various campaign you may get 10% as gift card or points.
One Stop Exemption, in Japanese called ワンストップ特例制度, which removes the need to file your Tax Return (確定申告) up to 5 donations.
Most of the marketplace they have system in place to help you with One Stop Exemption.
- Donate to group on Portal
- Group sent you one stop exemption documents1
- Group sent you gift
- You filled in those documents before January 10 next year, sent it back2
- Next June, you’ll see those donated money got deducted from your residence tax!
There will be two checkboxes from the document you need to check both to be applicable of One Stop Exemption:
- 地方税法附則第７条第１項（第８項） (You don’t do 確定申告)
- 地方税法附則第７条第２項（第９項） (Only donate to less than 5 this year)
You will need 5 copies of your My Number Card (physical one) to paste on these one-stop exemption documents. If you don’t have physical My Number Card, you need to include either My Number Card (paper one, notification card) or Residence Paper (住民票の写し) + any copy of your identifications4.
Who are not qualified for One Stop Exemption?
- Donate to 6 and more places
- If you do 確定申告 for Medical deductions or Residential tax
- If you did not send the one-stop exemption
- If the place you donate to not exists anymore
You can also do everything yourself by 確定申告. No need for one steop exemption. It is just convenient for 90% of the people.
You can do it throughout the year, the deadline is roughly YYYY Dec 31 10pm. The one stop Exemption documents need to be sent back before YYYY+1 January 10th. They usually send you a confirmation of your donation with an envelope that you can send back without paying postal fee.
That was it. Hope this helps. If you like this post, share it. If you have any question, I’m happy to help you get some gifts, email me [email protected].