Firm Splitting

Firm splitting is the practice of breaking up a single business operation into multiple separate entities with the primary aim of avoiding or reducing tax liability. In the context of Indonesia's MSME Final PPh, firm splitting typically involves establishing several business entities (Sole Proprietor PTs, CVs, or placing the business under a spouse or family member) so that each entity's gross revenue stays below the IDR 4.8 billion annual threshold, preserving the 0.5% final rate for every entity. Article 57 paragraph (2) letter e of Government Regulation 20 of 2026 explicitly closes this loophole by requiring revenue aggregation of an individual taxpayer together with all Sole Proprietor PTs they own, as well as combined spouse revenue, before the threshold is evaluated.

This article is for education, not tax advice.

Example

Mr. Joko (individual taxpayer) sells online with IDR 3 billion annual revenue. To preserve the 0.5% final rate, he sets up a Sole Proprietor PT called PT Joko Sukses with IDR 2.8 billion annual revenue. Before GR 20/2026, both entities could enjoy the final rate separately since each stayed below IDR 4.8 billion. After GR 20/2026, the revenues are aggregated to IDR 5.8 billion (exceeding the threshold), so both Mr. Joko and PT Joko Sukses lose the final facility and must move to the general PPh regime. This is the firm splitting practice now closed by the aggregation rule.

Source: GR 20/2026 Article 57 paragraph (2) letter e