1. Can a foreigner own land in Indonesia?
There are two ways a foreigner can own property in Indonesia:
- Founding a company.
- Leasing property.
2. How long does it take before I am the owner?
Ownership takes effect immediately on signing. A typical transaction can be completed as quickly as it takes for funds to be tranfered from Buyer to Seller. The Notaris acts as a neutral party by holding the ownership documents until the agreed sum has been transfered.
3. Do I need a solicitor / legal Advocate?
No. In Indonesian law, the Notaris (or Registra of Property) acts as a neutral party on behalf of the Buyer and Seller.
Apart from the services provided by the Notaris (which usually costs between 1 and 1,5 percent of the agreed selling price), there are government taxes to be paid. This is usually 10 % (percent), split evenly between Buyer and Seller on the declared value of the property. Start September 2016 it’s become 7,5% split for Buyer 5%(percent) and Seller 2.5% (percent).
And since October 2016 there is a new cost for “Zone of Land Value” IDR. 5.300.000 x size in m² / 1,000
4. What is the cost of living in Indonesia?
Energy costs (Fuel/electricity/water) are extremely low, as are the costs of domestic help. (i.e. maid/gardener/security/pool maintanance etc.)
5. What should I know about Indonesian property law?
For foreigners, there are basically two options to legally secure a property in Indonesia.
- Leasehold Investment
- PMA Foreign Investment Company Structure
These three options are explained below in simple terms. Securing property in Indonesia (in some extreme cases) can be a lengthy process which requires patience and diligence. In most cases, however, ownership can be achieved in just a few days.
Although we are happy to offer free legal advise regarding ownership for foreigners, in some cases we recommend that you seek the best professional and legal advice to fully check all land titles, certificates of ownership and building permits, and that you have all transfer of lease or ownership documentation prepared by a reputable legal notary. We will be happy to recommend reputable lawyers.
THE TERMS EXPLAINED
Until recently, this was the only means for a Foreign Investor to secure land in Indonesia. A Leasehold Investment offers complete protection to the foreigner during the term of the Lease Agreement.
A Lease Agreement is prepared, specifying the period of time, usually in terms of up to 25 years, and often with an option to extend. Any options that the Foreign Investor would like to include, such as the right to demolish, the right to extend, the right to build and the like are discussed, agreement is reached with the owner and clearly stipulated in tight legal documentation prepared by a public notary and lawyer. At the expiry of the lease period, the Agreement can be extended or the property allowed to revert to the Owner. An application to extend the Lease Agreement period should be submitted no later than a year before expiry. The Foreign Investor can negotiate directly with the landowner at the time of renegotiation in order to agree to a property lease rate for the extended lease period.
PMA Foreign Investment Company Structure
Property acquisition through a PMA (Penanaman Modal Asing) Foreign Investment Company structure enables Foreigners to own land in Indonesia, without having to have Indonesian partners. The PMA can be 100% owned by the Foreign Investor (minimum 2 people). This was originally established for large Multinational Corporations but has been extended to land holdings.
Ownership is limited to a total of 85 years in increments of 20, 25, 30 or 35 years, after which it is reviewed by the Government. It is generally renewable at a nominal cost. It seems very doubtful that the government will change the PMA structure any time soon. Positive changes have been occurring in the past few years for foreign investment and policy direction seems to be increasingly more favourable for foreigners.
Audited accounts must be regularly furnished to the Government showing the PMA trading position, and operating taxes must be paid. The cost of setting up a PMA structure is between 35 to 60 million Indonesian Rupiahs (including the cost of permissions etc.) and can take up to 4 months or more to set up. Once completed the company can apply for work permits for foreign directors or it’s foreign employees.
The disadvantage of a PMA Company property acquisition is that the property should be used for company projects only, and that a PMA Company, like any other corporate entity (Indonesian or Foreign), is not eligible for ‘Freehold’ (Hak Milik) Title. Whenever freehold land is transferred to a corporate entity, the property title is changed to Right to Build (Hak Guna Bangunan – HGB), which then has to be renewed after 20 or 30 years.
Land categories and principles of ownership
Property and Land Rights of Indonesia are based on the Agrarian Law (1960). Below are the various land categories and principles of ownership that are frequently used. Currently under this law, there are two categories of land:
Community Land – Tanah Adat
Land belonging to a certain registered community, wherein 2 individual rights and 6 community rights can be eventually converted to a certified title.
Certified Owned Land – Tanah Hak Milik
Land belonging to an individual, registered under a local land agency, and legally documented through a Notary.
There are also 5 Principles of Ownership:
Right of Ownership (Hak Milik)
The right of ownership, which can be sold, transferred, bequeathed and mortgaged to another individual. This is often referred to as ‘Freehold’ land.
Right to Build (Hak Guna Bangunan – HGB)
The right to build on the property for up to 20-30 years with the option to extend. This right can be sold, transferred, bequeathed and mortgaged to another individual.
Right to Lease (Hak Sewa Bangunan)
The right to lease a property. This right is transacted between the lessee and the lessor, and can be properly officiated by a Legal Notary under local law. Lease periods vary, with up to 25 years being usual, with an Option to Extend often being successfully negotiated.
Right of Use (Hak Pakai)
The right to use land for a specified period of time, usually a maximum of 75 years. This right cannot be sold, transferred, bequeathed and mortgaged to another individual, unless a special grant has been approved. This right is applicable to Indonesians, foreigners permanently domiciled in Indonesia, or a foreign company with a representative office in Indonesia.
Right of Managing (Hak Guna Usaha – HGU)
The right to manage state-owned property for agriculture or husbandry for up to 35 years with the option of a 25 year extension. This certificate can be mortgaged.