Are you planning on buying a property in breath-taking Bali, Indonesia? Are you unsure whether you can actually make an investment in the country as a foreigner? Lucky for you, you most certainly can! Here is the ultimate guide for buying a property in Bali as a foreigner in 2020 to help you get started on your endeavor:
Investing in the Beautiful Bali, Indonesia
Bali, Indonesia, is known around the world for its clear blue beaches, golden sands, and breath-taking views, making it a hotspot for tourists. Due to the never-ending tourism and a 5% growth rate, the country has become one of the best places for foreign investment in 2020, grabbing the attention of various investors from around the world.
The country has seen a two-fold investment from local government sources as well as outside foreign investments, both of which have notably transformed the economic conditions of the country, making them grow rapidly. The strengthened economy has further given way to potential investors to buy land in Band develop dream houses for foreigners. Through this guide, you will be able to get complete know-how on the country’s own laws and regulations, both of which are pretty easy to navigate around as a foreigner.
Property Ownership, Laws and Regulations
Indonesia has established several laws that govern property rights. The Indonesian Agrarian Law, Law No. 5 of 1960, permits “Hak Pakai,” or ownership to build on and use the respective land. Similarly, the law also goes over various regulations that determine the relationship between individuals and their respective lands.
According to the new laws and regulations regarding property investments established in the late ’90s, foreigners are permitted to purchase various properties, such as apartments and office spaces. However, due to their strict regulations supporting the locals, the foreigners cannot purchase the land that the property stands on, only the property itself. Hence, investing in completely purchasing a house is legally impossible in the country. Don’t worry! Indonesia still gives foreigners the ex-pat to hold 80-year leases on the land, making it easier to live in the country as a foreigner.
Buying Property in Indonesia as a Foreigner
Although the Indonesian law does not allow a foreigner to own a freehold title of any land in the country, it does give investment opportunities to foreigners to acquire full ownership of properties they desire. For example, they can easily pursue a Bali property through investments.
The chart below outlines different ownership types available to foreigners under the Basic Agrarian Law of 1960, all of which are governed under the Foreign Investment Limited Liability Company:
|Hak Milik||-Right to property and possession-Freehold for Indonesian citizensForeigners right to lease holding and residential purposes||The Law of the Republic of Indonesia, Act No. 5 of 1960 Concerning Basic Regulations on Agrarian Principles. |
Part 3, Articles 20 and 21.
|Hak Guna Bangunan||-Right to build-Foreigners right to possession and development of land for 80 years||The Law of the Republic of Indonesia, No. 5 of 1960 Concerning Basic Regulations on Agrarian Principles. |
Part 3, Article 36
The Law of the Republic of Indonesia, No 40 of 1996 Concerning Representatives, Building Rights, and Rights to Land
Part 4, Article 25
|Hak Pakai||-Right of usage-Foreigners right to lease holding and residential purposes||Minister of Agrarian and Spatial Regulation / Head of the National Land Agency (BPN) of the Republic of Indonesia, No. 29 of 2016 Concerning Procedures for Granting, Disposal, or Transfer of Right to Residential or Residential Ownership by Foreigners domiciled in Indonesia.|
Article 1, 3, 6, 8, & 17.
|Hak Sewa||-Right to rent and lease-For business and residential purposes||The Law of the Republic of Indonesia Act, No. 5 of 1960 Concerning Basic Regulations on Agrarian Principles |
Foreign Investments in Indonesia via PMA
If you’re hoping to invest in the country as a foreigner, you need to contact PMA. PMA, or Penanaman Modal Asing, is a legal entity for foreigners in Indonesia, which allows them to invest in the country as a foreigner. Recognized by the country’s strict ownership laws and regulations, the PMA assists foreigners in attaining the foreign direct investment license, which is granted by the Badan Koordinasi Penanaman Modal, or BKPM. For your investment plan to be projected with 100% foreign ownership, you need to allow the government to conduct a full, lengthy background check along with a minimum of 25% paid-up capital. For this process to be streamlined, the government has made recent legislative changes, which have improved the registration system.
A new visa is also established by the Indonesian government, which is available only for those that wish to make a foreign investment as a director, commissioner, or shareholder. This visa is known as the VITAS. The VITAS visa allows foreigners to take a trip to the country on a 2-year basis, which can be extendable in case of a booming business and continuous investments. With the visa being introduced and used avidly, the foreigners are now able to bypass the annual tax for skill and development fund fee, which costs a hefty 1200 USD. While there have been no special travel instructions for VITAS holders in the past, due to the 2020 coronavirus pandemic, the country has imposed certain rules and regulations on those entering the country with a VITAS visa. The visa holders are provided to travel with a health certificate, which confirms that the individual has not been infected with the virus. Moreover, in the case of the individual being infected with the virus in Indonesia, they will pay for their own quarantine accommodation, food, and healthcare bills. Without complete evidence and health certificates, individuals with VITAS are not being allowed inside the country.
Foreign Investment in Indonesia via Local Nominee System
Many foreigners use the local nominee system when planning on investing in the country. This widespread practice uses an Indonesian nominee to secure the freehold title instead of directly buying from the PMA.
The process includes a mutually inclusive agreement consisting of a partnership established between an Indonesian citizen and a foreigner, where the Indonesian citizen holds the title to the land, and the foreigner invests the capital while simultaneously governing his or her right to the land. There are three notable agreements which are jot up between the two, these are :
- Loan/Mortgage Agreement
- An Irrevocable Power of Attorney (POA)
- A Permanent Right of Use Agreement
Best Way of Buying Property and Investing in Bali as a Foreigner: PMA vs. Nominee System
By now, you must have realized that there are two notable ways of buying property and investing in Bali as a foreigner. However, the question arises: Which of these two ways is better and more suitable for a foreigner?
While both the PMA and Nominee System are widespread practices in Indonesia, each of them has its own pros and cons. To put it simply, the Nominee system is illegal and places the investor in a capital risk if caught; hence, it poses more as a threat to the foreigner than an investment, making it a less desirable option when compared to PMA. In comparison, PMA is a method that is highly regulated and vetted by the government. Although it is a relatively expensive option, when weighing the desirability between the two options, it is an option that is more secure and legal, making a long-term investment worthwhile.
So, if you’re looking to invest in business activities in Indonesia or simply wish to reside in the country, it is best to make an investment using the legal PMA process.
Invest Island’s Investment Quick Fix
Invest Island offers the perfect alternate solution – to use the PT PMA License Scheme when making a desirable investment in Indonesia. Since Invest Island holds a PMA for the real estate sector, it offers a legal license using the country’s regulated platform to foreigners that are willing to buy land and property in the country. This is a safe way of investing in Indonesia at affordable quotes without the need for a local nominee.
So, Are You Ready to Make an Investment in Indonesia?
All in all, Indonesia offers strict legal structures to foreigners when it comes to making an investment and purchasing a property in the country. However, if you follow the rules in compliance with the Indonesian law and attain land using PMA, you will be able to make a solid investment in the country in no time. This investment is going to yield you endless profitability, all thanks to the country’s stable economy, as of 2020.
After reviewing this guide, if you’re still having trouble understanding the Indonesian rules and regulations for property investment as a foreigner, feel free to get in touch with one of our advisers via our website or by filling in the inquiry form. Our representatives will contact you soon to set up a meeting.
1 See for example Tyers & Zhou, ‘The US-China Trade Dispute: A Macro Perspective’ (2019) Australian National University, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3328294.
3 See Wonderful Indonesia: https://www.indonesia.travel/gb/en/destinations/bali-nusa-tenggara/lombok
4 See Invest Islands: https://invest-islands.com/ten-new-bali-project/
5 BKPM Website: https://www.bkpm.go.id
7 Online Single Submission Portal: https://www.oss.go.id/oss/
10 Legislation in Indonesian https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=2ahUKEwiG-_vWt73gAhUCk3AKHYbEB9cQFjAAegQIChAC&url=https%3A%2F%2Fkppip.go.id%2Fdownload%2Fperaturan%2Fpp%2FPP-No-40-Tahun-1996-tentang-HGU-HGB-dan-Hak-Pakai_2.pdf&usg=AOvVaw39LlKHOczlhvbmK1P6oVeM
11 See here for more detail on the nominee structure conundrum: http://userfiles.hukumonline.com/adv/ILD403_170420151.pdf.
See also: Article 33 of Law No. 25/2007 on capital investment prohibits the practice of nominee arrangements in foreign investment (https://www.thejakartapost.com/news/2016/01/11/economic-loss-and-practice-nominee-arrangements.html).