Sanpo-yoshi Communication
Sanpo-yoshi Communication
[President's Column] Corporate Hometown Tax Donations: Making Donations That Fit Your Budget
The other day, the head of a local government from another prefecture visited our company and inquired about the corporate version of the Hometown Tax program.
The individual version of the “Hometown Tax” program allows participants to receive local specialties and other goods, and since it’s quite popular, I imagine some of you are already taking part in it. I’d vaguely heard of the corporate version, but since I didn’t know the details, I decided to look into it this time.
Founded in 2016Corporate Hometown Tax Donation Program (Regional Revitalization Tax Incentive System)However, the 2020 tax reform significantly expanded tax credits.
Generally, if a company donates 1 million yen, and provided the recipient is appropriate, the entire donation is treated as a tax-deductible expense. Assuming the corporate effective tax rate is 30%, this reduces corporate income tax by 300,000 yen, so the actual cost to the company is 700,000 yen.
However, under this tax reform, tax credits have been significantly increased, with a credit of 900,000 yen now available. From a company’s perspective, this means that even if it donates 1 million yen, its out-of-pocket cost will be only 100,000 yen.
That said, 10% is paid entirely out of pocket. Unlike the individual version of the “hometown tax” program, there are no thank-you gifts, and it is prohibited to accept work in exchange for these contributions.
While this is by no means a system that offers any financial benefit, it allows you to make a donation worth 10 times your actual out-of-pocket expenses. Donations cannot be made to the municipality where the company’s headquarters is located, but they can be made to local governments where the company has branch offices or factories, or to the hometown of the company’s management.
I think the benefits are sufficient as evidence of SDG progress, and there may be some PR value to it.In addition to fostering good relationships with local governments, companies can also use these donations as leverage to propose pilot projects or business initiatives to those governments. Since the timing of implementation can be set flexibly, it is possible to carry out these activities during the fiscal year-end month, depending on the company’s profit situation.
I hadn't been the least bit interested in this system until it was brought to my attention, but after looking into it, I realized it's actually quite an interesting one.