Navigating land right and ownership in Indonesia can be complex, particularly for foreign investors. The country's land laws are designed to ensure legal and economic stability and balance local and foreign interests. Here, we explain the four main types of land ownership in Indonesia, provide an overview of zoning regulations in Bali, and the role of due diligence in land transactions.
Land Rights
Hak Milik (Freehold)
- Description: Hak Milik, or freehold, represents the highest form of land ownership in Indonesia. It grants Indonesian citizens absolute, eternal, and inheritable rights over the land.
- Restrictions: Only Indonesian citizens can possess Freehold land. Foreigners cannot directly own freehold land.
- Risks for Foreigners: Some foreigners attempt to bypass this restriction using nominee arrangements, where an Indonesian citizen holds the land on behalf of a foreigner. However, these practices are legally dubious and can lead to significant complications. Nominee agreements are not upheld by Indonesian courts and property rights (the nominee's name on the SHM) take precedence over personal rights (the agreement with the nominee). This can result in foreigners losing their investments if disputes arise.
Right to Use (Hak Pakai)
- Description: Hak Pakai allows the use of land for specific purposes without ownership. This right can be granted for land owned by the government or private individuals.
- Duration and Renewal: Typically granted for 25 to 30 years, with renewal options. In certain cases, Hak Pakai can be transferred to others, often requiring approval.
- Option for Foreigners: Since direct land ownership is not possible for foreigners, Hak Pakai provides a legal avenue to utilize property for personal or business purposes while complying with Indonesian law.
Right to Build (Hak Guna Bangunan)
- Description: Hak Guna Bangunan (HGB), or the Right to Build, allows individuals or companies to build and use structures on land they do not own.
- Viable for Businesses: This is another viable option for foreigners seeking land ownership. Foreigners can obtain HGB by establishing a PT PMA, or Perseroan Terbatas meaning “limited liability" and Penanaman Modal Asing meaning “foreign invested capital”.
- Duration and Flexibility: The government typically grants HGB for up to 30 years, with an option to extend it for another 20 years. After the initial period, the HGB can be further extended and renewed indefinitely. Businesses also have the flexibility to sell or transfer the HGB to another Indonesian person or entity.
Leasehold (Hak Sewa)
- Description: Leasehold grants temporary rights over land for a specified period, typically up to 25 or 30 years, with possibilities for renewal.
- Legal for Foreigners: Leasehold is a legal and viable option for foreigners, offering them the ability to use land for various purposes such as building homes, businesses, or farming.
- Flexibility: Leaseholders can transfer or sublease the property with the lessor’s consent, making it an attractive option for managing investments while complying with Indonesian law.
If you have questions or would like more information, reach out to one of our legal experts:
Zoning Regulations in Bali
Understanding zoning regulations is crucial for any real estate investment in Bali. Zoning laws dictate how land can be used and developed, ensuring orderly development and protecting environmental and cultural resources. The primary types of zoning in Bali include:
Residential Land Zone (Yellow):
- Purpose: Designated for housing and residential developments.
- Regulations: Building height, density, and architectural style may be restricted to maintain the area's character.
Commercial Land Zone (Red):
- Purpose: Areas allocated for businesses, offices, shops, and commercial activities.
- Regulations: These zones have guidelines on building usage, advertising, and operations to ensure they serve commercial purposes effectively.
Agricultural Land Zone (Green):
- Purpose: Reserved for farming, plantations, and other agricultural activities.
- Regulations: Construction and land use changes are typically limited to preserve agricultural productivity and land integrity.
Tourism Land Zone (Pink):
- Purpose: Areas designated for tourism-related activities, including hotels, resorts, and recreational facilities.
- Regulations: These zones often have specific building and operational guidelines to support the tourism industry while protecting local culture and environment.
For zoning information and to check specific land uses in the Badung Regency of Bali, visit the Badung Regency Zoning Portal. This resource helps investors understand the permissible uses for different land parcels in the Badung Regency of Bali. Search any plot of land by either using coordinates or by locating the NIB, or Nomor Idenitifikasi Bidang Tanah, on the land certificate. Type the last 5 digits of the NIB into the Zoning Portal’s search engine to discover the land zoning and regulations associated with the area.
Don't let zoning regulations catch you off guard. Our legal experts are ready to assist you with the most up-to-date and accurate information on any plot of land that you are interested in:
The Crucial Role of Legal and Tax Due Diligence
Investing in Bali's real estate market requires thorough legal and tax due diligence to avoid unforeseen complications, financial losses, and legal entanglements.
Legal Compliance
- Navigating Legal Complexities: Bali's real estate landscape is complex, particularly for foreign investors. Understanding land ownership rights, zoning laws, and building permits is essential to avoid disputes and fraudulent transactions.
- SAS Expertise: We conduct detailed examinations of ownership, verify documentation authenticity, confirm boundaries, and ensure compliance with zoning regulations.
- Document Verification: Our legal team ensures that all documentation is authentic and meets Indonesia's stringent legal requirements for land transactions. We mitigate risks associated with incomplete or fraudulent documents and assist with the finalization of Sale and Purchase Agreements.
Tax Implications
- Understanding Tax Liabilities: Assessing tax liabilities related to property ownership, rental income, and capital gains is crucial to avoid fines and penalties. Outstanding liabilities from previous owners can unexpectedly become your responsibility if not addressed during due diligence.
- SAS Tax Due Diligence Services: Our due diligence process involves a thorough examination of all tax obligations associated with the property, including yearly land and building taxes (PBB) and running water taxes (ABT). We help you navigate Indonesia's complex tax regulations, ensuring compliance and protecting your investment against unforeseen financial burdens.
Conclusion
Conducting comprehensive due diligence is essential for investors to mitigate risks and safeguard their investments. Identifying potential legal or tax issues before completing transactions enables informed decision-making and effective risk management. This proactive approach protects investors' interests and preserves the integrity of their portfolios.
With extensive expertise in legal and tax frameworks, SAS offers tailored guidance to meet each client's needs. Our personalized service ensures clients receive individualized attention throughout the process, supported by transparency and integrity. We provide holistic solutions beyond legal and tax advisory services. We specialise in helping investors maximize returns and achieve long-term objectives while minimizing risks.
Our team of in-house legal experts specializes in assisting foreign entities in acquiring and managing land assets in Indonesia. Whether you are considering freehold, leasehold, or establishing a PT PMA, we offer comprehensive support for all your needs. Contact us by email or WhatsApp to learn how we can help you turn your Indonesian property dreams into reality.
