The Indonesian government has issued Government Regulation No. 20 of 2026 (PP-20) as an amendment to Government Regulation No. 55 of 2022 on Adjustments to Income Tax Regulations (PP-55). This amendment became effective on April 22 2026.
While PP-20 preserves the beneficial 0.5% final income tax rate for micro, small, and medium enterprises (MSMEs), it introduces new measures aimed at preventing tax avoidance practices, including business fragmentation and the use of legal entities for activities that are essentially independent professional services.
The scope and key changes include the following.
Scope | Key changes |
Independent professional services | Income derived from independent professional services remains strictly excluded from the MSME final income tax regime. To prevent misclassification, the regulatory scope has been explicitly expanded to cover traditional and digital economy professions. Ineligible professionals include experts, doctors, consultants, notaries, insurance agents, and advertising agents, as well as influencers, social media personalities, bloggers, vloggers, content creators, and similar occupations. |
Eligible taxpayers | Access to the MSME final income tax facility has been narrowed. Going forward, eligibility is limited exclusively to individual taxpayers, sole shareholder companies (perseroan perorangan), and cooperatives that satisfy all statutory requirements. In addition, to prevent independent professionals from using corporate shells, a sole shareholder company established by an individual with specialised expertise cannot utilise the regime if its corporate activities mirror the professional services inherently performed by its owner. |
IDR 4.8 billion turnover threshold | Eligibility for the 0.5% final income tax regime is no longer calculated solely on a standalone business turnover. To test against the IDR 4.8 billion threshold, taxpayers must now aggregate multiple revenue streams, including cross-entity structures and spousal relationships. Under this regulation, a cross-entity structure means that the government no longer evaluates businesses as completely separate, isolated legal units. Instead, tax authorities will look through the corporate veil at the actual owner (beneficial owner) or the family unit behind the scenes. The calculation must include core business turnover, income from independent professional services, revenue already subject to other final tax provisions, and all foreign-source income. Furthermore, an individual taxpayer’s turnover must be aggregated with the turnover of their spouse and all sole shareholder companies established by them, if any. |
Duration of the tax facility | The previous provisions governing the utilisation period of the MSME final income tax facility have been revised. The new framework places greater emphasis on business characteristics, ownership relationships, and total gross turnover. The regulation includes a transitional provision for existing taxpayers. Those who previously utilised the facility under PP-55 may continue to do so under these transitional provisions until they no longer meet the eligibility criteria. |
Under the transitional provisions of PP-20, corporate taxpayers that are already registered and utilising the MSME facility under PP-55 are not required to switch to the normal corporate tax rate immediately in the middle of the tax year. This transitional provision allows these companies to continue applying the 0.5% final income tax rate for their remaining utilisation period (such as the standard three-year limit for corporate entities), provided they structurally met the initial requirements.
However, because the new rules change how the IDR 4.8 billion threshold is calculated (by aggregating all cross-entity and spousal revenues), their eligibility for the following tax year will depend on their new consolidated economic capacity. Therefore, existing corporate taxpayers utilising this MSME facility should thoroughly review whether the 0.5% final income tax rate can still legally apply to them for the subsequent tax years under these new transitional dynamics.
In addition, to align with the OECD’s recommendation on combating international bribery and corruption, PP-20 introduces a critical amendment to the general income tax framework. The regulation explicitly states that expenses arising from bribes, gratuities, or any payments constituting corruption offences (including those to foreign public officials) are strictly non-deductible for income tax purposes across all taxpayer categories.
Through these amendments, the government continues to provide support for MSMEs, while safeguarding the facility to be utilised only by eligible taxpayers. PP-20 also promotes a fairer tax system, enhances legal certainty, and minimises opportunities for tax avoidance.
