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Guideline to Property Ownership Structure in Indonesia

If you’re in a situation where you like Bali so much and decided to start open a business here so you can permanently live in this beautiful island, or wanted to have a house or villa in Bali so you know where to go for vacation, or simply wanted to fully relocate here and spent your retirement peacefully, then this guideline of how the structure property ownership works is definitely what you need. 

Before purchasing a property in Bali, it is important for you to be familiar with the type of property ownership, what the difference, and what’s suit you best. If you know this already, then it’s worth to read on Pro Tips for Investment in Bali.

According to Indonesia Law and Regulation Number 5 year 1960 (UU No. 5 Tahun 1960) in regards to Basic Regulation on Agrarian Principles (“Agrarian Law”) there are 7 (seven) types of property ownership in Indonesia which includes:

  1. Freehold (right of ownership)
  2. Cultivation Rights
  3. Right of Building
  4. Right of use
  5. Leasehold
  6. Land clearing rights
  7. Right to collect forest products

In property investment, there are only 4 (four) types of property ownership that are most common to use, which are freehold, building rights, right of use, and leasehold. Let’s go through it one by one.

Freehold Title (Sertifikat Hak Milik / SHM)

Sertifikat Hak Milik (Freehold Certificate) title is the highest right of property ownership in Indonesia. This means you can own the property in an unlimited period until you decide to sell or transfer it to someone else.

Freehold title is reserved only for Indonesia Citizen (individually). The law and regulation has clearly stated this, so there will be no way of foreigner can get a freehold title of a property in Indonesia. However, there are a workaround to it which outlined at the end of this article.

Law & Regulation:
Article 20 and 21 of Agrarian Law.

Article 20:

  1. Freehold title is the strongest and fullest hereditary rights that can be owned by a person over land, taking into account the provisions in article 6.
  2. Freehold title can be transferred to other parties.

Article 21:

  1. Only Indonesian citizens can have freehold title.
  2. The government determines legal entities which can have freehold title with a certain conditions.
  3. Foreigners who, after the force of this law obtain a freehold title because inheritance without a will or a mixture of assets due to marriage, as well as citizens Indonesia which has freehold title and after the force of this law loses Citizenship is obliged to relinquish this right within one year of obtaining it right or loss of that nationality. If after this period the rights have passed the property is not released, then the right is canceled by the law and the property fall under the state, provided that the rights of the other party that burden them continue.
  4. As long as someone besides their Indonesian citizenship has citizenship foreign then he/she cannot own land with ownership rights and for him the provisions in paragraph 3 of this article.

Pros: The highest title of property ownership structure in Indonesia. It has an unlimited time period of ownership hence has a higher value on the market for ownership by individuals.

Cons: Only for Indonesian (individual) citizens. Cannot be possessed by foreigner or legal entities.

 
Rights of Building (Sertifikat Hak Guna Bangunan / HGB)

Hak Guna Bangunan (Rights of Building / HGB) is the right to build and own buildings on land with a maximum term of 30 years and can be extended/renew after the term is expired. 

Based on Government Regulation No. 40/1996, the term of extension or renewal will be as follows:
30 Years (Grant) + 20 Years (Extension) + 30 Years (Renewal)

That gives a 80 years in total. Renewal shall be proceeded through Notary/Land Conveyancer and National Land Office (Badan Pertanahan Nasional “BPN”).

HGB is the strongest property ownership that can be owned by all type of legal entity, including a Foreign Investment Company (read more about legal entities in Indonesia here: Key things to establish company in Indonesia). 

In a common practice in big city in Indonesia like Jakarta and Surabaya, the Developer Company will register the land and building that they build as HGB (because as a company there is no way to get freehold title). When they sell it, there will be 3 possibilities for the buyer:

  1. If the buyer is Indonesian, they can upgrade it to Freehold title or just simply transfer the HGB from the developer’s name to the buyer’s name
  2. If the buyer is a legal entity, then the HGB will be transferred from Developer’s name to the name of the company of the buyer.
  3. If the buyer is an individual foreigner, then the rights will be change to Right of Use (Hak Pakai) or the developer shall arrange a leasehold agreement.

Due to common business practice in Indonesia, HGB is not considered as a 2nd tier class title, but it is considered to be the strongest property ownership for a company.

After the 30 years renewal process, the HGB holder can then re-submit the application to get a 30 years of Grant. HGB is basically a cycle that keeps rotating. In practical, HGB title is being used as a business purpose, and by creating a time limit it will minimize (albeit not significantly) the chance of a company having an abandoned land.

Pros: Can be owned by legal entities. Safest way if the property is used for business or investment by a legal entity. The right shall fall to the company and registered as the asset of the company. Also, by owning the HGB title, the company can use it for financial purposes (for example: mortgage).

Cons: The rights have a validity period which need to be extended and there will be a cost on doing the extension.

Rights of Use (Sertifikat Hak Pakai)

Hak Pakai (Right to Use) is the right to use and/or collect products from land that is owned by the State or other people. Based on Agrarian law, previously, Rights to Use is granted for a maximum period of twenty-five years and can be extended/renewed, but as per the article 6,7, and 8 of the Decree of Agrarian and Spatial Minister No. 29/2016 (Peraturan Menteri Agraria dan Dinas Tata Ruang No. 29/2016), the term of Right to Use will be the same as HGB (30+20+30) which gives a total of 80 years.

Law and Regulation:

Article 41 of Agrarian Law:

  1. Right of use are rights to use and / or collect produce from the land under control directly by the State or land owned by other people, which gives the authorities and obligations determined in the decision to grant by the official authorized to give it or in an agreement with the land owner, which is not a lease or rental agreement cultivation of land, and so on as long as it does not conflict with the soul and the provisions of this law.
  2. Rights of Use can be granted:
    a). for a certain period of time or as long as the land is used for different purposes certain;
    b). free of charge, with payment or provision of services of any kind.
  3. Granting Rights of use must not be accompanied by conditions that contain elements of extortion.

Article 42 of Agrarian Law
Those who can have use rights are:

  1. Indonesian citizens;
  2. Foreigners domiciled in Indonesia;
  3. Legal entity established under Indonesian law and domiciled in Indonesia
  4. Foreign legal entities that have representatives in Indonesia.

Pros: Can be possessed by foreigners under their own name. Good option for foreigner who wants to start investment / owning a property if they don’t have legal entities or trusted local partners.

Cons: Considered as a 2nd tier right due to it’s nature is for residential purpose and not for investment, doesn’t have strong commercial aspect to it (for example: the Bank usually reject mortgage of Right to Use title).

Sewa Menyewa (Leasehold)

For avoidance of doubt, the provision of Leasehold has a minimum information in the Agrarian law. Lease is considered to be a different type of right rather than the “ownership” that belongs to Freehold, Right to Build, and Right to Use.

The main difference is in all previous 3 rights, there will be a certificate issued by BPN to the holder of such right. However, Leasehold basically an agreement between Lessor and Lessee to lease a land (and-or building) in a specific plot of land, which made privately or notarized. The ownership of land shall not be transferred to the Lessee.

Law and Regulations:

Article 44 of Agrarian Law

  1. A person or legal entity has lease rights over land, if he is entitled use other people’s land for building purposes, by paying to the owner a sum of money as rent.
  2. Payment of rent can be made:
    a. once or at any given time;
    b. before or after the land is used.
  3. The land lease agreement referred to in this article may not be accompanied by such conditions contains elements of extortion.

Article 45 of Agrarian Law

Those who hold of lease rights are:

  1. Indonesian citizens;
  2. Foreigners who are domiciled in Indonesia;
  3. A legal entity established under Indonesian law and domiciled in Indonesia;
  4. Foreign legal entity that has a trust in Indonesia.

Pros: Can be possessed by foreigners without any specific permit required. Perfect option for a foreigner who wants to start investment / owning a property without worrying about setting up legal entities or working/stay permit, practically easy in the execution of this transaction.
Cons: Price and validity period is totally depending on the deal with the property owner. The owner can decide if he/she didn’t want to extend the lease after the period is exceeded.

As mentioned earlier, there are “workaround” solutions which brings foreigners slightly closer to owning a freehold title. Here is how:

  1. Appointing a trusted local partner to act as your “nominee”.  Technically the freehold title will be transferred to your partner and create a nominee agreement in place, declaring that you own the land.
  2. Setup a foreign company in Indonesia (known as “PT PMA”). You can put your name as the shareholder of the company and buy the land through your company name. However, this will change the land title to the Right of Building or known as “HGB” in Indonesia.
  3. Structure a leasehold agreement with a longer period which is 80 years. This comprises a lease made between yourself under your name directly (the lessor) and us as the landlord. No license, company, or work permit is required to lease a property in Indonesia.

We hope you have found these tips to settle in Bali helpful. Please feel free to click the share button below!

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Bali Re-Open Soon, Investment Opportunities Await you

The transportation ministry prepares to enter the new normal with flights to and from Bali’s I Gusti Ngurah Rai International Airport.  During the new normal period in Bali, all arrivals must carry a negative PCR test result issued within 7 days of arrival. Based on the recent Circular Letter Number 7 of 2020 which issued on 6 June 2020, here is what needs to be prepared to enter Indonesia:

  1. Every visitor who comes from abroad must carry out a PCR test at the time of arrival, if the visitor has not been carried out and/or cannot show the results of the PCR test from their departure country.
  2. The PCR test result is excluded from PLBN (Post-State Border Line) which does not have PCR equipment by conducting a rapid test and showing a certificate of influenza-free symptoms.
  3. While waiting for the PCR results, visitors must undergo quarantine at a dedicated quarantine accommodation provided by the government.
  4. Utilizing certified quarantine accommodation (hotel / inn) from the Ministry of Health.

Click here to Download the full English version of Circular Letter Number 7, 2020.

The Ministry of Transportation expressed support to fulfill the aspirations of the Bali provincial government in a bid to boost the island’s tourism and economic potential by continuing to prioritize health protocols to prevent the spread of COVID-19. The island is only accepting passengers to travel by land, sea, and air transportation that had tested negative for PCR based on swab testing.

Governor of Bali, I Wayan Koster has issued Circular Number: 730/9899 / MP / BKD which announced that all public services in Bali have been open since June 5th and implementing new normal protocol. This protocol only applies for government offices, however for the education sector, industry, trade sectors and others are not yet which we will expect to be done at the end of June.

With strict health measures in Bali, as well as a controlled number of transmission evident on the island, the next step to re-open Bali comes as we enter the new normal. Restaurants, hotels, resorts, gyms and spas that are currently open for business comply with the government regulations of curfew and sanitation.

Although the flight situation in Bali is still limited, things are looking to change soon for international and domestic travel. The Indonesian Ministry of Transport projected that Bali could welcome international visitors by October of this year, although no particular date has been set yet.

The tourism industry in Bali is targeting to attract tourists from nearby countries such as Thailand, Myanmar, and Vietnam, in the new normal period. Deputy of Marketing for the Ministry of Tourism and Creative Economy – Tourism and Creative Economy Agency (Kemenparekraf – Baparekraf) Nia Niscaya has established communications to deliver the latest policies and information on tourist destinations in Indonesia and facilitate the tourism industry of Thailand, Vietnam and Myanmar with Indonesia to maintain relationship and collaboration to face the new normal of tourism industry.

 

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Source:

Tempo – Bali Incar Wisatawan dari 3 Negara

Gapura Bali

Tempo – Ministry prepares for flight operations in Bali

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Settling in Bali, Indonesia.

The Island of the Gods. A phrase to describe Bali that has stood the test of time, and evidenced in the  number of tourist arrivals on the island which continues to increase every year. In fact,15% of visiting  tourists decide to settle down here. Why? Because Bali provides a lifestyle choice no one can resist: the world’s most stunning beaches, excellent shopping complexes, delicious food and all the conveniences of home. If that’s not enough, your foreign currency stretches way further here, allowing you to live a comfortable lifestyle for just a few pennies of your dollar.

Settling down in  another country is not an easy step yet not impossible. There are many factors to consider when relocating, so take your time and consider these tips as a start:

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Pro Tips for Investment in Bali

You’re one week into your Bali getaway, live in a luxury villa and pay half the rent you should do in Sydney/New York/London, surf every single day, drink coconuts, eat delicious food, crazy party, drive scooter all over the island, and the last thing will be you’ve got to be thinking that “Damn, I don’t want to leave, I should live here”. Bali impresses like no other place.

Whether you’re thinking of taking up permanent residency, build a house in Bali, starting a business or looking to put some investment into this tropical paradise so you could come back anytime, we’ve got a few pro tips for you.

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Key Things to Establish Company in Indonesia

Foreigners have found the thought of setting up a lifestyle business in Bali attractive for years. With an estimated 30,000 expatriates already living in Bali, makes Bali full of business opportunities range from Bali real estate investment, business property in Bali, epic restaurant and bar, especially business in the fast-growing tourist area such as Real Estate in Berawa or Canggu.

Indonesia has several types of companies, which commonly confused foreign investors when choosing the most suitable legal entity for their business activities. We have compiled a simple yet comprehensive information about legal entities in Indonesia to help you decide how to set up a business in Bali:

PT (Perseroan Terbatas) / Limited Liability Company

What is that?
Limited liability company, also called “PT,” is the most popular and most widely used form of business entity in Indonesia for carrying out business activities in various fields. PT is a company founded by a minimum of two local people as responsible shareholders, limited from the debt of the company.

How much is the capital I should prepare?
According to the Government Regulation of the Republic of Indonesia Number 29/2016, the capital of Limited Liability company is set based on agreement of the founders. The paid up capital should be at least 25% of the capital investment and it needs to be deposited to the bank account of the PT. This will be then use as the proof of capital investment.

Who will be the shareholder?
The company is 100% owned by Indonesian as the shareholders. Therefore, this kind of company will need to have two local people as the shareholders. The shareholder liability is limited from the company’s debt.

What kind of business I could run with this company?
The company can have three main business activities and usually no limitations apply. PT can also be used in all open government tenders.

 

PT PMA (Perseroan Terbatas Penanaman Modal Asing) / Limited Liability Company Foreign Investment

What is that?
PT PMA is a company which the establishment of capital are by using foreign investor for the purpose of doing business in the Republic of Indonesia, either it is fully or partially with a domestic investor. Before you decide to establish a PT PMA, make sure you have read the Negative Investment List, because for PT PMA there are several industries that has a limitation of foreign investment.

How much is the capital I should prepare?
The minimum of capital investment for PT PMA is IDR10,000,000,000 (USD800,000). This value of investment is based on cash investment, which means land, buildings, tools and/or equipment are excluded.

Who will be the shareholder?
PT PMA needs to have a minimum of two shareholders (can be individuals or legal entities). The foreigner can be a shareholder in PT PMA. The maximum percentage of the shareholders are referring to the Negative Investment List.

What kind of business I could run with this company?
PT PMA only able to have one business category and again it should be based on the Negative Investment List.

KPPA (Kantor Perwakilan Perusahaan Asing) / Foreign Company Representative Office

What is that?
KPPA is a local representative company of the foreign parent company. This kind of company usually needed when a foreigner wants to engage in market surveillance, networking, explore business opportunities or provide other managerial support in Indonesia to the parent company abroad. It needs to be emphasized that this foreign representative office is strictly forbidden from directly engaging in operational activities, signing contracts, issuing official invoices, receiving payments from its clients, and directly engaging in any other profit generating activities.

How much is the capital I should prepare?
The good thing about KPPA is there is no minimum capital to establish it, unlike the PT. PMA which you need to have USD800,000 for a minimum capital. A strategy that is often used by foreign companies is that the Rep Office promotes and offers the parent company’s products to Indonesian retailers/clients (invoices to the Indonesian client are sent by the parent company abroad). Then, after a strong client portfolio has been established, the foreign company decides to open a PT PMA in Indonesia.

Who will be the shareholder?
The most significant advantage for KPPA lies in the fact that a representative office able to be completely owned by one or more foreigners. A representative office in Indonesia is also allowed to operate without any directors or shareholders; thus, the time which would once again have been spent on recruitment will be saved. KPPA can also sponsored a KITAS for its foreigner workers. However, KITAS sponsorships are restricted by the rule that for each foreign national working at the Rep Office there needs to be (at least) three Indonesian employees. Hence, if you want two expats to work at your Rep Office in Indonesia, then you need to hire at least six Indonesian staff-members (either experts or administrative staff).

What kind of business I could run with this company?
A representative office can be established in most industry sectors. There are 4 types of representative office in Indonesia:

  • General representative office of a foreign company (KPPA)
  • Representative office of a foreign trading company (KP3A)
  • Representative office of a foreign construction service company (BUJKA)
  • Representative office of a foreign oil and gas company (KPPA MIGAS).

Each of these types of representative offices has particular qualities which specifically pertain to certain types of business activities to be carried out.

It is important to know what structure you need to set up or establish before you do any investment in Bali. Speak to several lawyers and reputable notary to get more insight. Take your time to learn about law and regulations in Indonesia before deciding to ensure your investment in Bali is safe and secure. We also have some tips for property investment in Bali that will help you to do a secure investment in Bali.

We hope you have found this information to set up a company in Indonesia helpful. Please feel free to click the share button below!

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