Variants of buying & leasing a real estate property in Indonesia by foreigners.
Our guests sometimes asking about the possibility to purchase/lease property in Bali.
We decided to publish some helpful information.
According to the law of Indonesia, foreigners cannot own property in Indonesia; they have only the right to rent it.
1) Hak Pakai “right to use”.
Foreigner receives a certificate with his name printed in it, registered by state authorities, gives a foreign citizen the exclusive right to use the land / house, guaranteed by the laws of Indonesia. This right is granted for 30 years, with the possibility of extension for 20, and then another 30 years, up to 80 years (in total). This right is granted to a foreign citizen only for one unit of real estate, the size of the land, which can not exceed 0.5 hectares. In order to arrange real estate in this way, the buyer must have a work visa/residence permit. In connection with the latest amendments to the legislation, this type of ownership of real estate is convenient only in the case of permanent residence in the country. In the case of relocation from Indonesia, it is necessary to transfer the rights to another person (a foreigner who holds a work visa or resident) within one year; otherwise, the state reserves the right to withdraw property without compensation. All land related transactions must be concluded in the Indonesian notarial office, Pejabat Pembuat Akta Tanah (PPAT), where the land to be acquired is located.
2) Hak Sewa - “leasehold”.
An ordinary lease agreement between the owner (citizen of RI) and the investor (foreigner). Lease agreements can be notarized or confirmed by two witnesses, but they are not registered with the relevant authorities, which differ from the previous options. No time limit is set in case you decide to leasehold it even for 100% year, but the agreement should include inheritance rights and obligations.
If you decide to confirm leasehold agreement with notary – each notary can set his own terms of leasehold validity and probably you will need to divide 100 years leasehold into several agreements following each other.
Take note that the leasehold agreement contains a clause regulating the need for the landlord to pay tax on income received by the lessor is set forth in the lease agreement. If this item is not settled in writing, a situation may arise that the tax inspectorate will come to the landlord, and it will require additional payments for the payment of taxes from the tenant.
3) Hak Guna - “right to build”.
This option of owning the real estate provided only to legal entities - companies registered in the country, regardless of the form of a legal entity. This form allows building and owning a variety of real estate. This right is given to the company for a period of 30 years, with the possibility of prolongation up to 80 years. With this right, the company can sell land and constructed houses on it to Indonesians or lease it to foreigners. This can be done through Penanaman Modal Asing (PMA) – a company with foreign ownership
4) Hak Milik The literal translation of this combination is “the unconditional right to property” or “freehold”.
Under Indonesian law, only its citizens can own land in this country. But despite this, there is a scheme here that allows foreigners to acquire real estate using nominal holder – this variant considered as illegal but widely used.
There are two variants of obtaining a property using a nominee:
a) A notarized loan agreement between a foreign investor and a citizen of Indonesia (nominal holder), where the purchased property considered as a pledge against the issued loan. To guarantee that nominal holder will not annul his power of attorney there is a notorized agreement between him and foreigner, are documents confirming the fact of the loan, as well as an additional long-term lease agreement.
b) without a loan agreement there can be notarized agreements regulating relations between nominal holder and foreigner, and agreements saying that nominal owner cannot, by his actions and / or inaction, contradict the will of the buyer of the land and must follow the buyer's instructions regarding the sale or lease of the specified land. The contract establishes compensation for the nominal holder: the monthly payment and / or commission from the possible resale of the land in the future.
This option, of course, has serious shortcomings, the most important of which is the following fact: the real owner of the property is a citizen of Indonesia and your cooperation with him is a matter of trust. This option has its drawbacks, but there are many advantages associated with taxation, business administration.
In case a foreigner is not satisfied with his nominee, he can replace him by contacting a notary. Nominee change procedure requires written notification of the existing nominee and associated with the payment of taxes on a change of person specified in the certificates for the land.
Nuances in the acquisition of land that depend on the place where the property is located:
- Permission to use the public village road must be signed by all households on this road (they once built it for their money and this is their road, the lack of this document with the signatures of neighbors is fraught with additional expenses)
- if you buy land it is better to get acquainted with the neighbors immediately and tell what you are planning to build - their signature will be necessary to apply for a building permit
- you need to measure the ground yourself and make sure that the dimensions match the ones indicated in the certificate (if it differs match, but you need this land, get ready that the renewal of the certificate will take up to a year)
- it is better to get to know the head of the village right away and find out the conditions for obtaining his signature on the application for a building permit - find out about the land burden - whether you need to make some contributions to the village community (to banjar), when, how much (for example, once a year to buy a bag of rice to the community or to pay some amount of money)
About taxation In Indonesia:
there are several levels of taxation: central government taxes, local taxes and income tax.
The tax system of the country takes into account the fact that it is mainly the poor who live here, who are more exempt from paying taxes at the expense of more solvent citizens. It follows that people whose income is less than 50 million rupees are exempt from paying taxes, and those whose income is 50-250 million rupees pay a tax of 5%, whose incomes 250-500 million - 15% if 500+ million rupees - the tax is 30%. Married couples, by law, pay a single, joint tax.
Persons who are not citizens of Indonesia are charged with a so-called tax on income received in Indonesia (this also includes income received as a result of renting housing for rent). Also, the transfer of property is subject to taxation. Capital gains tax equal to 20% of the total sale value of the object.
Corporate Income tax:
Standard rate 25%
Public company with at least 40% of its shares traded on the Indonesia Stock Exchange 20%
Small companies with an annual turnover of less than 50 billion IDR 12.5%
Small companies with an annual turnover of less than 4,8 billion IDR 1%
Property tax in Indonesia is 0.5% of the estimated value of the object.
The land and construction tax is paid annually and is administered by the local offices of the Directorate General of Taxes (Direktorat Jenderal Pajak, Kementerian Keuangan Republik Indonesia).
Prices vary depending on the region, but usually from 0.1% to 0.2% of the value of the property.
Taxes are revalued every three years, with the exception of fast-growing areas where revaluations take place every year.
Residences worth more than one billion rupees are taxed at the top of the tax scale (0.2 percent).
When a piece of land changes its owner, the seller must pay 3% of its value, the buyer must pay 5% of its value.
VAT applies for rent: Residential - 10% Commercial - 6
Taxes and fees:
Change of ownership in the land certificate, change period 3-6 months
Buyer pays 5%, the seller pays 3%
Payment of notarial/legal services 1–2 % paid by buyer
Registration fee 0,2 % paid by seller
Fee to real estate agent 5 % paid by the seller
Lease of land - according to the law, the landlord must pay income tax (10%), this point should be settled and fixed in the contract.