Government Regulation:
Property Law
in Indonesia
Land matters except for mining and forestry are under the
jurisdiction of the National Land Agency (Badan Pertanahan
Nasional) formed to administer all matters relating to the
Basic Agrarian Law of 1960 such as the registration of
land rights and the granting of rights and various permits
to use the land. There are currently only two categories
of land rights:
a) Adat land (customary land) where the land is not
registered with the relevant land office. There are 2
individual rights and 6 community rights in this category.
All rights held under this category will eventually be
converted to certified titles.
b) Certified land, the title to which is governed by the
Basic Agrarian Law of 1960 and is registered at the local
land office. There are five principle types of land rights
held under the Agrarian Law. These are:
Right of Ownership (Hak Milik)
This refers to absolute ownership of land and corresponds
to a fee simple or freehold title in common law
jurisdictions. This right can only be held by an
Indonesian citizen, not a corporate entity whether local
or foreign. Certain legal entities designated by the
government, such as State Banks, agricultural cooperatives,
religious bodies, and social foundations may hold this right
subject to certain restrictions. This right of ownership
is held in perpetuity. It can be sold, transferred,
bequeathed, and hypothecated (mortgaged).
Right to Build (Hak Guna Bangunan - HGB)
This is the right to construct a building on land for a
period of 20 or 30 years (renewable for
another term of 20 years). This right can be sold,
exchanged, transferred, and mortgaged, and can be held
directly by any corporate entity whether it is a local
company or a government approved PMA company.
Right to Rent (Hak Sewa Bangunan)
This is the right to use land owned by another private
party (the lessor) for building purposes. The right cannot
be registered at the land office and therefore does not
exist in certificate form. The law does not stipulate a
period for such lease agreements and whether this can be ransferred
or not depends on the original agreement between the
parties. This right may be held by a foreigner permanently
domiciled in Indonesia or a foreign legal entity having a
representative office in Indonesia. It cannot be mortgaged.
Right of Use (Hak Pakai)
This is the right to use State-owned or other land by
public or private persons or entities for a specific
purpose for a definite period or occasionally for an
indefinite period. This land right cannot be sold,
exchanged or transferred unless explicitly provided in its
grant or agreement and normally for a period not exceeding
10 years. This right may be held by an Indonesian
individual or entity or foreigner permanently domiciled in
Indonesia, or a foreign legal entity with a representative
office in Indonesia such as foreign banks, embassies,
etc.
Right of Exploitation (Hak Guna Usaha)
This is the right to exploit State-owned land for
agriculture, fishery or husbandry purposes for a period of
up to 35 years with a possible 25 years extension. This
right can be held by Indonesian individuals/entities as
well as government approved PMA companies. The certificate
can be mortgaged.
Renewal of Rights
Renewal or extension of rights on expiry of the initial
term is via an application to the National Land Agency and
is subject to payment of a fee. An application must be
submitted one year before expiry of the term. Although the
law is silent in regard to the period after the expiry of the
extended term/s, the consensus is that a land right can be
extended if there has been no infringement of the
conditions attached to its usage.
Procedures for Property Acquisition
All transactions of land rights must be via deeds executed
before a land deed official at the local office of the
Pejabat Pembuat Akta Tanah (PPAT) where the land is
located and must be registered in the regional office of
the National Land Agency. The PPATs are privately managed
offices (usually run by a notary) authorised by the
National Land Agency to handle land acquisition matters.
Although there is no regulation that contracts have to be
in Indonesian language, we recommend having contracts and
agreements always drawn up and executed in Behasa
Indonesia to prevent later arguments that the local
partner did not fully understand the content. |
| |
Build for Yourself
or Buy an Existing Villa ?
If you are interested in buying an existing villa in Bali,
please keep in mind that all attractive houses are owned
by foreigners who have financed their vacation home in
foreign currency. If they agree to a sale they
understandably wish to recover at least the same amount
they originally spent in dollars, francs, marks, or any
other currency. Therefore, you won't benefit from the
cheaper Rupiah.
The advantage is that you can carefully inspect all
details of the villa and therefore know exactly what you
get for your money, and that you will be immediately the
owner of a completed villa - usually fully furnished - and
you can either move in yourself immediately or start
renting your villa out the next day. However, if cost is a
major concern we recommend you acquire a plot of land and
build your own villa.
The disadvantage is that you'll have all the worries and
responsibilities connected with building a house anywhere
in the world. In Bali this can be a frightening experience,
especially if you are not personally on-site most of the
time, do not speak Balinese or at least Indonesian, and
are not a construction expert yourself. Many people want
top quality, fast completion, and everything at very low
cost. You should be aware that, if you're lucky, you can
perhaps achieve two out of these three aims, but never all
three together! The choice is yours.
The third option - perhaps the most attractive - is to buy
a land & villa package from a reliable development company
run by foreigners experienced in building in Bali. This
way you won't have any worries or problems during the
construction period, you deal with foreign experts who
understand what you say AND what you mean.
Click here to see details about "THE IMPIAN", a
residential estate comprising of 35 building lots with
spectacular views on the Southern coast of the Nusa Dua
peninsula, and click here for some of the villa/land
packages offered by DG JONES + PARTNERS, a company which
was involved in building the Four Season Hotel in Jimbaran
and the Meridien Hotel in Tanah Lot.
Purchase Prices and Construction Costs
To give you some idea about prices: existing high-quality
villas with garden and a swimming pool which have been
built a few years ago start around US$350,000 and can go
up to US$1,500,000 and more.
Land prices range currently from less than US$5.00 to
US$150 and more per square meter (11 square feet)
depending on the location. A plot not too far from the
beach and the tourist areas in South Bali might cost today
about US$50 to US$100 per square meter. If it's located
right on the beach, offers a spectacular view, or is part
of an up-market residential development it can be more
than triple that price. Properties in crowded Denpasar and
in Ubud are again priced much higher.
Keep in mind that since 1998 property prices in Bali have
increased VERY substantially. Many foreigners have been
buying land, and numerous Chinese Indonesians have and are
still acquiring properties in Bali as they feel more safe
here than in other parts of the country.
Therefore, land prices are now at least the same and often
even more (in US dollars) than they were in mid-1997.
However, compared with other popular tropical islands such
as Phuket in Thailand, property in Bali is currently still
extremely cheap and an excellent investment!
The basic cost of good quality construction is right now
about US$500 per square meter. This does not include any
access roads, site preparation and development, water and
electricity supply, swimming pool, landscaping, architects
fees, and costs for the many licenses and permits required,
etc. Please also note that all US dollar prices quoted are
based on an exchange rate of about 7,500 Rupiah per US
dollar (click here to see the current exchange rate) and
are still increasing.
Which Areas of Bali are Most Recommended ?
LOCATION is the most important factor - in Bali as
anywhere else in the world. Land prices in beach front and
town centre locations will increase most, and houses in
these more desirable locations will be the easiest to rent
out if you do not want to live in them yourself.
Most recommendable are (in our opinion) the area from
Batubelig to Tanah Lot on Bali's West coast, land in
Jimbaran Bay and on the Bukit (the hill on the southern
peninsula between Nusa Dua, Ulu Watu, and Jimbaran), in or
very near the town of Ubud, and near the Handara golf
course and Lake Bratan near Bedugul. These locations
promise in our opinion to produce the highest increase in
value over the next few years. In the long term, the area
between Tanah Lot and Negara as well as the coastal areas
in Bali's North-East should also show attractive price
increases. |
Indonesian
Government Regulation of the Requirements for Ownership of
Residential or Dwelling Places by Foreigners:
Amandment to
the Regulation of The State Minister of Agrarian Affairs /
Chairman of the National Land Agency
No 7/1996:
"Foreigner May Purchase the Right of Utilization over
land with the Right of Proprietorship from the Holder of the
said Right of Utilization along with Houses or Purchase the
Right Utilization and later contract houses on it. The Purchase
of the said Right of Utilization shall be conducted pursuant to
the effective stipulations that are, by virtue of a deed made by
a land conveyance, which shall later be registered in the Land
Office. Likewise, the requirements for construction of houses
must abide by the prevailing stipulations, for example with
respect to the Building Construction Permit (IMB)".
Foreigner may own
a house and obtain the title on land by means of the following:
-
- Purchasing
or contracting a house on land with the right
utilization with the right proprietorship.
- Purchasing
an Apartment house unit contracted on land with the
right of utilization over State Land.
- Purchasing
or contracting a house on land with the right of
Proprietorship or the Right of Lease over building on
the basis of a written agreement with the owner of the
land title concerned.
THE PRESIDENT OF THE REPUBLIC
OF INDONESIA
| C0NSIDERING: |
| a. |
that, throughout the
territory of this country, as blessing of God, potential
economic resources are found abundantly which have not
yet been transformed into real economic strength because
of among other things, a lack of capital, experience and
technology. |
| b. |
that Pancasila is the
spiritual basis for the development of the Indonesian
economic system and should always be reflected in
economic policy. |
| c. |
that economic development
requires transformation of potential economic resources
into real economic strength through investment,
utilization of technology, expansion of knowledge,
improvement of skills, and increases in organizational
and managerial ability. |
| d. |
that efforts to overcome
economic decline and further develop our economic
potential should be based on the capabilities and
capacities of the Indonesian people themselves. |
| e. |
that nevertheless this
principle of relying on our own capability and capacity
should not lead to reluctance to make use of foreign
capital, technology and skill, so long as these are
truly devoted to serving the economic interests of the
people without causing dependence on foreign countries. |
| f. |
that foreign capital
should be utilized to maximum advantage in order to
accelerate the economic development of Indonesia, as
well as utilized in other fields and sectors, where
Indonesian capital for the time being is not yet being
employed. |
| g. |
that it is imperative to
device clear regulations in order to fill the need for
capital for national development, as well as to avoid
uncertainty on the part of foreign investors.
|
| IN
OBSERVANCE OF: |
| 1. |
Article 5 section (1),
article 20 section (1), article 27 section (2) and
article 33 of the Constitution. |
| 2. |
Decree of the Provisional
People's Consultative Assembly of the Republic of
Indonesia No. XXIII/MPRS/1966, concerning the reform of
the basic policies on the Economy, Finance and
Development. |
| 3. |
Note 1 of the MPRS of 1966
concerning Foreign Policy based on Pancasila. |
| 4. |
Law No. 5 of 1960
concerning the Basic of Agrarian Regulation. |
| 5. |
Law No. 37 Prp. of 1960 on
Mining, and Law No. 44 Prp. of 1960 on Oil and Natural
Gas. |
| 6. |
Law No. 32 of 1964
concerning Regulations on Foreign Exchange Transactions. |
With the approval of the Gotong Royong People's
Representative Council, has decided:
To enact:
THE LAW CONCERNING FOREIGN INVESTMENT
Article 1Investment in
this Law denotes only direct investment of foreign capital made
in accordance with or based upon the provision of this Law for
the purpose of carrying on the enterprise in Indonesia, with the
understanding that the owner of the capital directly bears the
risk of the investment.
Article 2Foreign investment in
this Law means:
a. foreign exchange that does not form a part of the
foreign exchange resources of Indonesia, and which with the
approval of the Government is utilized to finance an enterprise
in Indonesia.
b. equipment for an enterprise, including rights to
technological development and materials imported into Indonesia,
provided the said equipment is not financed from Indonesian
foreign exchange resources.
c. that part of the profits which in accordance with this
Law is permitted to be transferred, but instead is utilized to
finance an enterprise in Indonesia.
Chapter II
LEGAL FORM, DOMICILE AND AREA OF AN ENTERPRISE
Article 3(1)
An enterprise
as instead by Article 2, which is operated wholly or for the
greater part in Indonesia as a separate business unit, must be a
legal entity organized under Indonesian Law and have its
domicile in Indonesia.
(2) The Government shall determinated whether an
enterprise is operated entirely or for the greater part in
Indonesia as a separate business unit.
Article 4The Government
shall determine the operating area for foreign capital
enterprise in Indonesia, in accordance with national and
regional economic developments, the type of enterprise, the
amount of capital to be invested and the desires of the capital
owner.
Chapter III
FIELDS OF ACTIVITY FOR FOREIGN INVESTMENT
Article 5(1)
The
government shall determine the fields of activity open to
foreign investment, according to an order of priority, and shall
decide upon the conditions to be met by the investor of foreign
capital in each such field.
(2) The order of priority shall be determined whenever
the Government prepares medium and long-terms development plans,
taking into consideration developments in the economy and
technology.
Article 6(1)
Fields of
activity, which are closed to foreign investment exercising full
control, are those of importance to the country and in which the
lives of a great deal of people are involved, such as the
following. a. harbors; b. production, transmission
and distribution of electric power for the public; c.
shipping; d. telecommunications; e. aviation; f.
drinking water; g. public railways; h. development
of atomic energy; i. mass media.
(2) Industries performing a vital function in national
defense, among others, the productions of arms, ammunition,
explosive, and war equipment, are absolutely prohibited to
foreign investment.
Article 7In addition to
those mentioned in Article 6 Section (1), the Government may
determine certain fields of activity in which foreign capital
may no longer be invested.
Article 8(1)
Foreign
investment in the field of mining shall be carried out in
cooperation with the Government on the basis of a Working
Contract (Kontrak Karya) or other from in accordance with
prevailing regulations.
(2) The system of cooperation on the basis of working
contract or other form can be implemented in other field of
activity which will be determined by the Government.
Chapter IV
MANPOWER
Article 9The owner of
foreign capital has full authority to appoint the management of
the enterprise in which his capital is invested.
Article 10Foreign capital
enterprise are required to meet their needs for manpower with
Indonesian nationals, expert in cases mentioned in Article 11.
Article 11Foreign capital
enterprises are allowed to bring and employ foreign managerial
and expert personnel in position, which cannot yet be filled by
Indonesian nationals.
Article 12Foreign capital
enterprises are required to conduct and/or provide regular and
systematic training and educational facilities in Indonesia and/or
abroad for Indonesian nationals with the aim of gradually
replacing foreign employees by Indonesian nationals.
Article 13The Government
shall supervise the execution of the provisions of Article 9,
10, 11 and 12.
Chapter V
USE OF LAND
Article 14To meet the
requirements of foreign capital enterprise, land may be provided,
with the right of construction, the right of exploitation and
the right of use in accordance with prevailing regulations.
Chapter VI
CONCESSION ON TAXES AND OTHER LEVIES
Article 15Foreign capital
enterprises are granted the following concessions on taxes and
other levies:
a.
Exemption from:
- Company tax on profits during
a specified period not exceeding five years from the moment
the enterprise commences production.
- Dividen tax on that part of
accrued profits paid to shareholders, as long as these
profits are earned during a period not exceeding five years
from the moment the enterprise commences production.
- Company tax on profits
referred to in Article 19 subsection (a) which are
reinvested in the enterprise in Indonesia, for a specified
period not exceeding five years from the time of
reinvestment.
- Import duties at the time of
entry into Indonesia of fixed assets such as machinery,
tools or instruments needed for the operation of said
enterprise.
- Capitals stamp duties on the
issuance of capital originating from foreign investment.
b.
Relief:
- In the levy of company tax
through a proportional rate of not more than 50% for a
period not exceeding five years after expiration of the
exemption period as intended by section (a) sub 1 above.
- by off-setting loses suffered
during the period of exemption intended by section (a) sub
1, against profits subject to tax following the period
mentioned above.
- by allowing accelerated
depreciation of fixed assets.
Article 16(1)
The
concessions on taxes and other levies mentioned in Article 15
shall be granted after consideration of the priority on fields
of activity as intended by Article 5.
(2) Besides the concessions on taxes and other levies
referred to in section (1) of this article, additional
privileges may be granted by Government Regulations to any
foreign capital enterprise, which is extremely important for
economic development.
Article 17Execution of
provision of Article 15 and 16 shall be stipulated by the
Government.
Chapter VII
DURATION OF FOREIGN INVESTMENT,
RIGHT OF TRANSFER AND REPATRIATION
Article 18Every permit for
investment of foreign capital shall specify the duration of its
validity, which shall not exceed 30 (thirty) years.
Article 19(1)
Foreign
capital enterprise shall be granted the right of transfer in the
original currency of the invested capital at the prevailing
exchange rate, for: a. profits accruing to capital
subtraction of taxes and other financial obligations in
Indonesia; b. costs related to the employment of foreign
personnel working in Indonesia; c. other cost which shall
be subsequently determined; d. depreciation of fixed
assets; e. compensation in case of nationalization.
(2) Transfer procedure shall be subsequently determined
by the Government.
Article 20Transfer
constituting capital repatriation can not be permitted as long
as the concessions concerning taxes and other levies as
mentioned in Article 15 remain in effect. The implementation of
this article shall be further regulated by the Government.
Chapter VIII
NATIONALIZATION AND COMPENSATION
Article 21The Government
shall not undertake a total nationalization/revocation of
ownership right of foreign capital enterprises nor take steps to
restrict the rights of control and/or management of the
enterprises concerned, except when it shall be declared by law
that the interest of the State requires such a step.
Article 22(1)
In case of
the measures referred to in Article 21, the Government has the
obligation to provide compensation, the amount, type and method
of payment of which shall have been agreed upon by parties, in
accordance with valid principles of international law.
(2) If no agreement can be reached between the two
parties with regard to the amount, type and method of payment
for compensation, arbitration shall take place which shall be
binding on both parties.
(3) The arbitration board shall consist of three persons:
One appointed by the Government, one by the owner of the capital,
and a third person as chairman selected jointly by the
Government and the owner of the capital.
Chapter IX
COOPERATION BETWEEN FOREIGN AND NATIONAL CAPITAL
Article 23(1)
In the
fields of activity open to foreign capital, cooperation may be
effected between foreign and national capital, with due
consideration to the provision of Article 3.
(2) The Government shall further determine the fields of
activity, forms and methods of cooperation between foreign and
national capital, utilizing foreign capital and expertise in the
fields of export and the production of goods and services.
Article 24Profits obtained
by foreign enterprises resulting from cooperation between
foreign capital and national capital as mentioned in Article 23,
after subtraction of taxes and other obligations payable in
Indonesia, are permitted to be transferred in the original
currency of the foreign capital invested.
Article 25The provisions
of this law regarding tax concession and guarantees regarding
nationalization and compensation are also valid for foreign
capital mentioned in Article 23.
Chapter X
OTHER RESPONSIBILITIES OF THE FOREIGN INVESTOR
Article 26Foreign capital
enterprises are obligated to manage and control their
enterprises in accordance with the principles of good business
administration without harming the interest of the State.
Article 27(1)
Enterprises
mentioned in Article 3 of which the capital is entirely foreign,
are obligated to provide opportunities for participation by
national capital, following specified period and in proportions
to be determined by the Government.
(2) When participation as intended by section (1) of this
article is effected by selling pre-existent shares, the proceeds
of such can be transferred in the original currency of the
foreign capital concerned.
Chapter XI
OTHER PROVISIONS
Article 28(1)
Provisions
of this Law shall be implemented by coordinating among the
Government agencies concerned in order to ensure harmonization
of Government policies regarding foreign capital.
(2) Procedures for such coordination shall be
subsequently determined by the government.
Article 29Provisions of
this Law shall apply to investment of foreign capital effected
after this Law comes into force, either in new enterprises of in
already existing enterprises for expansion and/or modernization.
Chapter XII
TRANSITIONAL PROVISION
Article 30Matters not yet
regulated in this Law shall be subsequently stipulated by the
Government.
Chapter XIII
FINAL PROVISION
Article 31This Law shall
take effect on the day of its enactment. In order that every
person may be informed, promulgation of this Law is ordered
through publication in the State Gazette of the Republic of
Indonesia.
The Department of Housing and
Urban Development (HUD)
engages in the regulation of interstate land sales. HUD's
activities in connection with the Interstate Land Sales Full
Disclosure Act are of particular significance for those
investors contemplating large-scale land sales promotions.
Authorized under Title XIV of the
Housing and Urban Development Act, the interstate land sales law
is administered by the Office of Interstate Land Sales
Registration, U.S. Department of Housing and Urban Development,
Washington, DC 20411.
This law requires anyone engaged
in the interstate sale or leasing of 25 or more improved lots to
register the offering with HUD and to make available to each
prospective lot purchaser or lessee all facts pertinent to the
legitimate use of the land. The terms and conditions of any
financing in existence at the time of the sale or lease must be
stated and the existence of any other liens revealed. The
probability for completion of promised off-site improvements
such as paving, parks, golf courses and marinas must be given.
|
