Government Regulation Number 20 of 2026 Issued, Limited Liability Companies (PT) and Limited Partnerships (CV) Can No Longer Use the 0.5% Final Income Tax for MSMEs

Introduction

On 22 April 2026, the Government issued Government Regulation Number 20 of 2026 on Amendments to Government Regulation Number 55 of 2022 on Adjustments to Income Tax Regulations (“GR 20/2026”), which took effect on the same date. This regulation aims to provide legal certainty, simplicity, and convenience for MSME taxpayers with a certain level of gross turnover, while also encouraging public participation in formal economic activities.

In addition, GR 20/2026 was enacted to address the widespread practice of tax avoidance through the establishment of multiple business entities by the same party for the purpose of maintaining a lower tax rate. The Government also adjusted this regulation to comply with recommendations of the Organisation for Economic Co-operation and Development (OECD) regarding the regulatory function of taxation that opposes corruption, collusion, and nepotism (KKN). This regulation further closes the legal loophole that previously allowed businesses to treat bribery expenses as deductions from gross income.

 

Comparison

GR 20/2026 amends and revokes several provisions of Government Regulation Number 55 of 2022 concerning Adjustments to Income Tax Regulations (“GR 55/2022”). The following table compares GR 20/2026 and GR 55/2022:

 

Key Provisions

Bribery Expenses Are Not Tax-Deductible

Article 20A stipulates that taxpayers may not include expenses in the form of bribes, gratuities, and/or other benefits related to corruption offenses as expenses incurred to earn, collect, and maintain income that may be deducted from gross income. This provision applies to bribes given to both domestic public officials and foreign public officials.

Additional Categories of Independent Professions and Exclusion from the Final Income Tax Facility

Article 56 paragraphs (3) and (4) provide that taxpayers earning income from services rendered in connection with independent professions are not entitled to the 0.5% Final Income Tax facility. The Government classifies the following professions as independent professions:

1. professionals performing independent services, including lawyers, accountants, architects, doctors, consultants, notaries, land deed officials, appraisers, actuaries, and other similar professionals;
2. musicians, hosts, singers, comedians, film actors, television series actors, commercial actors, directors, film crews, photo models, fashion models, drama performers, dancers, sculptors, painters, creators/producers of content distributed through online media (influencers, Instagram influencers, bloggers, vloggers, and other similar creators), and other artists;
3. athletes;
4. advisors, instructors, trainers, lecturers, counselors, moderators, and other similar professions;
5. authors, researchers, translators, and other similar professions;
6. advertising agents;
7. project supervisors or project managers;
8. intermediaries or customer finders;
9. merchandise salespersons;
10. insurance agents; and
11. distributors of multi-level marketing companies, direct selling companies, and other similar activities.

Eligibility Criteria for the 0.5% Final Income Tax

Article 57 paragraphs (1) and (2) now limit eligibility for the 0.5% Final Income Tax facility to Individual Taxpayers, Individual Companies established by one person, and Cooperatives with annual turnover not exceeding IDR 4.8 billion. The Government excludes Individual Companies from this facility where the founder possesses specialized expertise and the company provides services similar to the founder’s independent professional activities. In addition, the Director General of Taxes will calculate total turnover by combining the income of the Individual Taxpayer and all Individual Companies established by that taxpayer. If the combined turnover of those entities exceeds the IDR 4.8 billion threshold, all such entities will lose their entitlement to use the 0.5% Final Income Tax facility in the following tax year.

Aggregation of Husband-and-Wife Gross Turnover

Article 58 paragraphs (2) and (3) require the calculation of the IDR 4.8 billion turnover threshold by combining the business gross turnover of both husband and wife. This aggregation also includes the income of dependent minor children and all Individual Companies established by the husband and wife. This aggregation rule is mandatory and remains applicable even if the husband and wife enter into a written separation-of-assets agreement or if the wife elects to fulfill her tax obligations independently.

Removal of the Time Limit for the Final Income Tax Facility

Under the previous regulation, Article 59 of GR 55/2022 limited the use of the 0.5% Final Income Tax rate to a maximum of 7 years for individual taxpayers, 4 years for Cooperatives/CV/Firms/BUMDes/Individual Companies, and 3 years for Limited Liability Companies (PT). However, through GR 20/2026, Article 59 has been revoked.

 

Transitional Provisions

Article II provides transitional relief for businesses whose eligibility period for the 0.5% Final Income Tax facility has expired or will soon expire. Individual Taxpayers whose eligibility period ended in Tax Year 2024 or 2025, as well as Individual Companies whose eligibility period ends in Tax Year 2025, are granted an extension and may continue using the facility until the end of Tax Year 2026, provided that their business turnover remains within the prescribed threshold. Cooperatives registered before 22 April 2026 whose eligibility period expires between 2024 and 2029 are granted an extension of the 0.5% Final Income Tax facility through Tax Year 2029.

Furthermore, corporate taxpayers in the form of Limited Partnerships (CV), Firms, Limited Liability Companies (PT other than Individual Companies), and Village-Owned Enterprises (BUMDes) that have already utilized the Final Income Tax facility under GR 55/2022 may continue to enjoy the 0.5% rate until the expiry of their respective eligibility periods. All certificates relating to the Final Income Tax facility held by taxpayers remain valid throughout this transitional extension period without requiring reapplication, provided that the taxpayers continue to satisfy the applicable turnover criteria.

 

Closing

GR 20/2026 reforms the rules governing the 0.5% Final Income Tax facility for MSMEs to prevent tax avoidance and adopt anti-corruption standards by prohibiting bribery expenses from being deducted from gross income. The facility is now more restrictive and applies only to Individual Taxpayers, Individual Companies, and Cooperatives. Consequently, ordinary Limited Liability Companies (PT), Limited Partnerships (CV), Firms, and Village-Owned Enterprises (BUMDes) are no longer eligible as new recipients, while independent professions such as online content creators are also excluded. To close opportunities for manipulation, the regulation requires the aggregation of the turnover of husband-and-wife business entities and their Individual Companies when determining the IDR 4.8 billion gross turnover threshold. In addition, the provisions concerning the maximum utilization period of the Final Income Tax facility have been removed. Nevertheless, the Government continues to provide legal certainty through transitional relief measures that allow existing taxpayers to utilize the remaining period of their facilities.