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Bali Zero Editorial
Tax & Compliance Desk
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Bali Zero Editorial
Tax & Compliance Desk
Bali Zero handles visas, company setup, tax and property compliance in Indonesia. Ask us directly on WhatsApp.
Chat with Bali Zero on WhatsAppIf you run a small business in Indonesia — a café in Canggu, a small export trading company, a one-person consultancy in Jakarta — there is a good chance your entire relationship with the tax office fits in one sentence: "I pay half a percent of whatever comes in."
That sentence has just been rewritten.
In April 2026 the government issued Government Regulation No. 20 of 2026 (PP 20/2026), amending the rulebook that created the famous 0.5% final tax for micro, small and medium enterprises (UMKM). The headlines mostly said "the 0.5% tax is ending." That is not quite right — and the difference matters enormously for what you should do next.
Here is the honest version: the 0.5% tax is not dying. It is changing owners. Individuals get to keep it — now without any time limit at all. Companies, with two notable exceptions, are being shown the exit. And between those two groups sits a transition period that, depending on when your company was registered, may give you until 2028 or 2029 before anything changes.
This guide walks through all of it in plain language: who keeps the rate, who loses it, how the grandfathering works, what the "normal" tax regime actually costs (the math is friendlier than you think — sometimes friendlier than the 0.5% itself), and a concrete five-step plan for Bali Zero clients.
Indonesia's standard way of taxing a business is the way most countries do it: you keep books, you compute your profit (revenue minus costs), and you pay tax on that profit. For companies, the headline rate is 22%.
The 0.5% scheme — created by PP 23/2018 and continued by PP 55/2022 — was a deliberate simplification for small players. Instead of taxing profit, it taxes gross revenue (omzet): half a percent of everything that comes in, full stop. No profit calculation, no complex bookkeeping, no arguments about deductible costs. If your annual turnover stayed under IDR 4.8 billion, you could opt in.
It was never meant to be permanent. PP 55/2022 gave each type of taxpayer a countdown clock:
When your clock ran out, you were supposed to graduate to the normal regime. What PP 20/2026 does is change who gets a clock at all — and remove the clock entirely for one group.
Strip away the legal language and the regulation does three big things.
This is the headline that got the least attention and deserves the most. Under the original rules, an individual entrepreneur could use the 0.5% rate for at most 7 years. PP 20/2026 removes that limit for individual taxpayers. If you are a sole trader with turnover under IDR 4.8 billion, the simplified rate is no longer a temporary concession — it is simply how you are taxed, for as long as you stay under the threshold and choose to use it.
The earlier government announcements had spoken of an extension "until 2029." The final regulation went further: the time limit for individuals is gone from the text. (The Directorate General of Taxes has separately confirmed that the scheme is not capped at a fixed year for individuals.)
And one feature carries over untouched: the IDR 500 million exemption. The first IDR 500 million of an individual's annual turnover is taxed at zero. A warung owner with IDR 600 million in yearly sales pays 0.5% only on the last IDR 100 million — that is IDR 500,000 of tax for the entire year.
The scheme's corporate door is closing. Under the amended rules, the following can no longer enter the 0.5% regime:
Two corporate forms survive on the eligible list:
Why this particular split? Because the government's enforcement data showed the corporate forms were where the gaming happened. More on that below.
If your PT, CV or Firma was already registered and using the 0.5% scheme before PP 20/2026 took effect, you do not lose the rate overnight. The regulation explicitly lets you finish your original window: 3 fiscal years for a PT, 4 for a CV or Firma, counted from your year of registration.
In practice this means:
The single most important number in this article, then, is not in the regulation at all. It is your company's tax registration date. That date — and nothing else — tells you how much time you have.
Here is where most coverage stops and the panic starts. A flat 0.5% sounds tiny; 22% sounds enormous. But the two percentages are charged on different things, and that changes everything.
That discount is Article 31E of the Income Tax Law: companies with annual turnover up to IDR 50 billion get a 50% reduction on the 22% rate for the slice of profit corresponding to their first IDR 4.8 billion of turnover. For a company whose entire turnover sits under IDR 4.8 billion — which is, by definition, every company graduating from the UMKM scheme — that means an effective rate of 11% on profit.
Now do the comparison properly. Take a trading company with IDR 4 billion in annual revenue:
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Read that table twice, because it contains the article's most counterintuitive lesson: if your profit margin is below roughly 4.5%, the normal regime is actually cheaper than the 0.5% flat tax. And if you have a loss-making year — common for young companies still building — the 0.5% scheme taxes you anyway, while the normal regime taxes you nothing and even lets you carry the loss forward against future profits (for up to five years).
The 0.5% was a gift for high-margin businesses and a quiet penalty for thin-margin ones. Plenty of small traders have been overpaying for years without realizing it.
What genuinely changes when you leave the 0.5% scheme is not necessarily your tax bill. It is the obligation to keep proper books (pembukuan): a real profit-and-loss statement, a balance sheet, documented costs. That is an administrative cost — accountant fees, discipline, receipts — but it is also what makes the 11% effective rate, loss carry-forward, and cost deductions available to you. Treat the bookkeeping as the entry ticket, not the punishment.
A detail almost nobody mentions: when a company transitions from the final-tax scheme to the normal regime, the monthly prepayment system (PPh 25) does not immediately kick in at full force. Under PMK 164/2023, a taxpayer entering the normal regime for the first time has its monthly installments set at nil for the first year — because installments are calculated from the previous year's normal-regime return, and there isn't one yet.
You settle the full amount when you file the annual return instead. That is a cash-flow grace period — but only if you plan for it. The companies that get hurt are the ones that spend the year as if no tax is accruing, then meet the entire bill in April.
Probably not, for a reason that surprised even some advisors: you most likely never had it.
Income from pekerjaan bebas — independent professional work — has been excluded from the 0.5% scheme since PP 55/2022 (Article 56 lists the categories: doctors, lawyers, notaries, accountants, architects, consultants, athletes, performers, writers, insurance agents, multi-level marketing distributors, and more). PP 20/2026 restates and tidies this exclusion; it does not invent it.
So if you are a consultant or content creator who has genuinely been invoicing as an independent professional, your tax treatment is unchanged: normal progressive rates (5%–35%) on net income, as before. If, on the other hand, you have been running professional income through a CV to access the 0.5% rate — a popular structure in Bali — the change that affects you is the corporate one: your CV's window is now finite. Check its registration date.
The Directorate General of Taxes has been unusually candid about the motive. Two behaviors had become endemic:
Director General Bimo Wijayanto put it plainly when clarifying the regulation in early June: corporate taxpayers will be expected to maintain proper bookkeeping and pay tax at the normal rates. The 0.5% scheme returns to its original mission — simplifying life for genuine small individual entrepreneurs, not serving as a permanent low-tax wrapper for corporate structures.
There is also a less-discussed enforcement angle: Coretax, the tax administration system that went live in 2025. Its risk-management engine cross-references your declared revenue against electronic invoices, withholding certificates and bank data. The era when a company could quietly mis-classify itself is ending — mismatches now surface automatically as compliance flags. Whatever regime you belong in, the system increasingly knows.
Most foreign-owned companies (PT PMA) were never in the 0.5% scheme to begin with — the mandatory investment scale of a PMA sits awkwardly with a sub-IDR 4.8 billion micro-business profile, and many PMAs opted for the normal regime from day one to use cost deductions during the build-out phase.
But "most" is not "all." Some smaller PMAs — boutique consultancies, small villa-management companies — did elect the 0.5% rate in their early years. If that is you, the grandfathering math above applies: 3 fiscal years from registration, then the normal regime. Given that an exit to the normal regime interacts with your other 2026 obligations (the new annual-report filing under Permenkum 49/2025, LKPM reporting, the KBLI 2025 reclassification), we strongly recommend reading this alongside our June 2026 compliance deadlines guide.
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PP 20/2026 is not the apocalypse it sounded like in the headlines, and it is not nothing either. It is a sorting mechanism. Individual entrepreneurs come out better than before — a permanent simplified rate with a half-billion-rupiah tax-free floor. Companies come out with a deadline — generous for the newly registered, short for those whose windows are already closing — and a transition whose cost depends almost entirely on profit margin, not on the scary-looking jump from 0.5% to 22%.
The clients who get hurt by regulations like this are never the ones with bad numbers. They are the ones who find out late.
We covered the initial announcement in our news brief on PP 20/2026 and the tax office's five clarification points in this follow-up. This guide supersedes both as the operational reference.
Not sure which year your window closes, or whether opting out early would save you money? Bali Zero's tax desk runs this exact analysis — registration date, margin math, transition calendar — as a fixed-scope review. Message us on WhatsApp or ask Zantara AI.