Tag: property-law

  • FOREIGN PROPERTY OWNERSHIP IN INDONESIA: HAK MILIK, HAK PAKAI, HAK SEWA, AND THE NOMINEE TRAP

    FOREIGN PROPERTY OWNERSHIP IN INDONESIA: HAK MILIK, HAK PAKAI, HAK SEWA, AND THE NOMINEE TRAP

    Not social media fantasy. Legal ground only.

    You have been told the villa is yours. You have been shown a certificate with someone else’s name printed on it and assured that this is simply how everyone does it in Bali. Or you have not signed yet, and something about the arrangement will not sit still in your mind.

    Many people still ask about foreign property ownership in Indonesia and have no clear picture of it. Let us discuss the straight facts and the on the ground reality for any foreigner. No grey area, no confusion, just straight facts.

    The Rule Everything Else Sits On

    Foreigners cannot legally hold freehold ownership (Hak Milik) under Indonesian Agrarian Law (Law No. 5/1960). Long-term occupation relies on Leasehold (Hak Sewa) or Right to Use (Hak Pakai). Leases must clearly define tax liabilities (income tax on rent, PPh), building permit responsibilities (PBG and SLF), and local village (Banjar) regulations.

    Beyond the foundational Basic Agrarian Law (Law No. 5/1960, UUPA), foreign property ownership, land rights, investment structures, and tenancy in Indonesia are governed by a framework of statutory laws, government regulations, and ministerial decrees. Each one narrows what is possible, and none of them opens a door back to freehold.

    Statutory Laws and Omnibus Legislation

    Four statutes carry most of the weight.

    Law No. 6 of 2023 on Job Creation (UU Cipta Kerja) ratified Perppu No. 2/2022 and updated the landmark 2020 Omnibus Law framework. It significantly reformed property access for foreign nationals by allowing them to hold ownership certificates directly over apartment and condominium units (Sarusun) built on Hak Guna Bangunan (HGB) or Hak Pakai over State Land or Management Rights (Hak Pengelolaan, HPL).

    Law No. 25 of 2007 on Investment (UU Penanaman Modal) governs foreign investment entities (PT PMA, Perseroan Terbatas Penanaman Modal Asing). It allows foreign investors to establish an Indonesian legal entity, which can hold Hak Guna Bangunan (HGB, Right to Build) for up to 80 years and Hak Guna Usaha (HGU, Right to Cultivate) for commercial or development purposes.

    Law No. 20 of 2011 on Condominiums (UU Rumah Susun) establishes the legal framework for strata-title ownership of apartment units, including shared rights over common property, common elements, and underlying land.

    Law No. 6 of 2011 on Immigration (UU Keimigrasian) regulates the entry and residency status required for foreigners purchasing property in Indonesia. It establishes eligibility tied to valid immigration documentation, including KITAS (Temporary Stay Permit), KITAP (Permanent Stay Permit), or the Second Home Visa.

    That last one is the most misread of the four, so it is worth setting out exactly what it does and does not do.

    What Immigration Law Actually Regulates

    Foreign property ownership in Indonesia explained to a couple viewing a Bali villa

    Law No. 6 of 2011 on Immigration does not grant land or property titles itself. It strictly regulates entry, visas, stay permits, and border control. Indonesian land law, however, references Law No. 6 of 2011 to establish whether a foreign national satisfies the “subject requirement” (syarat subjek) necessary to register specific real estate rights legally under their personal name.

    • Visas and Entry: Rules governing Visit Visas, Limited Stay Visas, and entry and exit protocols.
    • Stay Permits: Terms and conditions for obtaining and maintaining Limited Stay Permits (KITAS), Permanent Stay Permits (KITAP), and Second Home Visas.
    • Immigration Control: Rules on reporting, administrative oversight, enforcement, and deportation

    Law No. 6 of 2011 contains no provisions defining land titles, property rights, or real estate registration.

    The Legal Link Between Immigration Law and Land Law

    The connection arises under Government Regulation No. 18 of 2021 (PP 18/2021), which governs land rights and registration:

    • Article 69 of PP 18/2021 establishes that the foreign nationals who can legally own residential housing in Indonesia are those who possess valid immigration documents issued in accordance with statutory regulations.
    • The National Land Agency (BPN) requires a foreign buyer to present valid immigration status, governed by Law No. 6 of 2011, to prove they are legally residing or operating in Indonesia before registering a property title under their personal name.

    Clarifying Property Ownership and Land Rights

    Holding valid immigration documentation does not give a foreign national access to freehold land (Hak Milik). Under Law No. 5/1960 (UUPA), absolute freehold land ownership remains strictly reserved for Indonesian citizens.

    What it does grant is eligibility for restricted, time-bound property titles directly in your own name:

    Right to Use (Hak Pakai) for Landed Houses: A foreigner can own the physical landed structure and hold a registered Hak Pakai title over the underlying plot for up to 80 years in total, comprising the initial grant, an extension, and a renewal. The underlying land is classified as State Land or Management Rights (HPL), not Hak Milik.

    Strata-Title Condominiums (Sarusun): Foreigners can hold ownership certificates directly over apartment and condominium units built on Hak Pakai or Hak Guna Bangunan (HGB) land.

    Right to Lease (Hak Sewa): A direct contractual lease agreement to occupy or use property for a defined timeframe.

    The Status Condition Attached to All of It

    Eligibility is not permanent. Under Articles 69 and 71 of PP 18/2021, holding property under Hak Pakai or apartment ownership is tied directly to maintaining valid immigration status. If a foreigner loses their legal residency permit and fails to renew it, they are given a one year grace period to transfer or sell the property title to an Indonesian citizen or to an eligible foreigner with valid immigration documentation. If it remains untransferred after one year, the title is relinquished to the state or converted by operation of law.

    PPAT land deed official reviewing a land certificate with a foreign buyer

    The same logic follows the property after death. PP 18/2021 confirms that properties legally held by foreigners can be mortgaged (Hak Tanggungan), transferred, or inherited. An heir, however, does not inherit an exemption. A foreign heir must independently satisfy the same subject requirement, meaning valid Indonesian immigration documentation, in order to register the title in their own name. An heir who cannot meet it falls under the same one year window to transfer or release. Families who assume that a Hak Pakai simply passes down the way freehold does in their home country discover this at the worst possible moment.

    A Restriction Buyers Discover Too Late

    Individual Hak Pakai granted to a foreign national is designated strictly for personal residential dwelling (rumah tempat tinggal atau hunian). It is not a commercial title.

    Letting the property out, whether as a short-term holiday rental or a long-term subtenancy, turns the use into a commercial enterprise and falls outside that residential designation. Income-generating villa or apartment operations legally belong to a Foreign Direct Investment Company (PT PMA) holding the appropriate KBLI business classification (for example KBLI 55110 and 55120 for accommodation), an HGB or corporate Hak Pakai title, and operational permits (PBG and SLF).

    Using a personal residential Hak Pakai title for commercial letting constitutes a misuse of the land right’s designated purpose, exposing the holder to administrative penalties, tax audits on unreported rental income, and potential revocation of the title by ATR/BPN.

    Anyone buying a Bali villa on the assumption that it will pay for itself through rental should read that paragraph twice.

    Implementing Regulations and Government Decrees

    Government Regulation No. 18 of 2021 is the core implementing regulation for land rights under the Job Creation Law, replacing PP No. 103/2015 and PP No. 40/1996. It allows foreigners to own landed houses under Hak Pakai and apartment units under Hak Pakai or HGB, and it clarifies that properties legally held by foreigners can be mortgaged, transferred, or inherited.

    Ministerial Regulation ATR/BPN No. 18 of 2021 then translates those broad statutory policies into strict administrative mechanics. It provides the operational instructions that local Land Offices (Kantor Pertanahan, BPN) must follow when processing, verifying, and issuing land titles for foreign nationals, and it sets the two limits that stop most transactions.

    The “One Plot Per Person or Family” Rule

    Prevention of Land Hoarding: BPN is legally prohibited from registering more than one residential plot (rumah tapak) under the personal name of an individual foreigner or foreign family unit.

    Central Registry Check: Before approving a Hak Pakai title application, BPN conducts a national database search against the foreigner’s identity and passport or KITAS details. If the foreigner already holds a registered residential plot anywhere in Indonesia, a second application is automatically rejected.

    Land office officer showing a rejected Hak Pakai application to a foreign applicant

    Family Unit Scope: The rule applies per family. Spouses cannot bypass the limit by registering one property under the husband’s name and another under the wife’s name to build a personal portfolio of landed houses.

    The 2,000 Square Metre Plot Cap

    For standard personal housing, individual foreign ownership under Hak Pakai is capped at a maximum plot size of 2,000 square metres (20 ares).

    The cap is designed to ensure that foreign personal land access remains strictly limited to primary residential living, preventing individual foreigners from buying up large swathes of agricultural land, coastal areas, or village tracts under the guise of personal housing.

    The Ministerial Exception, and What It Does Not Buy

    The provision permitting larger plot sizes with special permission allows high net worth foreign individuals to acquire larger estates, subject to specific conditions.

    Discretionary Approval, Not an Automatic Right: A wealthy foreigner cannot simply pay a seller extra money, or pay a fee at the local land office, to buy a 5,000 square metre residential plot. The local BPN office lacks the authority to approve plots exceeding 2,000 square metres on its own.

    Economic Impact Justification: To exceed the threshold, the buyer must submit a formal application directly to the Minister of Agrarian Affairs and Spatial Planning in Jakarta. The application requires proof that the property acquisition will deliver a substantial positive economic or social impact for Indonesia, such as significant capital deployment, employment creation, or integration into designated strategic development zones.

    To be very clear, Ministerial approval to exceed the 2,000 square metre plot threshold does not grant a foreign buyer Hak Milik (Freehold).

    Under Article 21 of the Basic Agrarian Law (Law No. 5/1960), Hak Milik is strictly reserved for Indonesian citizens. This restriction is absolute, no amount of wealth, capital deployment, or special ministerial permission can bypass or override statutory law to give a foreign national freehold title.

    What Ministerial approval actually alters is the physical limit of the acquisition, never the legal nature of the title:

    a. Title Category Remains Hak Pakai: The foreign buyer receives a Hak Pakai certificate, never Hak Milik.

    b. Scope of Exemption: The approval waives only the standard administrative caps, allowing an individual foreigner to hold a single residential plot larger than 2,000 square metres, or to hold more than one residential plot in Indonesia.

    c. Time and Residency Constraints: The land remains subject to standard Hak Pakai conditions, granted for up to 30 years, extendable for 20 years, and renewable for 30 years, for a maximum total duration of 80 years. The buyer must continuously maintain valid immigration status and must transfer the title within one year if they lose residency or leave Indonesia permanently.

    Minimum Property Price Thresholds

    Alongside the size limits sits a price floor. Ministerial Decision ATR/BPN No. 1241/SK-HK.02/IX/2022 on the Acquisition and Price of Residential Housing for Foreigners establishes mandatory minimum property prices for foreign buyers across different provinces, to ensure foreign purchases remain in the luxury category.

    For landed houses (rumah tapak), the minimum purchase price is IDR 5 Billion in Bali, DKI Jakarta, Banten, West Java, Central Java, East Java and DI Yogyakarta. It is IDR 3 Billion in West Nusa Tenggara, IDR 2 Billion in North Sumatra, East Kalimantan, South Sulawesi and Riau Islands, and IDR 1 Billion in all remaining provinces.

    For apartment and condominium units (rumah susun or sarusun), the minimum is IDR 3 Billion in DKI Jakarta, IDR 2 Billion in Bali, Banten, West Java, Central Java, East Java and DI Yogyakarta, and IDR 1 Billion elsewhere. Only commercial strata developments qualify.

    One provision that is rarely mentioned: Indonesian diaspora buyers are subject to 75% of the standard threshold for both categories.

    Why the Thresholds Exist

    The Indonesian government introduced these floors to achieve three policy objectives.

    Protecting Middle-Class Citizens from Gentrification: By setting high price floors, the government prevents foreign capital from competing with local citizens for standard residential housing, which would otherwise drive land prices out of reach for middle and lower income Indonesians.

    Indonesian family beside a housing policy notice on minimum property prices for foreign buyers

    Segmenting the Property Market: The policy forces foreign individual buyers strictly into the luxury real estate tier (pasar kemewahan), ensuring that direct foreign land access is tied to substantial economic inflow.

    Maximising Tax Revenues: High transaction thresholds yield significantly higher state revenues through transfer taxes, BPHTB paid by the buyer at 5% and PPh paid by the seller at 2.5%.

    How BPN Actually Processes a Foreign Purchase

    When a foreigner purchases an eligible landed house, BPN executes a specific administrative procedure.

    Title Conversion, Hak Milik to Hak Pakai: Because foreigners cannot hold Hak Milik, if the target property is currently held under Hak Milik by an Indonesian national, the Indonesian owner must surrender the Hak Milik status back to the State. BPN simultaneously issues a new Hak Pakai Certificate directly in the foreign national’s name.

    Cadastral Boundary Mapping: BPN surveyors inspect the property to create an official physical measurement map (Surat Ukur), confirming that the exact surface area falls within 2,000 square metres before approving the title issuance.

    Immigration and Price Audit: BPN verifies that the purchase price meets or exceeds the provincial minimum threshold, and checks that the buyer holds active immigration documentation.

    Visa and Residency Categories That Qualify

    To hold and register real estate legally under a foreign national’s personal name, the buyer must hold valid immigration documentation. Qualifying categories include:

    Limited Stay Permit (KITAS):

    • Investor KITAS, issued to foreign investors serving as shareholders or directors in a PT PMA.
    • Work KITAS, sponsored by an Indonesian entity for foreign employees.
    • Spousal or Family KITAS, available to foreigners married to an Indonesian citizen.
    • Remote Worker Visa, suitable for foreign remote workers who maintain income from abroad while residing in Indonesia.

    Permanent Stay Permit (KITAP): Offers five year renewable permanent residency, typically accessible after holding a continuous KITAS or through spousal sponsorship.

    Second Home Visa (E33): Grants a five year or ten year residency permit without requiring a local corporate sponsor or employment contract. It requires a financial commitment, satisfied either by depositing a set sum in an Indonesian state owned bank or by providing proof of qualifying property ownership in Indonesia.

    Golden Visa: Offers extended five year or ten year residency pathways aimed at high net worth investors making substantial capital injections, government bond purchases, or high value real estate investments.

    How Large-Scale Commercial Land Acquisitions Work

    For wealthy foreign investors acquiring extensive tracts of land for commercial projects such as resorts, hotels, or real estate developments, the individual Hak Pakai route is rarely used. Instead, investors establish an Indonesian Foreign Direct Investment Company (PT PMA).

    • Hak Guna Bangunan (HGB): The PT PMA corporate entity holds a Right to Build title over the land, valid for up to 80 years in total.
    • Automatic Title Downgrade: If the target property was previously held under Hak Milik by an Indonesian national, the land title is legally released and automatically downgraded to HGB at the moment of transfer to the PT PMA.
    • No Freehold Retention: Neither the PT PMA entity nor its foreign shareholders are permitted to hold Hak Milik.

    A PT PMA can legally hold HGB over significantly larger land parcels for commercial, resort, or residential development purposes. This shifts the foreign investor into a heavily regulated corporate environment, however, requiring substantial capital investment, reporting, and ongoing corporate tax compliance. (Holding land through a PT PMA solves one problem and creates several others. Those are set out in PT PMA and Indonesian Labour Law: What Employers Owe.)

    The On-the-Ground Reality

    Everything above describes what the law permits. What actually happens is narrower, and understanding the gap is what protects you.

    Foreign couple discussing inheritance of Indonesian property with a legal adviser

    Strict Application for Direct Personal Titles: For buyers attempting to register a Hak Pakai title or an apartment title (Sarusun) directly in their own name at the Land Office, enforcement is strict. Land Title Registrars (PPAT) and BPN officials will automatically reject any direct title transfer application if the official Sale and Purchase Deed (Akta Jual Beli, AJB) reflects a value below the mandatory provincial threshold.

    Extremely Low Adoption of Direct Foreign Ownership: Because IDR 5 Billion is a high barrier for average foreign residents, retirees, or small investors, very few foreigners actually use the direct Hak Pakai route. The market therefore relies heavily on alternative structures. One of those alternatives is lawful. The other is not.

    The Lawful Alternative: Long-Term Leasehold (Hak Sewa)

    This is the most common legal alternative and the one most foreign residents should be looking at. A Hak Sewa is a private lease contract governed by the Indonesian Civil Code (KUHPerdata), not a land title registered at BPN. Because leaseholds do not fall under ATR/BPN Ministerial Regulations, a foreigner can legally lease a house or plot of land for any amount without triggering the IDR 5 Billion threshold.

    It is signed in your own name. It is enforceable. It does not depend on anyone’s goodwill or good health. What it requires is a properly drafted contract, which is where most Bali leases fail, and which we return to below.

    The Unlawful One: Nominee Agreements

    Foreigners wanting to buy property priced below the threshold under a freehold concept (Hak Milik) frequently use an Indonesian nominee. The nominee’s name appears on the certificate, while side contracts are signed privately in an attempt to disguise foreign control.

    Nominee agreements persist because foreigners want the financial benefits of freehold appreciation while circumventing local ownership restrictions, and because local facilitators profit from arranging them. Brokers and legal consultants construct elaborate “paper fortresses” designed to simulate control over the property, despite the fact that Indonesian courts systematically strike these structures down when they are disputed.

    In practice, a nominee arrangement is never a single document. It is a bundle of interlinked side contracts signed before a notary and designed to look like ordinary commercial dealings. Courts are entirely familiar with the pattern, and the bundle itself is treated as evidence of intent rather than as protection.

    Why the Practice Endures

    • Illusion of Legal Protection: Buyers mistake a notary’s stamp (PPAT) for legal validation. Notaries authenticate signatures and legal capacity, but they cannot legitimise an illegal underlying premise.
    • Avoiding PT PMA Capital Requirements: Foreigners bypass setting up a Foreign Direct Investment Company, which requires substantial paid up capital, corporate tax compliance, and business reporting.
    • Market-Driven Pressures: Sellers and real estate agents push nominee arrangements to attract foreign capital willing to pay full freehold rates rather than negotiated leasehold prices.
    • Lack of Initial Oversight: The Land Office processes land transfers based on the primary Deed of Sale (Akta Jual Beli) between Indonesian citizens. Private side agreements are hidden from the initial registration process.

    That last point is the one that misleads people most. The absence of an objection at registration is not approval. It only means the arrangement has not been examined yet.

    The Laws That Void It

    Law No. 5 of 1960 on Basic Agrarian Regulations (UUPA):

    • Article 21 Paragraph (1): Restricts Hak Milik exclusively to Indonesian citizens.
    • Article 26 Paragraph (2): States explicitly that any contract or transaction that directly or indirectly transfers Hak Milik to a foreigner is null and void by operation of law (batal demi hukum).
    Cash payment and documents changing hands in a property transaction

    Indonesian Civil Code (KUHPerdata):

    • Article 1320: A contract must meet four requirements to be valid and enforceable: mutual consent, legal capacity, a defined subject matter, and a lawful cause (sebab yang halal).
    • Article 1337: A contract’s cause is unlawful (sebab yang terlarang) if its objective violates statutory law, public policy, or good morals.

    “Lawful cause” is sometimes presented to foreign buyers as though it were a route in. It is the opposite. It is the exact legal principle Indonesian courts use to invalidate and strike down foreign nominee agreements, and it is a mandatory requirement for validity, not a right, an exemption, or a special permit.

    When a foreigner attempts to hold Hak Milik through an Indonesian nominee, courts analyse the true objective of the documents rather than their labels:

    1. Statutory Prohibition: Article 21 UUPA reserves Hak Milik strictly and exclusively for Indonesian citizens.
    2. Legal Smuggling (Penyelundupan Hukum): The underlying objective of a nominee contract is to grant a foreigner beneficial ownership over Hak Milik. Because this deliberately circumvents statutory law, it constitutes an intentional evasion of public policy.
    3. Automatic Invalidation: The contract therefore possesses an unlawful cause under Article 1337. As a direct result, it is null and void from its inception (batal demi hukum) and cannot be enforced in any Indonesian court.

    By contrast, a property transaction involving a foreign national has a lawful cause when its structure complies with statutory permissions: a direct leasehold (Hak Sewa) in the foreigner’s own name, a registered residential Hak Pakai title under PP 18/2021, or corporate ownership through a PT PMA holding HGB under Investment Law No. 25/2007.

    Supreme Court Policy and Case Law

    SEMA No. 10 of 2020 sets the position at national level. Its civil chamber plenum principle at Kamar Perdata Point 4 states that the owner of a parcel of land is the party whose name appears on the certificate, even where the land was purchased using money, assets or funds belonging to a foreign national or another party. That single sentence is what blocks a foreign buyer from claiming underlying equity when a nominee structure breaks down.

    At first instance, Denpasar District Court Decision No. 787/Pdt.G/2014/PN.Dps is the case most often cited in Bali. A foreign national used a nominee bundle of loan agreement, irrevocable power of attorney, mortgage registration, lease and power to sell, and the court declared every underlying agreement void from inception as legal smuggling under Article 21(1) of Law No. 5/1960 and Article 1320 of the Civil Code.

    Punishments and Legal Consequences

    Automatic Land Forfeiture to the State: Under Article 26(2) of UUPA, when a nominee arrangement is exposed, the underlying land reverts directly to the Indonesian State (tanah negara). The property is not awarded to the foreigner, nor does it remain with the Indonesian nominee.

    Total Loss of Investment: The foreign buyer loses all capital paid for the property. Indonesian courts will not enforce refund claims or fictitious loan notes tied to an illegal underlying scheme.

    Criminal Charges for Document Falsification: Under Articles 263 and 266 of the Indonesian Penal Code (KUHP), submitting false information or declaring fake debt arrangements before a Notary or PPAT in order to record a public deed carries criminal penalties of up to seven years imprisonment, for both the foreigner and the nominee.

    Money Laundering Laws (Law No. 8/2010): Hiding foreign capital through a local proxy to disguise beneficial ownership can trigger financial crime investigations under anti money laundering frameworks.

    Professional Sanctions for Facilitators: Notaries or PPAT who knowingly draft or authenticate nominee contracts face administrative revocation of their licence under Law No. 2/2014 on Notary Public, along with potential criminal co-conspiracy charges.

    Foreign buyers reviewing a bundle of side agreements at a notary office

    Third-Party Exposure: Separately from any state action, the property remains vulnerable to the nominee’s personal life. If the nominee dies, divorces, enters bankruptcy, or faces tax audits, the land can be claimed by lawful heirs, seized by bankruptcy receivers, or frozen by tax authorities.

    How These Arrangements Come to Light

    Foreign buyers often assume that a nominee structure stays private because it was never registered. It does not. When a land dispute arises, or when authorities conduct an audit, the structure is established through specific evidentiary mechanisms.

    Financial Trail Tracing: Judges and auditors examine the source of funds (asal-usul dana). Proof that purchase payments, deposit funds, or recurring maintenance fees originated from a foreign bank account, or from a foreigner’s personal business, overrides the name printed on the land certificate.

    The Contract Bundle Test: Courts treat the simultaneous existence of the side contract set as direct circumstantial proof (bukti petunjuk) of an intentional attempt to bypass public law.

    Operational Control and Physical Possession: Evidentiary review looks at who actually occupies the property, holds the physical land certificate, pays the annual Land and Building Tax (PBB), or receives income generated from renting the property out.

    Nominee or Heir Admissions: Many nominee cases are exposed when the Indonesian nominee dies, divorces, or enters personal bankruptcy. The nominee’s legal heirs or bankruptcy receivers often submit testimony admitting that the nominee held no actual equity, exposing the side contracts to judicial review.

    Financial Intelligence and Tax Cross-Checks: The Financial Transaction Reports and Analysis Centre (PPATK) flags transactions where an Indonesian national with low declared income suddenly acquires a multi billion Rupiah property funded by incoming overseas transfers.

    Notary and Land Office Audits: Before executing a property transfer deed for a foreigner, the PPAT must verify bank transfer slips, official valuations, and tax payment receipts. A notary who facilitates a direct title transfer to a foreigner below the minimum threshold faces administrative sanctions and loss of their legal licence.

    Tax Office Cross-Checks: The Directorate General of Taxes compares declared transaction values against the Tax Object Sale Value (NJOP) and regional property benchmarks. Declaring artificial prices triggers formal tax audits on both the foreign buyer and the Indonesian seller.

    BPN Title Audits on Encumbrances: BPN periodically inspects Hak Milik certificates carrying unusual mortgages (Hak Tanggungan) or absolute powers of attorney registered in favour of foreign nationals, as these serve as primary indicators of an illegal nominee relationship.

    Dispute-Driven Exposure: The majority of illegal nominee arrangements are exposed when personal relationships sour. Courts routinely invalidate them and enforce land forfeiture under Law No. 5/1960.

    A Word on Declared Prices

    Some buyers and sellers attempt to declare an inflated contract price on paper in order to meet BPN requirements for Hak Pakai, while executing side payments for a lower actual price.

    Declared purchase price compared against actual payments and the resulting tax exposure

    This is not a workaround with a cost attached. It is exposure. The declared figure binds you for transfer taxes regardless of what actually changed hands, and the gap between the declared price and the traceable payments becomes the evidence in any subsequent audit. You pay the higher tax and you carry the risk.

    Countless people have fallen into this hell loop. A wish to invest and have a nice sunny life in Bali can turn into hell once you choose to follow the grey and illegal paths.

    Three Obligations Your Lease Must Address

    If leasehold is the route, and for most foreign residents it is, then the contract is the entire protection. Three obligations are routinely left out of Bali leases, and each one surfaces later as a dispute.

    Lease Tax (PPh)

    Under Government Regulation No. 34 of 2017, income from leasing land or buildings is subject to final income tax at 10% of the gross lease value. Gross value is not the headline rent alone. It includes service charges, security fees, maintenance costs, and any other sum the tenant pays or owes in connection with the leased property.

    Who remits it depends on the tenant. Where the tenant is a government body, a domestic corporate taxpayer, a permanent establishment, an event organiser, or an individual designated as a withholding agent (notaries, PPAT, lawyers, accountants, architects, doctors, consultants, and individuals running a business with formal bookkeeping), the tenant withholds and remits the tax. Where the tenant is an ordinary individual who is not a designated withholding agent, the obligation falls on the landlord to pay it directly. Payment is due by the 15th of the following month and the report by the 20th.

    Accommodation services such as hotels, guesthouses and kos fall outside this regime and are taxed separately as regional tax.

    The practical failure is simple. Most leases signed in Bali say nothing about who bears the 10%. Two years later, when the tax office asks, both sides point at each other. Put the allocation in writing in the lease.

    Building Permits (PBG and SLF)

    The Izin Mendirikan Bangunan (IMB) no longer exists. Government Regulation No. 16 of 2021, implementing Law No. 28 of 2002 on Buildings as amended by the Job Creation Law, replaced it with two documents.

    Persetujuan Bangunan Gedung (PBG) is the approval required before you build, extend, reduce, alter, or carry out works on a building. It is granted by the regency or city government through the SIMBG system and is assessed against building technical standards.

    Sertifikat Laik Fungsi (SLF) is the certificate confirming that the completed building is fit for its intended function. It is required before the building may lawfully be used.

    The sanctions for proceeding without them are not theoretical. PP No. 16 of 2021 provides for written warning, restriction of construction works, temporary or permanent suspension of construction, temporary or permanent suspension of use of the building, freezing or revocation of the PBG, freezing or revocation of the SLF, and an order to demolish. An IMB issued before the new regime remains valid until it expires.

    On a leasehold this matters more than buyers expect. The land belongs to the lessor. The building you fund sits on it. The lease must state who applies for the PBG, in whose name it is held, and what happens to the structure and its permits when the lease term ends.

    Desa Adat and Banjar Obligations

    Desa adat assembly meeting under a pararem and banjar obligations notice

    This is the layer foreign buyers understand least, and the one that stops projects fastest.

    Peraturan Daerah Provinsi Bali No. 4 of 2019 on Desa Adat in Bali, with its implementing regulation Peraturan Gubernur Bali No. 4 of 2020, recognises desa adat as a customary law community unit with its own territory (wewidangan), its own assets (padruwen), and the authority to regulate and manage its own affairs.

    Two instruments follow. Awig-awig are the rules made by a desa adat or banjar adat. Pararem are decisions of the village assembly (paruman) implementing the awig-awig or settling new matters. Awig-awig bind three categories of person within the territory: krama desa adat (customary members), krama tamiu (Indonesian residents who are not customary members), and tamiu (guests, which includes resident foreigners).

    Two consequences follow for anyone taking land in Bali.

    First, where the land is desa adat land, it can only be leased with the approval of a paruman desa adat decision. A lease signed with an individual who happens to farm or occupy that land, without the assembly’s decision, has no customary standing.

    Second, even where the land is privately held and every national permit is in order, the desa adat can halt a project through its own instruments. Construction consent, contributions levied on non member residents and businesses under awig-awig or pararem, and access to village infrastructure all sit with the banjar. This is not a national statutory requirement, and no notary will raise it, but on the ground it decides whether a project proceeds.

    Budget for it, engage the banjar before you build rather than after, and do not treat a national permit as an answer to a customary objection.

    A Note on Zoning

    A certificate confirms who holds the right. It does not confirm that the plot may lawfully be built on.

    Under Government Regulation No. 21 of 2021, the old izin lokasi was replaced by Kesesuaian Kegiatan Pemanfaatan Ruang (KKPR), issued through the OSS system. Detailed zoning plans (RDTR) are not in place across much of Bali, and where they are absent, spatial suitability is assessed case by case rather than confirmed automatically.

    Land designated as protected area, green belt, agricultural, or land falling within a coastal, river or sacred site setback will not receive approval for a villa or commercial building, whatever the seller says and whatever the certificate shows. Confirm the designation locally before payment.

    OSS officer assessing a KKPR spatial suitability application case by case

    Before You Sign or Pay Anything

    • Certificate type and history. Hak Milik, Hak Pakai, HGB, or none at all. Check what it is now and what it was before.
    • Zoning designation. Confirm locally what may lawfully be built on the parcel.
    • Seller identity and marital consent. Confirm that the seller is the registered holder, and that spousal consent is obtained where the property is marital property.
    • Outstanding PBB. Land and building tax arrears follow the land.
    • Existing encumbrances. Check for registered mortgages (Hak Tanggungan) and powers of attorney.
    • Permit status. Confirm whether a PBG or a valid legacy IMB exists, and whether an SLF has been issued.

    Every one of these is checkable before money moves. None of them is checkable afterwards.

    Contact us for strategic, zero risk, law and regulation compliant guidance on Indonesian property ownership and businesses, directly on WhatsApp LINK or by email LINK.

    Sources