"Religious corporations are tax-free," "monks make easy money." These are phrases you often hear, but looking at the system accurately, they are half true and half misunderstanding. Offerings (ofuse) and coin-box donations (osaisen) are indeed non-taxable. However, "profit-making businesses" such as running a parking lot or selling goods are subject to corporate tax, and the salaries of chief priests and Shinto priests are subject to ordinary income tax. Based on National Tax Agency materials, we explain everything down to the intriguing boundary line of "amulets are non-taxable, picture postcards are taxable."
① Income from genuine religious activities such as offerings, coin-box donations, posthumous Buddhist name fees, and Shinto ceremony offerings is non-taxable (organized as donations/alms, not sales with a consideration)[NTA, Taxation of Religious Corporations].
② However, "profit-making businesses" (the 34 statutory types) are subject to corporate tax. The rate is the reduced rate for public-interest corporations, etc. (15% on the portion up to ¥8 million a year, 19% above that).
③ Amulets and fortune slips = non-taxable; ordinary sales of picture postcards and key rings = taxable. The boundary is "whether it is substantially alms or a business."
④ The salaries of chief priests, Shinto priests, and staff are subject to ordinary income tax, and the corporation has a withholding obligation. "Monks make easy money" confuses the corporation with the individual.
⑤ Real estate for religious use, such as temple precincts and main halls, is also exempt from fixed asset tax. However, parking lots and leased land are taxable.
The boundary between non-taxable and taxable (quick reference)
| Income | Tax | Reason |
|---|---|---|
| Offerings, coin-box donations, posthumous name fees, first-fruit offerings, Shinto ceremony offerings | Non-taxable | Donations (alms) without a consideration |
| Amulets, talismans, fortune slips | Non-taxable | Because the difference between the selling price and the cost is recognized as substantially alms[NTA] |
| Sale at ordinary prices of picture postcards, incense, candles, prayer beads, key rings, etc. | Taxable (goods sales business) | A "business" that competes with general retail |
| Running a parking lot, leasing land and buildings | Taxable | Profit-making business (parking lot business, real estate leasing business) |
| Running a kindergarten, perpetual-use fees for graves | In principle non-taxable (under certain requirements) | Special treatment for businesses with high public interest |
| Wedding halls, temple-lodging (inn-like operation), publishing, food and drink | Taxable | Profit-making business (space-rental business, inn business, publishing business, etc.) |
What is taxed is the case where one of the 34 types of "profit-making business" listed in the Order for Enforcement of the Corporation Tax Act is carried on continuously with a place of business established. In other words, it is not "everything is tax-free because it's a religious corporation"; the line is that religious activities are non-taxable and business is taxable.
The substance of the "preferences" that still remain
- The tax rate on profit-making businesses is light: against the 23.2% for ordinary corporations, public-interest corporations, etc., including religious corporations, pay 19% (15% on the portion up to ¥8 million a year). Furthermore, if profits from a profit-making business are diverted to religious activities, a certain amount can be recorded as a deductible expense as a "deemed donation."
- Exemption from fixed asset tax and real estate acquisition tax: real estate for religious use, such as precincts, main halls, and shrine buildings, is non-taxable (Local Tax Act). Even prime land in a city center has zero fixed asset tax as long as it is for religious use.
- Consumption tax does not apply to offerings either (out of scope because there is no consideration).
- There is "no" inheritance tax: because a corporation does not die, a temple's assets are not subject to inheritance tax even when a generation changes. This is why tax avoidance in the form of moving personal assets into a religious corporation has become a problem (such as the buying and selling of corporate status; malicious cases are denied and taxed).
Is "monks make easy money" true? (taxation of individuals)
- The salary (officer remuneration) received by a chief priest or Shinto priest is subject to income tax and residence tax, just like a company employee. The religious corporation also has a withholding obligation[NTA].
- If offerings are put into the individual's own wallet without passing through the corporation's account, that is the chief priest's personal income (unreported income), and it is a typical item pointed out in tax audits. Audits of religious corporations are conducted every year, and cases of additional tax for "private diversion of offerings" are not rare.
- In other words, "easy money" comes about only when the accounting is not done properly, and that is not a preference but simply tax evasion.
The basis for the preferences and the points of debate (neutrally)
- The logic of non-taxation: in addition to the reasoning that religious activities are not economic activities that obtain a consideration and have a public-interest character, there is the viewpoint of the separation of religion and state (Constitution), which avoids the state intervening in religion through taxation.
- The critics' points: the buying and selling of corporate status with no actual substance, abuse of dormant corporations, ambiguity of the boundary with profit-making businesses, and doubts about the exemption of enormous amounts of real estate. Each time a social problem arises over a particular organization, the "argument for taxing religious corporations" flares up again; but there is also the reality that the great majority of small temples and shrines that operate in earnest run at a loss, so a uniform-taxation argument is not simple.
- This article is not in a position to reach a conclusion on the pros and cons, but we believe that knowing the real picture of the system — neither "everything is tax-free" nor "a sanctuary-free hotbed of tax evasion" — is the starting point of the debate.
FAQ
Do religious corporations really pay no taxes?
Income from genuine religious activities such as offerings is non-taxable, but the 34 types of profit-making business, such as running a parking lot or selling goods, are subject to corporate tax (15% on the portion up to ¥8 million, 19% above). There is also a withholding obligation for income tax on staff salaries, so it is not "completely tax-free."
Why are amulet sales non-taxable?
Amulets, talismans, and fortune slips are regarded as not falling under a profit-making business because the difference between the selling price and the cost is recognized as substantially alms (a donation). On the other hand, selling picture postcards, key rings, and the like at ordinary prices is no different from general retail, so it is taxable.
Is a chief priest's income tax-free?
It is taxed. The salary a chief priest or Shinto priest receives from a religious corporation is subject to income tax and residence tax as employment income, and the corporation has a withholding obligation. If offerings are received personally without passing through the corporation's accounting, that becomes unreported income and is a typical item pointed out in tax audits.
Is there no fixed asset tax on a temple's land?
Real estate used for religious purposes, such as precincts and main halls, is non-taxable under the Local Tax Act. However, fixed asset tax applies to portions used for profit-making purposes, such as a monthly-contract parking lot or a rental apartment.
Sources of the data
- Taxation of religious corporations (the 34 types of profit-making business, treatment of amulets, etc., withholding obligation): NTA pamphlet "Taxation of Religious Corporations" (in Japanese)
- Corporate tax rate for public-interest corporations, etc. (19%, 15% on the portion up to ¥8 million): NTA No.5759 Corporate tax rates (in Japanese)
- Fixed asset tax exemption for religious-use real estate: Local Tax Act, Article 348, Paragraph 2
* This article is an explanation of the tax system and is not intended to evaluate any specific religion or organization, nor to advocate either strengthening taxation or maintaining the status quo.