Bali is a top destination for property investment, but foreign ownership of land is restricted under Indonesian law. Unlike local citizens who can own Hak Milik (freehold), foreigners must use alternative legal structures to acquire property in Bali. Understanding these regulations is essential to ensure a legally secure transaction.
This article outlines the legal ownership options available for foreigners, key requirements, and important considerations, along with real-life study cases to help new investors understand each method.
Legal Ownership Options for Foreigners
1. Freehold (Hak Milik) – NOT Available to Foreigners
Foreigners cannot own Hak Milik (freehold) in Indonesia. This type of land ownership is strictly reserved for Indonesian citizens. Any claim suggesting that foreigners can own freehold property is legally incorrect.
- Only Indonesian citizens can hold Hak Milik
- Foreigners must use leasehold or other legal alternatives
2. Leasehold (Hak Sewa) – Available to Foreigners
A leasehold agreement allows foreigners to lease land or property for a specific period.
Lease Term: Usually 25–30 years, with extension options.
Legal Protection: The lease must be notarized (PPAT) and registered.
Usage: Can be used for residential or commercial purposes, depending on zoning laws.
Tax Obligations for Leasehold:
Withholding Tax: The lessor (property owner) must pay 10% if they have an NPWP (tax ID) or 20% if they do not.
Notary Fee: Typically 1% of the total lease transaction value.
Also read "What is a leasehold vs. freehold property in Bali?" for more information.
3. Right to Use (Hak Pakai) – Available to Foreigners
Hak Pakai is the only title that foreigners can hold individually under Indonesian law.
Validity: 30 years, extendable for 20 + 30 years (maximum 80 years).
Ownership Limit: A foreigner can own only one property under Hak Pakai.
- Requirements: The buyer must have a valid stay permit (KITAS/KITAP).
Example:
David, a retiree from France, wants to buy a villa in Bali for personal use. Since he has a long-term stay permit (KITAP), he qualifies for Hak Pakai. He purchases a house under this title, allowing him to legally live in it for up to 70 years (30 years initially, with two 20-year extensions).
4. Right to Build (Hak Guna Bangunan – HGB) – Available Through a PT PMA
Foreigners cannot own HGB individually, but they can acquire it by establishing a PT PMA (Foreign-Owned Company).
- Land Use: HGB allows a PT PMA to construct and own buildings on leased land.
- Validity: 30 years, extendable for 20 + 30 years.
- Restrictions: HGB remains linked to the PT PMA and is not considered personal ownership.
There are two types of HGB:
1. Pure HGB (HGB Murni)
This occurs when a landowner releases their Freehold rights (Hak Milik) and transfers the land to the Indonesian government, which then reassigns it as HGB under the PT PMA’s name.
- The original Freehold ownership is permanently removed.
- During renewals, the process is handled directly with the Indonesian National Land Agency (BPN) without involving the previous landowner.
- If the PT PMA does not renew HGB, the land becomes a government asset.
- HGB can be sold to another PT PMA or an Indonesian citizen. If sold to an Indonesian citizen, it can be converted back into Hak Milik (Freehold).
2. HGB Above Freehold (HGB di atas Hak Milik)
In this case, the Freehold owner retains ownership but grants the PT PMA HGB rights for a set period through an agreement.
- The landowner and PT PMA agree on how long the PT PMA can hold HGB rights.
- During extensions, the Freehold owner must approve the renewal before the process is handled by BPN.
- If the PT PMA does not renew HGB, the land returns to the original Freehold owner.
- Any transfer of HGB to another PT PMA also requires the Freehold owner’s approval.
Important Note: HGB cannot be inherited by individuals because it is classified as a company asset. It can only be transferred to another PT PMA or sold to an Indonesian citizen to convert it back into Hak Milik (Freehold).
How to Establish a PT PMA as a Foreigner?
Foreign investors who want to own property under HGB must establish a PT PMA.
- Minimum Investment Requirement: IDR 10 billion (~$650,000) per business sector depending on the business sector.
- Company Structure: Requires at least 2 shareholders (can be foreigners/foreign company or locals/local company).
- Legal Documents: Must register in the system of OSS Indonesian Republic and have Business Trade Number (NIB).
- Company Director: At least one director must be appointed (can be foreign).
- Business Activities: The PT PMA must operate in an approved business sector, such as tourism or property rental.
Key Legal Considerations
1. Due Diligence: Commonly focus on legal matters to verify the legality of land and the legality of ownership
2. Notary (PPAT) Involvement: A certified Indonesian notary should process the transaction.
3. Tax Obligations for Freehold Transactions:
- Buyer’s Tax (BPHTB): 5% of the property value.
- Seller’s Tax: 2.5% of the property value.
4. Tax Obligations for Leasehold Transactions:
- Withholding Tax: 10% (with NPWP) or 20% (without NPWP) for the lessor.
- Notary Fee: 1% of the lease transaction value paid by the buyer.
Remember, foreigners cannot own freehold property in Bali, but they can legally acquire property through Hak Sewa (Leasehold), Hak Pakai (Right to Use), or Hak Guna Bangunan (HGB through a PT PMA).
