An introduction to buying property
Buying property in Bali as a foreigner can be an exciting but complex process due to Indonesian laws restricting direct foreign ownership of land. However, there are legal pathways that allow foreigners to invest in property through leasehold agreements, which typically last for 25 to 30 years with options to extend. Another option is using a Hak Pakai (Right to Use) title, which allows foreigners to lease land or property for up to 70 years for residential purposes. Additionally, some foreigners may choose to set up a local company (PT PMA) to acquire property under a freehold title, though this requires adhering to certain investment requirements. Although not compulsory, It's important to work with a qualified legal professional to ensure the transaction complies with local regulations and protects your investment.
How to own property as a foreigner in Indonesia
When buying property in Indonesia, or Bali specifically, there are 3 options that you can choose in the way of ownership. If you don’t speak the local language, these can seem confusing, so we have detailed all of the different options below.
​
​
Leasehold: Freehold land that has no buildings can be leased for a certain period of time by the owner to another party for the purpose of constructing buildings. The land right arising from the lease of freehold land is Hak Sewa (Leasehold). The origin of Hak Sewa (Leasehold) land is Hak Milik. Hak Sewa Bangunan is the imposition of Hak Sewa Bangunan on freehold land. Hak Sewa (Leasehold). is the implementation of the principle of horizontal separation, i.e. there is a separation between the ownership of land and the building on it.
​
Hak Guna Bangunan (HGB): This is the right to use land and buildings on it for a certain period of time, usually 25-35 years and can be extended. Hak Guna Bangunan is a right of ownership of land by a legal subject (Person and/or Company) and is regulated in Articles 35 to 40 of Law Number 5 Year 1960 on Basic Agrarian Principles (UUPA). Hak Guna Bangunan is granted with the aim that legal subjects can build settlements in the form of houses or offices.
Article 35 of the UUPA reads as follows:
​
‘The right to build is the right to construct and own buildings on land that is not one's own, for a maximum period of 30 years. At the request of the right holder and taking into account the needs and condition of the building, the period referred to in paragraph (1) may be extended for a maximum period of 20 years. Building Rights of Use can be transferred and delegated to other parties. It can be seen that what is meant by Hak Guna Bangunan in (UUPA) is a land right granted to a person to build and own buildings on the land for a period of 30 years and can be extended for 20 years’.
​
Hak Pakai: The right to use state land for a certain period of time, maximum 80 years. According to Government Regulation No. 18/2021 Article 49 (2) Hak Pakai can be owned by:
​
-
Indonesian people;
-
A legal entity established under Indonesian law and domiciled in Indonesia;
-
Foreign legal entities that have representatives in Indonesia;
-
Religious and social bodies; and
-
Foreigners. In addition, Article 52 (3) regulates the period of ownership of the Right of Use: ‘The right of use with a term on Freehold Land is granted for a maximum period of 30 (three hundred) years and can be extended by a Deed granting the right of use on Freehold Land.’ A Right of Use certificate is the right to use land to another party for development, whether for property development or otherwise that was previously owned by the state or land owned by another person.
​
Based on the Decree of the Minister of Agrarian and Spatial Planning/Head of the National Land Agency Number 1241/SK-HK.02/IX/2022 on the Procurement Price for Residential Houses for Foreigners, the minimum price purchased for Foreigners in order to obtain the Right of Use is IDR 5,000,000,000 (five billion rupiah).
Legality of owning property in Bali as a foreigner
When owning property in Bali, there are a few general legalities that you need to follow. These are set out below:
​
-
Building Approval (PBG);
-
Certificate of Functioning (SLF);
-
Building Construction Permit (IMB): Law No.34 of 2001 on Regional Tax and Retribution;
-
Sertifikat Hak Milik (SHM) Property ownership rights with SHM can only be owned by Indonesian Citizens (WNI), as stated in Law No.5 of 1960;
-
Taxpayer Identification Number (NPWP): Property owners must have an NPWP from the tax office to pay taxes on rental income;
-
Surat Izin Usaha Perdagangan (SIUP): A SIUP is required if the property owner rents out more than one property or if the rental income exceeds a certain threshold;
Matters to be checked and verified before transaction or construction
When buying property, you need to verify the following documents and licenses before proceeding with the transaction:
-
Land documents;
-
Owner's documents;
-
Construction company licence;
-
Building construction permit;
The above documents must be checked and verified by Government Offices in Indonesia, including but not limited to the Land Office, the Population and Civil Registration Office, and the Ministry of Public Works and Housing.
How to handle/protect yourself from common property scams as a foreigner in Bali
It is important for foreigners to conduct Due Diligence of the documents and location before making a decision to buy or invest in Bali. Hiring a Lawyer experienced in property law to review all documents and gather information on the Constructor's records will protect foreigners from fraudulent practices. Bali Law Connection provides a complete and thorough service in Property Due Diligence involving a Team of Lawyers and Notaries to conduct reviews, checks, verifications and correspondence with the public.
Under the law, there are several legal approaches that can be taken, as follows:
-
Subpoena;
-
Police report;
-
Lawsuit.
You need to have a Lawyer as Power of Attorney to organise the above approaches and find the best solution depending on the case.
Establishment of PT PMA (Foreign Investment) in Indonesia
PT PMA is a type of business entity established in Indonesia with capital ownership owned by foreign investors. This is used quite often by foreigners when needing to buy property in Bali. We have below a guide on how to set up a PT PMA.
Business Plan
Explanation: A business plan is an important document that explains the company's vision, mission, goals, market analysis, and financial projections. It helps in planning and is also an important document when applying for a licence.
Company Name Selection
Explanation: The company name should be distinct and not registered by another company. You need to check through the online system of the Ministry of Law and Human Rights to ensure that the chosen name can be used.
Submission of Principle Permit
Explanation: A principle permit is an initial licence from BKPM stating that your investment plan has been approved. This process involves filling out a form and submitting supporting documents, such as an investment plan and shareholder profile.
Drafting the Deed of Establishment
Explanation: The deed of establishment is drawn up before a notary public. This document includes shareholder data, capital structure, company objectives and other relevant information. This deed forms the legal basis for the establishment of the company.
​​
Legal entity registration
Explanation: Once the deed of establishment is drafted, the company must be registered with the Ministry of Law and Human Rights. After registration, you will get an attestation that signifies that the company has become a legal entity.
​Application for Business Identification Number (NIB)
Explanation: NIB is the company's official identity obtained through the OSS (Online Single Submission) system. NIB is required for business administration and legality purposes, including applying for a business licence.
Business Licence Application
Explanation: Once the NIB is obtained, the company needs to apply for a business licence according to the type of activity it will carry out. This permit is important to ensure that your business activities are in accordance with applicable regulations.
Bank Account Opening
Explanation: A bank account in the name of the company must be opened to conduct financial transactions. You will also need to make a capital deposit as agreed in the deed of establishment.
Labour Compliance
Explanation: If the company employs local labour, you must comply with all applicable labour provisions and regulations, including registration of employees and provision of proper facilities.
Periodic Reporting
Explanation: After establishment, companies are required to conduct periodic reporting to BKPM on business and investment progress. This is important to ensure transparency and regulatory compliance.
Legal Consultation
Explanation: It is highly recommended to consult with a notary or legal consultant to ensure all procedures and documents are in accordance with applicable regulations, thus avoiding problems later on.
​
The process of establishing a PT PMA involves several steps that require attention to detail and regulatory compliance. By following these procedures precisely, you can successfully establish your company in Indonesia.
Taxes relating to buying property in Bali
Income Tax (PPh):
-
Income Tax on Sales: If you sell your property, you will be subject to income tax on the profit from the sale.
-
PPh Pasal 25: If you own a property that generates rental income, you will be required to pay PPh Pasal 25 periodically.
​
Land and Building Tax (PBB):
-
A tax levied on the ownership of land and buildings. The amount of PBB depends on the selling value of the tax object (NJOP) and the rate set by the local government.
​
Land and Building Acquisition Tax (BPHTB):
-
A tax levied when first acquiring rights to land or buildings. The amount of BPHTB depends on the transaction value and the rate set by the local government.
​
Factors Affecting the Amount of Tax
​
The amount of tax to be paid will be influenced by several factors, including:
-
Property Value: The higher the property value, the higher the tax payable.
-
Property Location: The location of the property can also affect the amount of tax. Properties that are located in strategic areas or have complete facilities will usually be subject to higher taxes.
-
Type of Ownership: The type of property ownership (HGB or Hak Pakai) can also affect the amount of tax to be paid.
