Legal

FOREIGNER AND LAND OWNERSHIP IN INDONESIA

Expatriate business people in Indonesia have rightful concern regarding land use and ownership rights for business purposes. Act No. 5 of 1960 regulates the umbrella law regarding rights over land ownership. The law covers some rights – mostly those to Indonesian citizens – namely rights of ownership (hak milik), building rights on land (hak guna bangunan), cultivation rights on land (hak guna usaha) and rights of use (hak pakai).

With the emergence of foreign investment and business in Indonesia, many foreign investors need buildings or land for their company. A foreign investor who wants to run their business in Indonesia can obtain building/office or land under these following rights:

Building Rights on Land (Hak Guna Bangunan)

The right to build and possess a structure on land owned by others: The duration of right for the building is maximally 30 years, extendible for 20 years (article 30 Act No. by 5/1960). This right can be transferred to other persons selling and inheriting, who also can secure a loan, as a Hypothec Right.

Those who may obtain right-to-build deeds are Indonesian citizens and legal entities (such as a PT/limited liability company) established under Indonesian law and domiciled in Indonesia, either for 100 percent foreign-owned, joint venture or 100 percent Indonesian-owned companies.

Foreign investors who desire to establish their business in Indonesia can have their building/office under a “rights to build” deed for a stipulated period.

Cultivation Right on Land (Hak Guna Usaha)

This is a right to cultivate on state land for agriculture and farming enterprises. The duration is maximally 25 years, extendable for 35 years, and should be registered at the Land Register at the National Land Agency (Badan Pertanahan Nasional/BPN). As in Right to Build, Cultivation Rights can secure a loan by delivering the certificate of Cultivation Rights to the lender.

Indonesian citizens can own these rights, as can legal entities (such as PT/limited liability companies) established under Indonesian law and domiciled in Indonesia, either for 100 percent foreign-owned, joint venture or 100 percent Indonesian-owned companies.

Right of Use (Hak Pakai)

This is the right to use and/or harvest from land directly owned by the state (rendered by authorized official government deed), or private land (by agreement with the owner of the land). This may be applied to land for use as a building site or for agricultural purposes. The transfer of this right must have local government authorization.

Right of Lease of Building (Hak Sewa)

A person or Indonesian legal entity has rights to lease another’s land. This right belongs to Indonesian citizens, foreigners, and legal entities (such as PT/limited liability companies) established under Indonesian law and domiciled in Indonesia or the representative office from a foreign legal entity. The leasee and the leaser can make an agreement to arrange it.

Hak Guna Bangunan vs. Hak Milik

Hak Guna Bangunan is only the right to use a building for a fixed period of time, which then has to be extended. The owner of Hak Guna Bangunan land is the Indonesian government. Meanwhile, only with Hak Milik do you actually own the land or the building. Hak Milik does need to be extended.

Purchasing Properties (Strata Title, Convertible Lease Agreement or indirect purchase)

By Indonesian law, a foreigner cannot own land in Indonesia but purchasing apartments or office space is possible through a strata title deed. The 1996 regulation (No. 41/1996) states that an expatriate who resides in Indonesia or visits the country regularly for business purposes can purchase a house, apartment or condominium, as long as it is not a government subsidized development. The title is only for right of use. In reality, the regulation No. 41/1996 is still somewhat unclear and no foreigner has actually been able to receive a strata title as a certificate of ownership. Despite this unclear legal ownership, foreigners sign a convertible lease agreement with property management companies or indirectly by using the names of an Indonesian citizen whom they have a separate agreement with.

Land And Property Acquisition Structure

Due Diligence

The due diligence is consisting of legal opinion from the Notary and the research result of the Notary and the Consultant regarding the transacted land and/or property.

Due diligence will define the issues/problem of the land, the zone of the land and the opinion and suggestion of the Notary.

  1. Check the certificate at Land Department:
    • the zone of the land
    • the problem on the transacted land such as litigation/ blockade/ accusation
  2. Check the tax imposed on land at Tax office:
    • the tax debt (if any)
    • the basic value of the transacted land (NJOP)
  3. Check the location of the transacted land:
    • the access road
    • the infrastructure network: electricity, phone line and scheme water

The cost of the due diligence: Rp. 7.000.000 (negotiable depend on the location and the area of the
Land and/or Property).

Estimation Processing Time: 8 working days

Transaction

  1. Sale and purchase deed
    Execute the Sale and Purchase Deed between the Land Owner and Indonesian Nominee.
    The certification of the title transfer ownership will take time up to maximum 3 months.
    The tax imposed on the transaction:

    1. SSP (the seller tax) : 5% X Price/ NJOP Price (basic value of transacted land).
    2. BPHTB (the buyer tax) : 5% X Price / NJOP Price – Rp. 60.000.000 (badung regency)

    The Notary fee:
    Less than Rp. 1.000.000.000 = 1 % of the total amount of transaction.
    More than Rp. 1.000.000.000 = 0,5 % – 0,75%of the total amount of transaction.

  2. Loan agreement with mortgage
    Execute the loan agreement between the Nominee and the Foreigner to protect the Foreigner’s spent fund to acquire the LandThe encumbrance of the certificate with mortgage will take time up to maximum 2 months.

    Notary fee:
    Less than Rp. 1.000.000.000 = 1%
    More than Rp. 1.000.000.000 = 0,5% – 0,75%

  3. Lease agreement and extention
    Execute the lease agreement between the Nominee and Foreigner as legal protection of the
    Foreigner to use his/her rights on the transacted Land and/or Property.The process of the deed execution may take time up to 3 days.

    Free of Notary Fee.

The Consultant fee

  1. Scope of works: assisting, location survey, agreement drafting, documents translation (due diligence, sale and purchase agreement, loan agreement, lease agreement), liaison with the Notary, mediator services: 0.25% of the total amount land and/or property transaction.
  2. Draw up Nominee Agreement (including the registration to the Notary) in Indonesian and in English (upon on client request): Rp. 2.000.000,-

Note:
-The abovementioned Notary fee and Consultant fee are negotiable.