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Bali Zero Editorial
Editorial Team
Bali Zero Editorial
Editorial Team
Bali Zero handles visas, company setup, tax and property compliance in Indonesia. Ask us directly on WhatsApp.
Chat with Bali Zero on WhatsAppFor 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.
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:
[!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.
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:
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:
Additionally, the regulation includes a strict compliance rule: bribes, gratifications, and corrupt payouts are explicitly declared non-deductible for tax purposes.
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.