The End of the Loophole: How PP 20/2026 Reshapes Indonesia’s Flat Tax

For years, the 0.5% flat income tax (PPh Final) for micro, small, and medium enterprises (UMKMs) was one of the most popular tax planning tools in Indonesia. It allowed small local businesses—and, by extension, many foreign freelancers operating under local corporate shells like CVs (Commanditaire Vennootschap)—to pay a negligible flat rate on gross revenue up to IDR 4.8 billion annually.

On April 22, 2026, the Indonesian government officially ended this golden era.

With the promulgation of Peraturan Pemerintah (PP) Nomor 20 Tahun 2026—which acts as a direct amendment to PP 55/2022—the tax landscape has undergone a major correction. The new regulation introduces strict barriers, closes structural loopholes, and shifts a large segment of corporate shells and independent workers back into standard progressive tax brackets.

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🚫 The Excluded: Who Can No Longer Use the 0.5% Flat Tax?

The primary objective of PP 20/2026 is to restrict tax incentives to genuine, grassroots micro-businesses. To achieve this, the government has explicitly barred several groups from the 0.5% PPh Final scheme:

1. New CVs, Firms, and Standard PTs: Any CV, Firm (Firma), or standard Perseroan Terbatas (PT) established or registered after the implementation of this regulation cannot opt into the flat tax. They must immediately report taxes under the standard corporate rate (22%, with potential 50% discounts under Article 31E).
2. Freelancers and Independent Professionals (Pekerjaan Bebas): The exclusion list has been heavily detailed. Traditional professionals such as lawyers, accountants, architects, doctors, and consultants are completely out.
3. The Creative Economy & Influencers: Crucially for Bali’s expat ecosystem, influencers, content creators, vloggers, and bloggers are now explicitly classified as independent services. They are excluded from the UMKM status and must pay progressive individual income taxes (which scale up to 35% under the UU HPP).

[!IMPORTANT] Grandfathering Clause: Existing CVs and PTs that were already utilizing the 0.5% rate under PP 55/2022 can continue to do so until their original time limits expire (e.g., 3 years for PTs, 4 years for CVs). However, no new corporate registrations under these structures can access the flat rate.

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🔒 Closing the "Fragmentation" Loophole

A common strategy to avoid crossing the IDR 4.8 billion threshold was corporate fragmentation—splitting one business into multiple CVs owned by different family members.

PP 20/2026 puts an end to this by introducing aggregation rules:

• The peredaran bruto (gross revenue) of spouses and family members will be aggregated if they operate related businesses.
• Revenue from single-member companies (Perseroan Perorangan) will be combined with the owner's personal income to determine if they exceed the IDR 4.8 billion cap.

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💼 What This Means for Expat Businesses and Investors in Bali

For many foreigners living in Bali, the CV was a favored structure. It bypassed the high paid-up capital requirements of a PT PMA (Foreign Owned Company) and enjoyed the 0.5% tax rate.

With PP 20/2026, the tax advantages of a CV are severely weakened:

• Higher Compliance Costs: New local entities will have to maintain full corporate bookkeeping and file standard corporate tax returns.
• PT PMA vs. CV Re-evaluation: Since new CVs will face similar corporate tax regimes as a PT PMA, foreign investors should opt for the security and full ownership of a PT PMA rather than operating through high-risk nominee CV structures.

Additionally, the regulation includes a strict compliance rule: bribes, gratifications, and corrupt payouts are explicitly declared non-deductible for tax purposes.

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📈 Conclusion: A Move Towards Tax Maturity

PP 20/2026 is a clear signal that Indonesia is maturing its tax collection framework. By closing structural loopholes and enforcing progressive brackets on high-earning freelancers and creative professionals, the government aims to establish a more equitable tax base.

For business owners and expats, the message is clear: the time for simple nominee tax structures is over, and formal, structured compliance is the only way forward.