What is passive income?

Passive income is money you earn without working for it day to day. It comes from assets or systems you’ve already set up.

Most streams need real work upfront, such as writing an ebook or saving enough to invest. The “passive” part describes how the money flows once setup is done, and building meaningful returns usually takes months.

Picture a bakery owner who sells a recipe ebook: she writes it once, and it keeps selling while she runs the shop. For small business owners, income like this adds to your core revenue and reduces how much you rely on trading time for money.

Passive income vs active income

Active income is money you earn by directly exchanging your time and effort for payment. If you stop working, the income stops.

Passive income keeps flowing when you step back, because you did the work or made the investment upfront. Rental income, book royalties, dividends and deposit interest are common examples.

It helps to know where each type of earning fits. Common sources of income include:

earned income from salaries or client fees
profit from running a business
interest from deposits or bonds
dividends from shares
rental income from property or equipment
capital gains from selling assets for more than you paid
royalties from books or licensed designs

Some people call investment earnings portfolio income and group it under passive income. Indonesia’s Directorate General of Taxes (Direktorat Jenderal Pajak, DJP) taxes many of these types at their own final rates. These rates sit outside your regular income tax.

That distinction matters when you file your annual tax return (Surat Pemberitahuan Tahunan, or SPT Tahunan). Knowing each stream’s category helps you report it correctly.

Benefits and risks of passive income

Passive income can make your finances more resilient, but every stream carries some risk. Weigh both sides before you commit time or money.

When it works well, passive income can:

add a second income stream alongside your core business
keep money coming in during quieter months, giving you steadier cash flow
reduce how much of your income depends on billable hours
grow over time as returns compound or products find new buyers

On the risk side, investments can lose value and digital products may take months to find buyers. Setup costs and upkeep also reduce your real return.

Handy resources

Advisor directory

You can search for experts in our advisor directory

Find an advisor

Xero Small Business Guides

Discover resources to help you do better business

See all our guides and articles

Cash flow forecast template

Download our free template to help predict cash flow for your business

Get the free template

Disclaimer

This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.

Be cautious of any scheme that promises fixed or risk-free passive income. The Financial Services Authority (Otoritas Jasa Keuangan, OJK) urges the public to use licensed providers, so check the provider’s licence before you hand over money.

Types of passive income

Passive income streams generally fall into three broad categories. Knowing which one suits your situation helps you choose a starting point.

Business-based passive income

Business-based passive income comes from commercial systems that run without your constant involvement. Examples include rental rooms, vending machines, laundry businesses or a business you own but don’t manage day to day.

It can also mean productising your expertise. If you deliver a service in person, you might package that knowledge as a template pack or a licensing arrangement that customers buy without you.

Investment-based passive income

Investment-based passive income comes from putting your money to work. Examples include deposit interest, bond coupons, company dividends and mutual fund returns.

What you earn depends on how much you invest and the rate of return. For example, Rp100 million at a 4% annual yield produces about Rp4 million a year before tax.

Digital and online passive income

Digital passive income comes from online products and platforms. Ebooks, online courses, stock photography, mobile apps and affiliate websites are common examples.

Digital products are often cheaper to create than physical ones, and they can scale with little extra cost. For more inspiration, browse these ideas for online ventures you can run from anywhere.

Passive income ideas for small businesses

If you already run a business, you’ve got skills and resources that lend themselves to passive income. Whether you’re weighing home-based business ideas or adding to an existing operation, these four approaches build on what you have.

Sell your expertise as digital products

You know your industry better than most people. Packaging that knowledge into digital products lets you sell it again and again without trading more of your time.

Consider creating:

ebooks or guides that solve a specific customer problem
templates or spreadsheets that save your audience time
online courses that teach a skill you’re known for
downloadable checklists or planners

Ecommerce and course hosting platforms make it straightforward to list and sell these products. The key is creating something useful enough that people will pay for it.

Create content that keeps earning

YouTube channels, podcasts, blogs and social accounts can earn through advertising and sponsorships. Once you’ve built an audience, older content keeps earning with light upkeep.

Affiliate marketing lets you earn a commission when someone buys a product you recommend. It suits you if you have a website or newsletter audience, and it pairs well with freelance service work.

Rent out spare space and equipment

Many small businesses have physical assets sitting underused. Renting them out can bring in steady income with little effort.

Options to consider include:

renting out spare office or desk space
hiring out equipment when you’re not using it
letting parking spaces you don’t need full time
renting out storage space

Offer subscription services

Subscription models turn one-off purchases into recurring revenue. Bundling your expertise or content into a monthly offer gives you more predictable income.

Examples include membership sites with exclusive content or curated monthly product boxes. Subscriptions build customer loyalty while giving you repeat income each month.

Investment-based passive income in Indonesia

If you’ve got savings beyond what your business needs, investing them is one of the most common routes to passive income. More Indonesians are taking this route: Kustodian Sentral Efek Indonesia (KSEI) reported 20.32 million capital market investors at the end of 2025, up 37% from 14.87 million a year earlier.

Each option carries a different level of risk and return. The main options available in Indonesia include:

time deposits (deposito), guaranteed by the Indonesia Deposit Insurance Corporation (Lembaga Penjamin Simpanan, LPS) up to Rp2 billion per depositor per bank, subject to three conditions
retail government securities (Surat Berharga Negara ritel, or SBN ritel) such as ORI, SBR, ST and SR
mutual funds (reksa dana)
dividend-paying shares listed on the Indonesia Stock Exchange (IDX)
real estate investment funds (Dana Investasi Real Estat, or DIRE)
peer-to-peer (P2P) lending through a platform licensed by OJK

Compare each product’s risk, expected return, minimum amount and lock-in period before you invest.

How passive income is taxed in Indonesia

Most passive income in Indonesia is subject to final income tax (Pajak Penghasilan Final, or PPh Final). The payer usually withholds it at source, and the income isn’t added to your other taxable income.

PwC’s Indonesia tax summary lists flat final rates for most investment income. Common final-tax rates for individuals include:

20% on bank deposit and savings interest, with balances up to Rp7.5 million exempt
10% on dividends from Indonesian companies, or exempt if you reinvest them in Indonesia within the required period
10% on gross rent from land or buildings, with no tax-free threshold
10% on coupons from SBN and other bonds
0.1% of the gross sale value of listed shares when you sell on IDX

Royalties are taxed differently. The payer withholds 15% as Article 23 income tax (PPh 23), and you can credit that amount against your annual tax.

Returns from reksa dana investments aren’t a taxable object for individual investors. You still list the holding as an asset in your SPT Tahunan.

As an individual running a micro, small or medium enterprise (UMKM) with turnover up to Rp4.8 billion a year, you can pay 0.5% final tax. The first Rp500 million each year is exempt.

Under Government Regulation (PP) 20/2026, in force from 22 April 2026, individuals can use this UMKM rate without a fixed time limit. You report your income in your annual SPT Tahunan filing, due 31 March after each tax year.

Tax on income from digital products or affiliate links depends on how it’s classified, for example, as UMKM turnover or other income. Confirm your position with a tax adviser before you file.

How to start earning passive income

Getting started is simpler when you follow a clear plan. These steps help you choose the right approach and build momentum.

1. Assess your skills and resources

Start with what you already have. Ask what expertise you could package into a product, and whether you have spare space, equipment, savings or an audience to put to work.

The best streams build on strengths you’ve already developed. If you’re still weighing options, browsing small business ideas can help you narrow your focus.

2. Start small and test

You can begin with a modest amount of money and time. Create one digital product, list a piece of equipment for hire or set up a small monthly reksa dana contribution.

Starting small shows you what works before you commit more time or money.

3. Set realistic expectations

Most passive income streams take months to build meaningful returns. An online course might take weeks to create and months to gain traction.

Investment returns compound over years. Patience and consistency matter more than finding the “perfect” idea.

4. Diversify your streams

Spread your earnings across more than one source. Combining a digital product with investment income gives you more stability.

If one stream slows down, the others help cushion the impact.

5. Track your finances from the start

Keep your passive income separate and well documented from the first day. You’ll need clear records for your SPT Tahunan each year.

Tracking each stream on its own also shows you which ones are worth growing and which ones to drop.

Track your passive income with Xero

Passive income works best when you can see exactly what each stream earns and costs. As your streams grow, tracking income and tax gets more complex.

With Xero’s online accounting software, automated bank feeds bring in transactions as they arrive, and reports break down earnings by source. See how it fits your business when you get one month free.

FAQs on passive income

Here are answers to common questions about passive income in Indonesia.

How much money can you make from passive income?

There’s no fixed amount, so work backwards from a target. At a 4% yield, earning Rp12 million a year before tax needs about Rp300 million invested.

Is passive income really passive?

Mostly, once setup is done, though every stream needs some upkeep. Plan regular check-ins, such as updating course content or reviewing your investments each quarter.

Do you pay tax on passive income in Indonesia?

Yes, and for most streams the payer, such as your bank, withholds final tax before you receive the money. You still declare that income in your SPT Tahunan.

What is the easiest passive income to start?

Bank deposits are the simplest because they need no specialist knowledge. For business owners, selling a template or guide is a natural next step because it builds on expertise you already have.

Can you start earning passive income with little capital?

Yes, because digital products and content mainly cost your time. You can make a course or ebook with a laptop and the skills you use every day.

Table of contents

Key takeaways