Common property legal questions

img Adiel Bukitvista | May 8, 2023

Emerhub, a leading property legal expert, recently sat down with Bukit Vista for an interview to share their insights on the current state of property law and how it affects investors and businesses in the real estate industry. Here are some of the topics of the conversations we have with Florent – a branch manager and legal consultants from Emerhub.

How is the process of buying a property now in Indonesia (Bali)?

Freehold ownership

also known as hak milik, is the most common form of property ownership in Indonesia. It grants the owner full ownership rights to the property, including the ability to sell, lease, or transfer the property. Freehold properties can be held by both Indonesian citizens and foreigners, with the latter being able to own the property through a local nominee or a local company.

One of the main advantages of freehold ownership is the ability to transfer or sell the property at any time. This makes it a good option for those who plan on living in the property for an extended period or for those who plan on renting out the property as an investment.

Leasehold ownership

also known as hak sewa, grants the owner the right to use and occupy a property for a specific period of time, usually 20 or 30 years. The property remains the property of the government or the original landowner, and the lease can be renewed at the end of the lease period. Leasehold properties are commonly held by foreigners and are a popular option for those looking to buy property in tourist areas such as Bali.

Leasehold ownership may be a better option for those who plan on using the property as a holiday home or for those who want to avoid the responsibilities and costs associated with full property ownership. However, one of the disadvantage of leasehold ownership is that the property can’t be transferred or sold during the lease period, and the lease is not inheritable. Additionally, the leasehold property owner is responsible for paying property taxes, maintenance, and other costs associated with the property.

Florent Delente - Emerhub Branch manager & Legal Experts

Do I need to register a PT PMA  to rent a property?

No, it is not necessary for foreigners to register a PT PMA (a foreign-owned limited liability company) to acquire a property in Indonesia. However, it is one of the safest ways that a foreigner can own property in Indonesia, as PT PMA can own land and property through a local nominee or a local company.

As a foreign national, you cannot directly own land in Indonesia, but you can own a building on land that you lease from the government or a local owner. You can do this by obtaining a Hak Guna Bangunan (HGB) or Right to Build and Own. This type of ownership allows you to construct and own a building on a piece of land, but not the land itself.

PMA (Penanaman Modal Asing)

PMA stands for “Penanaman Modal Asing” in Indonesian, which translates to “Foreign Capital Investment” in English. It refers to a company that is fully owned by foreign investors and operates in Indonesia.

PMA companies are established in Indonesia to conduct business activities and are governed by the Indonesian laws and regulations for foreign capital investment companies. These companies are established under the Indonesian law No. 25/2007 on Investment, and must be registered with the Indonesian Investment Coordinating Board (BKPM) for approval.

How do you get a Hak Guna Bangunan (HGB)

Hak Guna Bangunan (HGB) is a form of land ownership in Indonesia that allows the holder to construct and own a building on a piece of land, but not the land itself. It is granted by the government for a period of 25 years and it is renewable for another 25 years. It’s a popular option for foreigners looking to buy property in Indonesia, as it allows them to own a building on land that they lease from the government.

It’s important to note that HGB holder must pay property taxes and other costs associated with the building and maintenance of the property, and they can’t transfer or sell the property during the lease period.

emerhub freehold vs leasehold service
Emerhub, Bukit Vista legal partners can help you do due dilligence & consult tax & complients of investing a property in Indonesia

How much is the property tax rate?

During the transfer of land and construction rights in Indonesia, both purchasers and sellers should pay specific taxes. Sellers must pay for the income tax on the sale of land or property, and purchasers need to pay for the acquisition tax of land and building rights.

1. Sales Tax (PPH) Owed by Sellers

Sellers must pay for the income tax from the transfer of their land or building rights per the Indonesian Law GR 34/2016:

  • 1% for simple flats or simple houses for their transfer of land or building rights
  • 2.5% for regular structures, excluding simple homes or apartments for the transfer of their building rights

2. Acquisition Tax (BPHTB) Payable by Buyers

Acquisition duty is imposed on buyers for their acquisition of land or building rights. The rate is 5% and is determined based on the assessed value or transaction value.

3. Rental property tax
a tax that is imposed on property owners in Indonesia who rent out their property to tenants. The tax is calculated based on the rental income earned from the property.

Rental property tax in Indonesia is calculated based on the gross rental income earned from the property. Rental income or Lease tax is levied in the amount of 10% of the Lease Value for tax residents in Indonesia. For non-tax Residents the Lease Tax due is 20% of the Lease Value.

Read more on rental property tax in Indonesia

Hopefully this interview with Emerhub provides valuable insights for anyone interested in investing in the property industry, offering a unique perspective from one of the leading legal experts in the field.

If you want to learn more about Emerhub and their services, visit their website for your property due diligence and tax consultation. And if you want to know more about the potential projection of investing in a rental property in Bali and want your rental property managed by a professional with 10+ years of experience. Contact Bukit Vista today!

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