Japan Tax Bulletin
Hometown Tax Donation (Furusato Nozei)
June 2024
Hometown Tax donation (Furusato Nozei) is a system that allows
individuals to receive income tax and inhabitant tax deductions fordonations made to local governments of their choice. In addition,
since the donor can receive return gifts from the recipient local
government, the number and amount of such donations have been
increasing in recent years attracting more and more attention.

This deduction will reduce the amount of income tax by theamount of the deductible deduction ☓ the income tax rate (0%‐45%)*2This article explains how it works and how the tax amount isreduced.

When an individual makes Hometown Tax donation, tax credit
will be available to reduce the inhabitant tax amount for the year
following the year of donation.

1. Overview

The amount of tax credit available is the total of (a) basic reductionand (b) special reduction calculated as follows.

When an individual makes Hometown Tax donation, the portionof the donated amount exceeding 2,000 yen will be deducted as tax
deduction from the donor's national income tax for the year of thedonation and the local inhabitant tax resident tax amount for thefollowing year.

3. Reduction from inhabitant tax(a) Basic reduction
The basic reduction is calculated by the following formula.

An image of the deduction is illustrated as follows.

Basic reduction
Hometown Tax=(－2,000yen )×10%
amountDonation amount* 3【Image】(b) Special reduction
The special reduction is calculated by the following formula.
HometownSpecial
IncomeTax
reduction =()－2,000yen)×(100%－10%－ tax rate
Donationamount * 4(0-45%)* 2amount

Please note that the above reduction amount may differ from theillustration provided depending on the amount of the Hometown
Tax donation, individual’s income situation, and the recipient ofthe donation.
2. Reduction from income taxes
When an individual makes Hometown Tax donation, thededuction is available from the income in the year when thedonation is made.
The amount of deductible donation is calculated by the followingformula.
Hometown
Donation deduction=Tax
Donation － 2,000yen
amount* 1
amount4. Procedure
In order to claim a reduction for Hometown Tax donation, anindividual is required to file an annual income tax return. The nameof the donation recipient, the amount of the donation, etc. must
be disclosed on the tax return and an official certificate ofHometown Tax donation issued by the donation recipient must be
attached to the tax return*5.
Additionally, for those individuals do not need to file an annual
income tax returns (such as employees with sole source of income
is wages) may utilize the "One-Stop Special Exception System" if
donations are made to less than five organizations, allowing themto receive deductions for Hometown Tax donation without filingan annual income tax return. However, even if an individual is
not obliged to file an income tax return, in the case he/she files anincome tax return to claim a deduction for medical expenses, forexample, he/she will not be able to claim the reduction under the*1 The maximum amount is equivalent to 40% of the total income.
*2 Until 2037, the rate is calculated by adding the special income tax for reconstruction to the rate.
*3 The maximum amount is equivalent to 30% of the total income.
*4 In general, the maximum amount is equivalent to 20% of the income rate of the inhabitant tax.
*5 If an income tax return is filed electronically, this certificate can be omitted.

"One-Stop Special Exception" and will need to claim a reduction
from his/her Hometown Tax donation in his/her income tax
return.
5. Return gifts
When an individual makes Hometown Tax donation, he/she will
likely receive return gifts from the local government donation wasmade to. Such return gift is deemed as receiving the economic
benefit and value of the return gifts is classified as occasional
income and is subject to taxation.
However, since a special deduction (up to 500,000 yen) isavailable in the process of calculating the amount of occasional
income, the tax is not imposed if there is no other occasional
income and the amount of the economic benefit is less than
500,000 yen.

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