Japanese Tax Deduction AKA 'Furusatonouzei' or 'Hometown tax'

Have you ever wonder where your resident tax go and how your resident tax money is spent?

Now, you can choose how your tax money is spent by the municipalities - local government and which municipalities will get your money. At the same time, receive some gifts from them. This system required you to prepaid your tax first by purchasing items from the stores operated by the municipalities then file a tax return to reduce your resident tax.

How much should I buy?

The purchase amount will be calculated by the sum of handling fee (2000 yen) and tax reduction amount.

For example, If a family with no kids with an income of ten million yen then the reduction amount will be 176K yen and the maximum purchase amount will be 178K yen.

* You can use "Reduction rate chart" or "Rakuten reduction rate simulator" to find out your maximum deduction amount.

Wait a minute, am I paying extra 2000 yen?

Yes, but you will get those items for free and the remain 176K yen will be refunded by reducing your resident tax each month in the following year, similar to how rebate works.

What are the steps?

1. Find out your household income? If you don't know, this is your chance to ask your wife/husband ;)
2. Use the "Reduction rate chart" to calculate your maximum purchase amount (Reduction amount + 2000 yen)
3. Find an official store that is operated by the municipality then select the items, you can buy from different municipalities.
4. The municipality will send you the documents (donation certificate,"One-stop" application form and receipt).
5. If you file your own tax return, you need to keep the "donation certificate" from the municipality and file it together. If the company you work for handle all your tax filing then you need to request the "One-stop" application form when you purchase the item. ( Maximum of 5 different municipalities) you need to file each municipality separately if you are using the "One-stop" application form.

Extra links

• Official government site
• Wikipedia
• Rakuten reduction rate simulator
• Simple explanation