Under Indonesian law foreigners are not allowed to own freehold property title in Indonesia. However non-Indonesians can legally acquire property and enjoy full beneficial rights of property ownership through the various alternatives summarised below:
Freehold (Hak Milik)
This refers to absolute ownership of land and corresponds to freehold title in common law terms. This right can only be held by an Indonesian citizen and not by a corporate entity whether local or foreign. To obtain freehold title the investor must enter into a legal agreement with an Indonesian nominee - either an individual or a company - whereby they hold the title to the property.
This Indonesian nominee simultaneously enters into a legal power of attorney with the foreigner. The power of attorney gives the investor beneficial rights on the property and waives all rights of the nominee. The investor is then free to build on the land, sell or lease the property and transfer the title to next of kin; the nominee will receive a nominal fee for his responsibilities as the titleholder.
This is the right to use, leasing land owned by another private party for building purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. Land leases are not public documents. The law does not stipulate a period for such lease agreements and whether this can be transferred or not depends on the original agreement between the parties (lessor & lessee). This right may be held by a foreigner permanently domiciled in Indonesian or a foreign legal entity having a representative office in Indonesia.
The leasehold agreement investment is in the foreigner’s own name, and the term is up to 30 years, which is extendable. This method does offer full legal protection to the foreigner during the term of the lease; however, once the lease term has expired the property reverts to the owner unless extended.
This can be done by forming a foreign investment company known as a PMA (Penanaman Modal Asing or Foreign Investment Company Programme). This can be solely owned by a foreigner and allows foreign investors to set up a company in Indonesia without having to have Indonesian partners; the title of the property will be in the company name. However, title in this case can only last for 25 years, after which period the title has to be renewed by the Government. To set up a PMA company you will be required to:
Submit a detailed business plan.
Operate in a business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit.
Make an appropriate cash deposit in an Indonesian based bank. (The amount varies and is calculated from the capital employed in the business).
Show the property investment as an asset of the company.
The process takes approximately 3 to 4 months and once completed the company can apply for work permits for the foreign directors, and allows three permits in the first year of operation. The cost of setting up is 30 to 40 million Indonesian Rupiah.