There are a number of different types of title in Indonesia:
- Hak Milik (Freehold) is the type of title that can only be held by an Indonesian citizen.
- Hak Pakai (essentially leasehold title) and other forms of title can be held by a P.T. or PMA Company (Foreign Investment Company).
A non-Indonesian citizen cannot own land in Indonesia. However a foreigner can acquire a leasehold title to a building – almost the same as a strata title except that the title lasts only for 25 years with an extension of 30 years for a maximum of 55 years and then reverts to the original owner (lessor).
There are 2 ways for foreigners to own the land in Indonesia:
(1) Using the Nomine
The Nominee will sign four documents with the foreigner as follow:
- A Loan agreement: acknowledges that the foreigner has lent to the Nominee the purchase price of the land.
- A Right of Use agreement: allows the foreigner to use the land.
- A Statement Letter: where the Nominee acknowledges the foreigners loan and intention to own the land.
- Power of Attorney: The nominee signs an irrevocable Power of Attorney giving the foreigner the complete authority sell, mortgage, lease or otherwise deal in the land.
(2) Using the PMA
The most significant change in Indonesian investment law came in 1997 when the government introduced the PMA (Penanaman Modal Asing or Foreign Investment Company). This allows foreign investors to set up a company in Indonesia, without having to have Indonesian partners. The PMA can be 100% owned by the foreign investor. PMA companies are allowed to own the title of the property for a period 25 years and have to be renewed by the government.
To set up a PMA, you will be required to:
- Submit the detailed business plan.
- Operate in a business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit.
- Make an appropriate cash deposit in an Indonesian based Bank. The amount varies and is calculated from the capital employed in the business.
- Show the property investment as an asset of the company.
The process takes approximately 3 to 4 months and once its completed; the company can apply for work permits for the foreign directors, 3 permits in the first year of operation. The cost of setting up the PMA is between IDR 30 to 40 Million or equivalent with USD 4,500.
- Notary: 1% of the value of the transaction.
- Vendor Tax & Purchaser Tax: Both the vendor and purchaser pay 5% tax on the value of land and property sales.
- Mortgage Certificate: 1% of value of mortgage.
Freehold title on land (hak milik) in Indonesia is a right extended only to Indonesian citizens.
For foreigners contemplating the purchase of freehold title, the only option is to use an Indonesian nominee. With proper legal advice, foreigners can secure their interests with a series of documents and by taking a mortgage on the land, which has the effect of placing their name on the title. This precludes any dealing in the title without the foreigners’ consent to remove the mortgage.
If married to an Indonesian woman, a foreigner should take care about appointing her as the nominee in land purchases. Under Indonesian law, unless the woman has a prenuptial agreement with her husband, all land in her name acquired during the marriage is subject to forfeiture to the government.
LEASES: For a foreigner uncomfortable with the nominee arrangement, land may be leased. The maximum period of a notarized lease is 25 years, though it’s the practice in Bali to have two leases of 25 years each, executed on consecutive days with a 25-year option on the second lease, effectively yielding a 75-year lease.
CORPORATE OWNERSHIP: The legally permissible way for a foreigner to invest in Indonesia is to establish a PMA company. The process is straightforward, and provides for the shares in the limited liability company to be held either in the foreigner’s name or that of an offshore investment company, if appropriate.
The PMA company can acquire land by purchase this allows for purchase of the land with and HGB (hak guna bangunan) title. This title is valid for 30 years, extended for 20 years and renewable for a further 30 years. A foreigner also has the option of simply leasing the land to the PMA or purchasing through a nominee and leasing to a PMA company.
With any property purchase in Indonesia, it is important that the prospective purchaser conduct a proper due diligence on the land, ensuring that the owner has title, that the title is genuine and incontestable, and that the land can be used for the purpose intended. Each locale will also have regulations requiring local advice.