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This is the first and most often asked question foreigners pose to us when considering investing in the Bali property market. The answer is short and simple: Yes you can!
There are certain property titles or rights a foreign individual can indeed buy and own in Bali, namely leasehold and right to use titles. The acquisition of freehold titles is reserved to Indonesian citizens only. Full stop! Even 100% domestic owned companies can’t own freehold.
Alternatively, you may form a foreign investment company or so-called PT PMA and buy property under a right to build title. That’s an option, which is open for certain fields of business activities.
Leasehold or Hak Sewa
This is the simplest form of property ownership available to foreigners in Indonesia. This form of ownership is not registered with the Indonesian land agency. Nevertheless, it is a solid form of ownership that is absolutely safe and sound for foreigners.
To buy a leasehold property all you need is a valid passport with a current stay permit. This can be a simple tourist or business visa or a residential permit. You can buy as many leasehold properties as your money allows you to do. There is no legal limit.
Leasehold terms in Indonesia typically vary between 25 and 30 years. We have seen all sorts of leasehold terms, some even up to 99 years. The law actually doesn’t define a maximum term for leasehold. But following the spirit of the law, most notaries won’t do terms beyond the aforementioned length.
What is important is your ability to extend the lease once if comes close to the end of its term. The typical leasehold template a notary will pull out from his drawer simply states that you have the right to extend your lease based on mutual agreement between the parties. This is not a very strong negotiating basis when it comes to securing your extension at any time, but particularly not towards the end of the term.
If you want an enforceable lease extension, the respective clause in the agreement needs to be drafted carefully. The best option is that you agree on defined payment terms for your extension and make those payments during the lifetime of your lease term. In general, a leasehold agreement is rock solid and can’t be challenged in court even if the lessor or the lessee pass away.
Right of Use or Hak Pakai
A right of use title is the most valuable property title for a foreigner who would like to invest in Bali.
To qualify for buying such a title you need a temporary or permanent residential permit (called KITAS or KITAP) or a simple retirement visa for those above the age of 55.
You have the right to buy one such title on your name. There are certain restrictions when it comes to price and size of a property that you can acquire under a right of use title.
It is important to note that you can only own such a title if there is a building on the land. Bare land is not permitted to be sold under this title to prevent foreigners speculating on land.
This title works very much like the right to build title that is reserved for Indonesian companies. It comes with an initial term of 30 years that you are entitled to extend by a second term of 20 years against a relatively small fee payable to the government. After the first 50 years, the title can be renewed again for 30 years, with the same extension of 20 years. And so on.
When you buy a right of use title, the original Freehold title is normally given up and is replaced by the right of use title, which will bear your name. What makes this interesting is that upon selling your property to an Indonesian citizen, the title can get converted back to freehold. In this way you enjoy the same capital appreciation as if you were holding a freehold title.
Right to Build or Hak Guna Bangunan
This is a title reserved to Indonesian companies. It doesn’t matter whether the company is owned by Indonesian shareholders or by foreigners. If you form a foreign investment company, you need a minimum of two shareholders. The process of establishing a company is now very fast and efficient. Within days a notary will produce the necessary paperwork and you are ready to start business.
The right to build title works exactly as described above for the right of use title when it comes to terms and extensions. But let’s start by having a closer look at the laws governing foreigners buying property in Bali.
Property or real estate in Indonesia is governed under law No 5 / 1960 which is also know as the ‘Basic Agrarian Law’ and was promulgated in 1960. The law specifies a title called ‘Hak Pakai’ or right to use as the sole title foreigners may own. Besides, the law also grants foreigners the right to lease land.
Since then various government regulations and decrees have been passed regarding the right of foreigners to own property in Indonesia, particularly government regulation number 41 / 1996, which was replaced by government regulation number 103 / 2015. This regulation details the conditions for foreigners to own a ‘Hak Pakai’ title.
The process of buying property in Bali is straightforward. Once you have obtained a thorough understanding of the legal framework governing foreigners owning property in Indonesia and you have found a property that you would like to buy, you need to engage with the seller to reach an agreement on terms and price.
This is best done in writing contact us to assist you with drafting a sale and purchase agreement. It is recommended that you pay a deposit of 10% to the account of a notary escrow bank account to secure the transaction and allow you to conduct due diligence.
Due diligence is the next step in the process. This is a check on the legal documents of the property, from title to permits, road access to physical inspection and inventory list checking. This can be done by Lawyer or Notary.
If all the checks are satisfying and has been clear confirmed by the lawyer or notary, you can proceed to appear in front of a notary and sign the final sale and purchase deed, pay your taxes and get the keys to your property. Also don't forget to protect your villa against the usual risks and take out an insurance policy from a reputable company.
The most important legal actor in a land transaction is typically a notary that has a special license to act as a land agent on behalf of the government. Such notaries are called a ‘PPAT’, which stands for ‘Pejabat Pembuat Akta Tanah’ or ‘official to issue land titles’. Note that not all notaries have this qualification that is required in a land transaction. In remote areas, where there is no notary acting as a ‘PPAT’ a government official like the district head is also entitled to act as a ‘PPAT’.
Another important legal actor may be a lawyer to represent your rights and ensure that proper due diligence is undertaken before you sign and buy your property in Bali.
There are at least seven different types of taxes that is involved with property.
1. Land and Building Tax
Let’s start with the simple Land and Building Tax (Pajak Bumi dan Bangunan, or short PBB), which is due annually. This is a relatively small but nevertheless crucial tax.
In order for you to sell a property, you need to show proof that your annual land and building tax has been paid without any gaps. If that is not the case, you can simply go to an appointed government bank and pay the outstanding amounts with a penalty, in case you have missed out in the past on due payments.
If you are the owner of a leasehold, you are typically charged by the landlord with paying for this tax.
How is the Land and Building Tax calculated? The basic formula is to take 20% of the so called taxable sales value of a property (nilai jual objek pajak, or short NJOP) and multiply that by 0.5%. You can find the NJOP on your tax payment slip called SPPT. Example: if the taxable value of a property is 100 then the payable amount per annum is 1.
2. Property Transfer Tax
Next comes the Property Transfer Tax. As a seller of a freehold property you will have to pay the seller’s part of this tax called PPH (or Pajak Penghasilan) amounting to 2.5% of the value declared in the Sales Deed (Akta Jual Beli ,or AJB).
The buyer will have to pay the so called BPHTB (Bea Perolehan Hak atas Tanah dan Bangunan) amounting to 5% of said value. PPH is an income tax which is final (‘pajak final’). This means that your income tax is considered paid and will not be levied again when you file your annual tax report.
The Property Transfer Tax for a leasehold property is also called PPH but it is much higher. It is paid by the lessor and amounts to 10% of the declared value if you have a tax number in Indonesia. There are not taxes due for the lessee!
If you are a foreigner selling a leasehold and you don’t have an Indonesian tax number (NPWP), then you are subject to a 20% tax! And if you are a tax resident in a country that has a double tax avoidance treaty with Indonesia, you can credit this payment when you file your income tax at home.
3. Construction Tax
Construction Tax is another important tax that sometimes is forgotten. Verify that it has indeed been paid by the seller before you buy, otherwise you risk being charged at some stage for it.
The tax is due once a building is completed and it is based on the construction budget or “Rancangan Anggaran Biaya” (RAB) of the building. Depending on whether the construction was done in private or by a contractor will determine who is responsible for the tax and how much it is. It varies from a low 1.75% up to 6% of the construction budget.
4. Value Added Tax
Value Added Tax, called PPN (Pajak Pertambahan Nilai) in Indonesia may apply if a property is sold by a professional developer. It has recently been increased from 10% to 11%.
This tax is only due for properties sold by a developer and not for private sales. Certain low cost housing projects are exempt.
5. Luxury Tax
Luxury property sales attract a 20% Luxury Tax (Pajak Penjualan atas Barang Mewah, in short PPnBM), which applies only for primary sales and for properties like apartments, townhouses, and Bali villas for sale with a price tag of IDR 30 billion or above which is approximately USD 2 million at today’s rate of exchange.
6. Name Change Tax
Last but not least, there is a small Name Change Tax to allow for changing the name on a certificate from the buyer to the new owner, which is called Bea Balik Nama or BBN.
It is calculated by dividing the price per square meter of land by 1.000 and multiplying it by the amount of square meters that you are buying.
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