Introduced in 2008, furusato nozei was meant to let city dwellers support the regions they came from. In practice anyone paying Japanese tax can donate to any municipality, and the donation, minus 2,000 yen, is offset against their income tax and inhabitant tax, up to a limit that rises with income and depends on family circumstances. Municipalities thank donors with local products, from rice and beef to hotel stays, which has made it one of the most popular tax reliefs in the country.
Rules have tightened over the years. Since 2019, return gifts must be locally produced and worth no more than 30% of the donation, and a municipality's total spending on gifts and costs is capped at half of what it receives. Since October 2025, municipalities may not use intermediary websites that reward donors with points. The 2026 tax reform added a fixed cap of 1.93 million yen on the special inhabitant tax credit for very high earners, generally those with income of around 100 million yen or more, from donations made in 2027.
Employees who do not otherwise file a tax return and donate to no more than five municipalities can use a simplified procedure in which each municipality notifies the tax authorities directly. Otherwise, donations are claimed in the annual return.
What it means for a foreign employer
- It is part of how senior staff think about pay. A senior employee can steer a meaningful amount of tax into gifts each year. It is a perk of Japanese tax residence that people coming from abroad often do not know about.
- Payroll is not directly affected. The credit comes through the next year's inhabitant tax, which changes the monthly deduction from June. Expect questions when it does.
- It needs the individual's own planning. The limit depends on that year's income, so an employee whose pay changes mid-year can over-donate and lose part of the benefit.
Sources
- Local Tax Act, Articles 37-2 and 314-7; Income Tax Act, Article 78.
- Ministry of Internal Affairs and Communications, standards for return gifts (2019) and the ban on point-reward intermediaries (October 2025).
- Fiscal 2026 tax reform outline (December 2025), cap on the special inhabitant tax credit.