In 2026, the Indonesian government enacted Regulation No. 20, which amends Government Regulation No. 55 of 2022 on the Adjustment of Income Tax Regulations (PP 20). This regulation, promulgated on April 22, 2026, has since become effective. The primary objective of this regulation is to facilitate the tax transition in 2026 by (i) enhancing compliance with the OECD regulations, (ii) providing legal certainty, and (iii) offering greater support to micro, small, and medium-sized enterprises (MSMEs). This publication will provide an in-depth analysis of the significant changes introduced by PP 20. Notably, the regulation addresses several key areas, including (a) the regulation of bribery and gratification costs, (b) the exclusion of taxpayers eligible for a final income tax rate of 0.5%, and (c) the aggregation of income for the calculation of gross circulation, thereby determining eligibility for the final income tax rate of 0.5%.
Regulation of Bribery and Gratification Cost
PP 20 explicitly states that any expenses incurred for bribery or gratification should be exempt from deductions that can reduce a taxpayer’s income. This regulation is implemented to align with the recommendations of the OECD.
Exclusion of Taxpayers Eligible for a Final Income Tax Rate of 0.5%
PP 20 provides exemptions for income that is eligible for a final income tax rate of 0.5%. The exempted income includes:
- Income received or earned by individual taxpayers from services related to freelance work such as professional works (including lawyers, accountants, architects, doctors, notaries, conveyancers, consultants, appraisers), athletes, insurance agents, brokers, translators, advertisement agent, entertainment works (including actors, directors, models, singers, comedians, influencers, artists),
- Income received or earned abroad for which tax is owed or has been paid abroad,
- Income that has been subject to final taxation under separate tax laws and regulations, and
- Income that is exempted from taxation.
Furthermore, PP 20 also clearly excludes corporations from taxpayers who are eligible for a final income tax rate of 0.5%.
Aggregation of Income for the Calculation of Gross Calculation
For individual taxpayers or corporate entities with a single individual shareholder, PP 20 stipulates that the calculation of gross income for determining the eligibility of a final income tax rate of 0.5% should be aggregated across all income sources of the husband, wife, and their respective owned corporate entities with single individual shareholders. This requirement applies regardless of the existence of a pre-nuptial agreement between the husband and wife.
Miscellaneous
PP 20 extends the applicability of the final income tax rate for the existing MSMEs to 2026 (in general) and 2029 (for cooperatives). However, this extension does not apply to the excluded taxpayers as regulated under PP 20.
Conclusion
Although the changes may appear minor, PP 20 introduces significant modifications to taxpayers, particularly corporate taxpayers who previously benefited from the final income tax rate facility. Furthermore, the aggregation requirement implemented under PP 20 restricts the ability of married couples with pre-nuptial agreements to establish separate business entities, thereby ensuring that each business is eligible for the final income tax rate facility.
PP 20 appears to rectify the loopholes established by the previous regulations, which permitted individuals to create numerous companies to limit their gross circulation and subsequently avail themselves of the final income tax rate facility.
For further information, please contact:
MetaLAW, Legal & Tax Consultant, Jakarta, Indonesia
general@metalaw.id
