Indonesia’s New Company Tax Rate Under PP 20/2026: What Changed for PT and CV Entities

For years, registering a new Limited Liability Company in Indonesia came with a quiet advantage that founders rarely had to think twice about. A newly established PT could run on the 0.5% Final Income Tax rate for its first three years, a CV got four. Tax on turnover, not profit, with none of the bookkeeping overhead that comes with the standard regime. That advantage no longer exists for companies registering today.

Government Regulation Number 20 of 2026 (PP 20/2026), which took effect on 22 April 2026, rewrote the eligibility rules for Indonesia’s 0.5% final tax scheme. This is confirmed directly by the Directorate General of Taxes (Direktorat Jenderal Pajak or DJP) on its official pajak.go.id platform, and corroborated by multiple Indonesian tax advisory firms, including the Ikatan Konsultan Pajak Indonesia (IKPI), tracking the regulation since its release. The practical effect for anyone incorporating a new PT or CV from that date forward is immediate: that company is no longer eligible for the 0.5% rate at all, and needs a different tax strategy from day one.

What PP 20/2026 Actually Changed

PP 20/2026 amends the previous regulation governing this scheme, PP 55/2022, by narrowing who qualifies for the 0.5% final tax facility under Article 57. The new eligibility list covers exactly three categories of taxpayer:

• Individual taxpayers (Wajib Pajak Orang Pribadi)
• Corporate taxpayers structured as a Perseroan Perorangan, meaning a PT established and owned by a single individual
• Cooperatives (Koperasi), provided annual gross turnover does not exceed IDR 4.8 billion

Every other corporate form previously eligible under PP 55/2022, including standard multi-shareholder PT entities, CV (limited partnerships), Firma (general partnerships), and BUMDes (village-owned enterprises), is excluded from the 0.5% scheme going forward. A company going through the standard PT PMDN registration process today needs to plan its tax position under the general regime from the outset rather than assuming three years of simplified turnover-based tax.

Why This Distinction Matters for Foreign Investors Too

The exclusion applies regardless of whether the PT in question is domestically owned or structured as a PT PMA. A standard multi-shareholder PT, foreign or domestic, was never going to dominate the MSME final tax category long-term in the way a single-owner entity might, but PP 20/2026 removes any ambiguity. If a new entity is incorporated with more than one shareholder, the 0.5% pathway is not available, full stop.

The Transition Rule for Companies Already Using the 0.5% Rate

This change is not retroactive in the way many founders initially feared. Under the transitional provisions in Article II of PP 20/2026, a PT, CV, Firma, or BUMDes that began using the 0.5% rate before the regulation took effect keeps that benefit until its original time limit under PP 55/2022 runs out. A PT that started using the facility in 2024 retains access through Tax Year 2026. A CV that began in 2025 retains it through 2028. The cutoff is determined by each entity’s original tax registration date, not by the date PP 20/2026 was issued, which means existing companies should check their specific registration timeline rather than assume the rule applies uniformly across the board.

The Alternative: Article 31E of the Income Tax Law

A new PT or CV losing access to the 0.5% scheme is not automatically pushed into paying the full 22% corporate rate on every rupiah of taxable income. Article 31E of the Income Tax Law provides a targeted relief mechanism that remains fully available and was untouched by PP 20/2026.

The mechanism works as a rate reduction rather than a different tax base. The standard corporate income tax rate of 22% is reduced by 50%, to an effective 11%, applied specifically to the portion of taxable income derived from gross turnover up to IDR 4.8 billion. The qualifying condition is that the company’s total annual gross turnover must not exceed IDR 50 billion. Once turnover crosses that threshold, the company no longer qualifies as a small or medium enterprise for this purpose, and the full 22% rate applies to all of its taxable income without the Article 31E reduction.

For a company with turnover comfortably under IDR 4.8 billion, the calculation is straightforward: the entire taxable income benefits from the effective 11% rate.

A Worked Example

Consider a newly registered PT with the following financial position in its first tax year:

Because turnover of IDR 1 billion sits well under the IDR 4.8 billion threshold, the full taxable income of IDR 300 million qualifies for the Article 31E rate. 

The saving here is exactly half the standard liability. This is not a workaround or an aggressive interpretation of the law. It is a facility Indonesia’s Income Tax Law explicitly provides, and the only requirement is that the company calculates and reports it correctly in its Annual Tax Return. 

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Where the Real Adjustment Burden Falls

Losing the 0.5% scheme is less about a higher tax bill and more about a different kind of operational discipline. Under the final tax regime, tax was calculated on turnover regardless of profitability, meaning a company that ran at a loss still paid 0.5% of whatever it sold. Under the general regime, tax applies only to actual profit, which means accurate bookkeeping becomes the variable that determines the company’s real tax exposure.

Fiscal Correction Becomes Unavoidable

Not every commercial expense automatically qualifies as a tax-deductible expense under Indonesian tax law. A company moving into the general regime needs a proper fiscal reconciliation process, often referred to as koreksi fiskal, to ensure deductible costs are correctly claimed and non-deductible items are correctly excluded. Getting this wrong in either direction creates a problem: overpaying tax by failing to claim legitimate deductions, or under-reporting and risking correction during a tax audit.

Several Previously Restricted Expenses Are Now Deductible

A number of benefits that were historically treated as non-deductible for the company while being taxable for the employee under PPh 21, including in-kind benefits (natura) such as housing and company vehicles, along with promotional and entertainment expenses, can now be claimed as deductible expenses provided they meet documentation requirements. The specific exemption thresholds that apply to employee benefits under the current Article 21 framework are worth understanding alongside this shift, since the two sets of rules interact directly when a company is structuring compensation packages under the general tax regime.

Documentation Has to Exist From the Start

The right to deduct a cost is tied directly to the obligation to document it. For in-kind benefits, this means maintaining clear internal policy documentation and proof of provision. For promotional and entertainment costs, a nominative list, recording the recipient’s identity, location, type, and amount of each expense, is a mandatory attachment. Without that nominative list, entertainment expenses are at high risk of being disallowed entirely during an audit, regardless of whether the spending was genuinely business-related.

Planning Forward Rather Than Reacting

The shift introduced by PP 20/2026 closes a door that many founders had built their early-stage cash flow assumptions around. It does not close every door. Article 31E remains a meaningful relief mechanism for companies under the IDR 50 billion turnover threshold, and the move into the general tax regime, while requiring more disciplined bookkeeping, also opens up legitimate deduction opportunities that the final tax scheme never allowed in the first place.

What this changes practically is the timeline on which tax planning needs to happen. A company under the old 0.5% scheme could largely defer serious tax structuring conversations for a few years. A company incorporating today cannot. Getting the underlying bookkeeping and payroll infrastructure right from the first month of operation is no longer a nice-to-have for a new PT, it is the foundation that determines whether Article 31E actually delivers the tax saving it is designed to provide. XPND works with newly incorporated companies to build that fiscal structure correctly from registration onward, so the first Annual Tax Return reflects deductions the company is genuinely entitled to, not ones discovered too late to claim. 

This article is prepared for general informational purposes and does not constitute binding tax advice for any specific case. The application of these provisions may vary depending on each taxpayer’s individual circumstances. For tax decisions, consulting a licensed tax advisor or referring directly to the applicable regulations is recommended.