Property Ownership

There are several avenues for foreigners to own property in Indonesia, each with unique advantages and disadvantages.

Mirai Villas supports two of the most common structures for ownership, namely leasehold and freehold agreements (HGB).

Below, we will break down what each of these terms mean, what is required, and the advantages they offer.

While both leasehold and freehold agreements offer a path to long-term property ownership in Indonesia, the core difference lies in the legal structure and greater obligations of reporting and investments.

Leasehold Agreements

Leasehold agreements provide a low-barrier way for foreigners to own property in Indonesia. With a range of benefits, this choice has become the primary path to ownership in investment hotspots like Bali.

Leasehold agreements typically start with a 25 to 30-year lease period. However, the option to automatically extend the lease agreement can be stated in the contract. Foreign individuals can enter lease agreements without setting up a company or establishing a tax ID number in Indonesia. As such, this option maximizes investment opportunity while mitigating financial and tax liabilities.

In addition to the cost of the leasehold, the investor will need to pay a 10% lease tax upon signing the agreement and a 10% tax each time the lease is extended.

For example, say an investor signs a 25-year lease for €100,000, and the contract already includes the possibility of two extensions at the same value (€100,000 for 25 years).

In this case, the investor will pay a 10% tax upon signing (or €10,000). They will also pay a 10% (or €10,000) tax 25 years later or each time the lease is renewed. The value of the tax is determined from the value of the initial lease contract, not the current value at the time of renewal.

Summary Leasehold

  • Leasehold Agreements: A popular and low-barrier entry path for foreigners to own property in Indonesia, especially in investment hotspots like Bali.

  • Duration: Lease periods typically start from 25 to 30 years, with options for automatic extension included in contracts.

  • No Need for Company Setup: Foreign individuals can enter lease agreements without the necessity to set up a company or establish a tax ID number in Indonesia.

  • Investment Opportunity: Maximizes investment opportunities while mitigating financial and tax liabilities.

  • Tax Implications:

    • A 10% lease tax is required upon signing the agreement.

    • A 10% tax applies each time the lease is extended, based on the value of the initial lease contract.

  • Cost-Effective: Compared to freehold ownership, leasehold agreements can be more financially accessible, with fewer upfront legal and financial commitments.

  • Recommended Path: Advised as the preferable route for foreign investment due to its simplicity and lower regulatory burden

Freehold Agreements

You can also choose to hold property under a freehold agreement. For foreigners in Indonesia, this is possible via a Right of Use title called Hak Guna Bangunan, which is more commonly referred to as simply HGB.

This option allows foreigners to gain ownership of the land and any structures on it for a period of 80 years. However, it also requires investors to set up an Indonesian company, otherwise known as a PT PMA. While a PT PMA is a fully foreign-owned company, setting up a legal entity in Indonesia has several benefits and potential drawbacks. 

With a PT PMA, investors can gain a variety of commercial rights and have the opportunity to apply for a residence visa called a KITAS. However, establishing a company under Indonesian law also involves reporting, minimum investments, and tax responsibilities. In addition, when purchasing a property via a PT PMA, investors will also need to pay a 5% buyer’s tax.

Summary Freehold Agreements (HGB)

  • Indonesian Company Setup Required: Foreigners must set up an Indonesian company (PT PMA) to hold property under a freehold agreement, introducing commercial rights and opportunities.

  • Residence Visa Eligibility: Investors establishing a PT PMA can apply for a residence visa (KITAS), providing benefits for longer stays and business operations in Indonesia.

  • Minimum Investment: The Indonesian government mandates a minimum investment of 10 billion Indonesia Rupiah (approx. €590,000 as of February 2024), which is typically reached over a period of years. Stakeholders are legally liable for this investment upon company establishment.

  • Legal and Tax Obligations: Involves reporting, minimum investment requirements, and tax responsibilities, adding to the complexity and financial commitment.

  • Director and Commissioner Roles: Every PT PMA must appoint a director and a commissioner, both eligible for a KITAS, with the director also required to obtain a tax ID number.

  • Full Ownership Advantages: Offers the possibility of full land and property ownership, a significant benefit for those seeking permanent investment or residential options in Indonesia.

How Do I Know Which Path Is Right For Me? 

Whether setting up a PT PMA or opting for a leasehold agreement is the better choice largely depends on your broader intentions in Indonesia; namely, how much time you plan to spend here and whether or not you plan on making other investments.

To understand the best path forward for your investment, reach out to us and we can connect you with our legal advisors.