Buying Property in Bali and Lombok? 7 Mistakes to Avoid
For investors to Lombok and Bali, it is not easy to navigate through all the offers on the market and avoid mistakes during your first investment. From the illegal project to the overpriced property and misleading ROI, the investor coming to Bali or Lombok needs to step carefully with all the information provided. Project with lack of permit (PBG/ SLF) Unfortunately, Bali has some illegal projects on the market, and one of the first real estate investment mistakes is buying into a project without the necessary licenses or permits. As a reminder, each property in Indonesia requires a building permit (PBG) before the contractor can start the construction. Unfortunately, some agents believe or let clients think that the SLF application is sufficient. They sell on purpose to the developer and their client an SLF application that takes ages before seeing the approval. In some circumstances, certain constructions do not respect the norms or comply with regulations, and the PUPR might request amendments, creating issues for the client. Make navigating real estate in Indonesia easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. Unlicensed property Buying a property in Bali doesn’t mean the property can be rented out on Airbnb or Booking.com on a daily basis. The property must be located in an area allowing daily rental business. The areas are characterised by different zoning and colours. The zones allowing daily rentals are usually the Pink Zone (tourist zone) and Yellow Zone (under certain conditions). The Yellow Zone typically allows rentals only for local companies or individuals. The property owner must apply for a license (hotel, apartment hotel, Pondok Wisata, or Vila) to obtain a Business Identification Number (NIB). Once the property has got the NIB, the owner has to pay the tax every month under an NPWPD (local tax number). Wrong Location and Unexpected ROI One of the biggest real estate investment mistakes in Bali and Lombok is buying in the wrong location without understanding the potential return on investment (ROI). Before investing in Bali or Lombok, it is important to understand where the property is located. Unfortunately, too many properties on the market are offered by real estate agents in areas unsuitable for daily rentals. Bali’s infrastructure and traffic are so bad that a property seeming close on the map may be 20-30 minutes from the beach. This is due to the fact that a lot of developers could not invest closer to the beach but are not trying to offer those properties to their clients. Unfortunately, those properties will probably not have a high occupancy rate and will lack good comments. Those properties unfortunately cannot get the ROI promised by some agents. The average ROI will turn around 8%. Real Estate Agent and Developers in Bali and Lombok The previous point is, unfortunately, connected with the point here. Bali and Lombok have several actors who are unqualified, do not have real estate agent qualifications, or cannot act as developers or contractors in Indonesia. As a reminder, the property agent needs to be a member of the broker association. It is common to see on contracts “consultant commission” and not directly agent commission as the “real estate agent” are in reality not agents. It could not be an issue if it has no impact as well on clients. We face situations where real estate agents provide incorrect information to clients to push the sale. This impacts the return on investment for clients’ property investments in Bali and Lombok.. Some of the advice has a serious impact on their tax exposure. On the other hand, contractors are usually also unlicensed, and this has some serious consequences on the quality of the construction. A contractor or consultant in construction needs to have a certification in Indonesia and cannot operate without any qualifications. This is to protect clients of vice-cache. Unfortunately, some clients had to sue developers for construction delays, especially with properties showing serious issues after a few years. Also read: Why Now is the Perfect Time for Property Investment in Lombok Weak contract and extension To avoid costly real estate investment mistakes, it’s crucial to protect your investment, whether it’s under Freehold (HGB) or Leasehold (Hak Sewa). Indeed, both parties can notarize and legalize leaseholds as private contracts, defining their terms and conditions. In order to sell fast, some agents provide weak contracts so as not to offend the seller and to accommodate the transaction with the buyer quickly. This situation can have heavy consequences for the buyers, especially in the extension phase. Indeed, some landlords use weak parts of the contract to avoid signing or extending the leasehold. They may only agree if the lessee is willing to pay the construction price again. Other clauses, such as responsibility for taxes and the access road, must be well-covered and secured. Property management selection in Bali and Lombok Once the property has been bought, it now conveys the listing of the property on the platform for daily or monthly rental. “Having a great car is not essential if nobody is able to drive the car and win the race”. Property management companies such as Pulse Villa Management handle your villa from A to Z by focusing on the return of the investor. Looking at the price offered by the villa management company is crucial. A 20% marketing or management fee will significantly impact the return on investment (ROI) in Bali and Lombok. Investment under the personal name in property The seventh mistake to avoid before buying property in Bali is investing under your personal name. This is important if you plan to have a business with your property or generate income from the property management company. Indeed, most of the agents
Property Investment in Lombok: The momentum
More investors are now looking to Lombok for real estate and property investments. With its white sand beach, South Lombok is attracting investors with the help of the Indonesian government. In the last few years, Bali has hidden other investment destinations in Indonesia. However, the game is now changing, and Lombok investment opportunities are growing rapidly. Lombok has started to attract investors from all over the world, especially in the property sector. With its strategic location, government support, and increasing tourism potential, Lombok is now ready to attract investors. This article reviews why you should consider Lombok investment as your next big opportunity. New infrastructure and pristine beach Lombok was known for several years for the Gilis and Senggigi and the Rinjani. Most of the tourists gathered in the north of Lombok, where the infrastructures, hotels and major places to visit were located. In the last few years, other spots have become more and more famous, especially in the South of Lombok. The Lombok invest and development initiatives in the South has been helped by the government to promote other destinations around the country. Indeed the airport near Mataram is now able to accommodate large aeroplanes with flights directly from Singapore or Kuala Lumpur. This decision from the government has been accompanied by the development of the international Moto GP circuit in South Lombok. The place was for several years known only to surfers or backpackers looking for a place to escape from the crowd. For those who visited Kuta Lombok 10 years ago, they will not recognise the place anymore. The beaches are still pristine and natural. However, the infrastructure and development of restaurants or hotels have been booming over the last few years. While it could take hours to go from Selong Belanak to Kuta Lombok, it now takes only half an hour. Make navigating real estate in Indonesia easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. Improvement in hospitality While Bali has been famous for decades for its hospitality, Lombok and the Sasak were more known for being rougher and less welcoming. However, the community and younger generations now recognize that growth can come when everyone works together to create a welcoming atmosphere, positively impacting property investment in Lombok. In some ways, for visitors, Lombok is even now more welcoming than Bali itself. Lombok has worked a lot to change its image. Kuta Lombok now has a main street with bars and restaurants, which makes it pleasant to walk with families and friends at night. For fans of nightlife, Kuta Lombok also offers memorable events and parties. Affordable investments and Great ROI While Bali is now offering properties over a million dollars with no sea view, Lombok is offering a beautiful and natural landscape with a sea view or beachfront for thousands or hundreds of thousands of dollars. For investors looking to buy a property in Lombok, the price will be 80% more affordable than in Bali for a property with the same quality and sea view with a capital gain more interesting. The return on investment in Lombok is indeed, at the moment, more about capital gain and the expectation of seeing a price increase. Investors in Lombok can easily expect a capital gain of 200% in the next few years, with an ROI on Airbnb of around 20%. While Bali has thousands of villas in construction and strong competition between villa owners, Lombok is at the beginning of a new path. Bali is seeing a drop of 40% in daily rental income due to the new villas dropping in price and investors bringing new products onto the market (the number of villas increasing more than the number of tourists). Also read: How to Rent Out A Property in Bali and Lombok as Foreigner Regulation While Bali continues to rely on leasehold, property investment in Lombok offers a more secure approach. Despite what some vendors can promise, the leasehold starts to bring some difficulties. Indeed some investors have difficulties extending their lease in Bali even after 5 years. Balinese understands that the investors will be ready to pay a lot of money to extend the lease. Nobody can blame the Balinese, as every owner would do the same. Would you extend the lease of land if somebody has generously built a villa on your property? You would probably ask for a price of 30% over the market price. Unfortunately, do not expect the notary to help with the extension; the 1% fee is just to sign a document which was not require their signature. Lombok has taken a different approach, with owners selling their land on freehold (SHM) and allowing foreigners to purchase the land or the villa through a PT PMA to acquire an HGB. The legal framework is clear, and the procedure seems to follow the regulations. Developers are still new and some projects however need to be checked. At ILA Global Consulting, we have seen some projects without the application of a building permit (PBG) or with unclear definitions of the zoning and the land title. Moratorium in Bali Bali is facing a situation that could provide good momentum for Lombok. Indeed, Bali has faced an uncontrolled development with some real estate agents and some developers selling properties without building permits (PBG) and promoting the possibility of renting villas on Airbnb without any licence by leasing villas under their own name. This time seems over with locals calling now for a moratorium in Bali. This moratorium has the objective to stop some development on beach clubs, restaurants, and new villa complexes in areas such as Badung (Canggu, Kuta, Uluwatu), Sanur and Ubud. Those regulations are more than welcomed by ILA if it
Guide To Renting Out Legally A Property In Bali And Lombok As Foreigner
In Bali and Lombok, foreigners invest in property in order to rent out a villa to tourists. The high return on investment promoted by developers is attracting several thousands of investors who want to find the dream villa for their investment in Bali or Lombok. Legalities to rent out a property on Airbnb in Lombok and Bali It is not possible to rent out a property on Airbnb in Indonesia as a foreign individual. The legislation authorises Indonesians to rent out a property after applying for a licence or foreign individuals under certain conditions if they set up a corporation (PT PMA). Indonesia authorises daily rental to tourists if the property respects certain conditions: Is located in a proper zoning such as Pink zone and certain yellow zone The property has a SLF (Sertifikat Laik Fungsi) which describes the function of the building and ensures the building meets the requirements for the business purpose or living. There are several types of SLF and the property needs to have a SLF in line with the purpose of the building (Villa, Hotel etc.) The property has been built legally, and the owner has applied for a PBG or IMB. Despite those conditions, many properties in Bali and Lombok do not meet the minimum requirements. Some properties are rented without complying with the legislation. Once the property meets those requirements, the owner or operator must apply for the business license. Business licence to operate daily rental in Bali and Lombok There are several types of business licences to operate a property on the daily rental market. The business licence to operate as an Indonesian or foreign company are: Hotel: The hotel licence is not available to a foreign company if the building is less than 4000 square meters Apartment hotel: Similar to a hotel, this licence cannot be applied if the building is less than 4000 square meters Pondok Wisata and Guest House: This business licence can be applied only by Indonesian individuals or Indonesian companies with 100% Indonesian ownership Vila: Since 2021, a PT PMA cannot apply for this licence Make navigating real estate in Indonesia easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. Tax declaration on daily rental in Bali and Lombok As a hotel operator, a property management company, or a business operator, Indonesian law requires a tax of 10% on top of the price per night. This tax is collected by the taxpayer and is due by the operator or individual who applied for the licence described above. The taxpayer needs to apply for an NPWPD and pay the tax the month following the collection of the income. Also read: Land Ownership and Land Title Transfer in Bali and Lombok How to operate a daily rental business on Airbnb in Bali or Lombok As the licence above restricts the ability to rent out a villa legally, how do some investors rent out properties in Bali legally? Indeed, some use a nominee person or simply do not declare anything and do not apply for any licence. It is a high risk and more controls are done, Airbnb is also collecting and requiring legal documentation nowadays. One way is to hire a property management company that applies for the license under a staff member or themselves if it’s a local management company. Some management companies also ask the landowner to apply for the license and pay the tax under the landowner’s name. After they receive the money, the property management company sends it to the investor. However, since the investor is not legally allowed to receive the money directly, the property management company or the license owner must send the profit to the investor. As an investor, setting up a PT PMA is the best way to avoid taxes. This PT PMA will make an agreement with the landowner and the management company, invoicing the company to receive legitimate income. The invoice can cover services like managing bookings and marketing. How to operate a monthly or long-term rental business on Airbnb in Bali or Lombok Indonesia authorises PT PMA to directly lease out or rent out a property on a long-term basis. The legislation accords the right to a foreigner under a PT PMA to rent out a per month or more a villa in Bali and pay the tax directly under the company tax number. Things to know before purchasing a villa in Bali and Lombok Check all the licence To ensure a smooth investment, it is recommended first to ensure the property has all the related documents or the developer has applied for a PBG. Despite the information some developers can communicate, it is illegal to start a construction without a building permit called PBG in Indonesia. Invest with the right structure To ensure a legal structure for your investment, the best way to rent out a property in Bali is to set up a PT PMA and focus on tax optimization. Investing in Bali under a personal name exposes the investor to high taxation in their country of residence. It is important to consult with ILA or a professional to understand how to optimize your taxes effectively. A lot of foreigners or developers will recommend under personal name, but: One, this is illegal Two, it exposes to high taxation. Furthermore, despite some recommendations to pay first and sign under a personal name. This action can lead to double payment and some difficulties to transfer the land or property under the company name. Also read: Get your license to run a hotel or villa in Bali
Tax on Real Estate in Indonesia: How to invest in Bali and Lombok
Navigating the Tax on Real Estate in Indonesia can be difficult to understand, whether you invest under your personal name or under a PT PMA. Investing in Bali or Lombok with developers or real estate agents seems fast and easy. Most real estate agents and developers will advise you to invest in real estate under a personal name. They suggest doing the transaction in a few days after a quick check on the seller’s rights. However, what are the real tax implications for foreigners investing in property in Bali? Additionally, what is the best setup for these transactions? Property tax in Bali and Lombok Understanding real estate tax in Indonesia is important for investors, especially when considering invest in property in Bali and Lombok. Taxes vary if the investor invests in a leasehold or freehold property and if the investor invests in a personal name or under a company (PT PMA). To be clear, a foreign individual is not allowed to rent out a property on Airbnb, Booking.com or any other platform. Tax on property acquisitions in Bali and Lombok A foreigner investing in a leasehold property is not entitled to pay any tax. The lessor (seller) has to pay a flat tax (final tax) of 10% or 20% if the seller has no NPWP. In the event the lessee (buyer) is a PT PMA, the leasehold tax has to be withheld and paid by the lessee. The Leasehold tax is 10% for residents and 20% for non-resident In the event of an Akta Jual Beli (freehold purchase), the buyer must pay a tax of 5%, while the seller pays 2.5%. The seller’s income determines the tax base, while the Indonesian government defines the tax base for the buyer. Buyer tax 5% – Seller tax 2.5% Tax on daily rental The tax on daily rentals is set at 10% in Bali and Lombok. This tax is paid to the local government every month. The taxpayer needs to have an NPWPD. On the legal side, the license for daily rental cannot be obtained under a foreigner. It also cannot be paid by the foreigner. Despite reports of the tax office accepting this payment, it comes with complications. It means paying a tax on a business that is not operating with the right license. Land and Building tax The land and building tax is due by the owner of the property. As a reminder, a leasehold does not own a property, so legally, unless there is a different agreement, the taxpayer is the owner of the land and the building. The land building tax is based on the valuation of the building and land from the tax office. The rate is set by the region with a maximum national rate of 0.5%. Each region in Indonesia defines its own rate. Make navigating real estate in Indonesia easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. Tax for foreigners investing in properties in Bali Tax on income sent overseas After paying the local tax, money sent overseas for a non-resident is taxable at 20% or a lower rate, depending on the tax treaty with the taxpayer’s country. If the property management company sends money to the foreigner, it must withhold a 20% tax. For a foreigner investing in a leasehold as an individual, the income is a revenue from a rent. It is important to remember that selling a leasehold is not selling a property but selling a rental contract and getting rental income at one time. This income is usually taxable on the personal income tax in the country of residence. The taxable base is not the capital gain, as there is no capital gain on a leasehold contract. If a foreigner invests in a leasehold through a company, the real estate tax in Indonesia applies primarily at the company level. The foreign investor is taxed only on the profits distributed as dividends. Double tax treaty A double tax treaty (DTT) applies once Indonesia has signed an agreement with the country of the foreigner. This double tax treaty applies to a scope of income and not to all types of revenue. It is important to note that leasehold revenue is not part of most of the double tax treaty, and consulting a tax consultant in the taxpayer’s country is crucial. In some countries, the DTT limits provide credit but do not void the taxation in the country of the taxpayer. Also read: How to Invest in Property in Bali & Lombok
What’s Going On With The Development In Bali
For those who have been in Bali since the Covid era, it has been impossible not to see property development happening there. The news and media around the world have been showing the beauty of Bali and the downsides of this development. Politics are now working on a moratorium to stop or control the development of Bali. But how have we arrived at this situation? What are the real problems behind Bali’s development, and how can we fix them? As a legal advisor, ILA Global Consulting has worked with developers, real estate agents and investors. We have seen things changing in the last decade. Regulation in Bali on property investment Some politics and tourism unions are calling for a moratorium on property development to stop developments in some areas. The regulation for property development in Bali is clear. Indonesia has some zoning with a clear spatial regulation where hotels can be built, villas, residential houses etc. Zoning in Bali It has been decades since developers and buyers have been building in unauthorised zones. Bali is famous for its strong community called Banjar. It is unfortunate Banjar did not see the development in Bali and suddenly woke up with a lot of properties developed in a green zone. Banjar is patrolling areas and anything has to pass by them, even local financial contributions. How did it happen? The issue is clearly not a lack of regulation, and another regulation will not change anything as long as the authorities do not apply the regulation to the whole community. Foreigners are not the only ones responsible for this development. The ones selling their land are Balinese themself. Some locals have reported being pressured to sell their land. This situation is clearly unacceptable on an island we all love for its culture and beauty. The government established zoning with a clear purpose and plan. Yet, some foreigners, who are often the first to complain about the lack of infrastructure, collaborate with notaries to change a land’s zoning so they can build there. How can anyone manage the roads and infrastructure when new villas appear daily in areas that weren’t intended for development? Building permit Buildings in Bali require a building permit, and the regulations are clear. Every development has to be approved by the PUPR. Construction cannot start without a PBG. In this building permit story, politics and administration have to take a look. We are facing deals where parties do not have the right building permit. Foreigners are buying consciously without a PBG, and for some reasons that would be complex to describe, some developers succeed in getting an SLF despite having started the construction illegally. How can it happen? Authorities know this practice, and another moratorium will not change anything if the practice continues. Approving building permits typically requires reviewing architectural plans. Bali enforces regulations for design and construction, but many constructions proceed without following these requirements. Bali is seeing mediterranean houses, what happened to Bali?.. Who approved the design of the houses? Start your investment journey in Indonesia the right way With so many diverse investment opportunities in Indonesia, you need to make sure you’ve got the right setup to do business here. Get help from our team of experts to register your company, navigate the real estate market and secure your visa and stay permit. Schedule a free call with us today to plan your next steps with ILA. Consequences of property development in Bali Bali is facing several risks that could be dramatically important to the future of Bali: Cultural issue Ecological issue Social issue Financial issue The first risk is obviously the cultural issue. Due to this development, Bali has lost its essence and culture. The pressure of development has seen some sacred trees being cut. Temples have become more of a Disney Land area than a cultural and holistic place. This pressure also has consequences on the ecological side. The south of Bali is in a hydraulic deficit. Pecatu and Uluwatu see hundreds of trucks delivering water every day. Properties in development at the moment are facing a surge of water demand and none know how to face the situation in the next few years. This pressure has some social issues with an emergence of social bashing on foreigners on social media with a hate on some developments. Indeed a few foreigners had bad behaviour but the behaviour has been a mimic of what was happening here. As we used to say, if all locals were having a helmet none foreigners would probably drive with no helmet. All those issues above can lead to some financial issues and tourists suddenly changing their mind coming to Bali. Who would come to Bali if the culture disappeared, you can’t have a proper shower and you feel locals not welcoming you? We are all responsible for what is happening As foreigners, we also need to say stop. If a villa has no building permit, this villa should not be listed with real estate agents, and this villa should not be accepted by a notary. SLF should not be delivered after the construction, and legal agents should advise their clients. The administration and Banjar should report it, and developers will start tomorrow to apply the regulation. Only outsiders probably are not supposed to know what is going on. All insiders are suddenly surprised that there is suddenly a moratorium while everybody knows what’s going on. We see developers having media exposure, but everybody knows they do not have the right permit to build and authorise. Rich local investors and foreigners are pushing to change some zoning and get authorisation while other local people or poor families are under pressure to sell. The future of Bali depends on us, especially the Balinese. It is their land, and it is time to reinforce the regulation and kick-off. The regulation doesn’t have to be changed. It is time to apply the regulation and provide the right administration. The Indonesian government and Balinese have
Bali Scams on Property: How to avoid it
The main concern of investors is to avoid scams in Bali when buying a property. The last few months have seen uncontrollable developments in Bali properties, leading some local governments and some locals to request a ban on construction. Indeed, this development has been uncontrollable, and everybody knows what has been happening. How to advise foreigners to follow the regulation when, in more than half of the transactions, the local seller requests the foreigner not to declare the tax? How to advise foreigners to follow the building regulations in Bali when the local community advises foreigners to not apply for the building permit before construction? Bali is navigating these issues on two fronts, making it difficult for foreigners to understand what to do and how Bali scams might affect their property or business. Leasehold under personal name The pressure of the third parties When it comes to purchasing a villa, real estate agents, sellers or some contractors always advise their clients to go through a leasehold under their personal name. This solution has the following objective: Fasten the transaction as they do not have to wait for the creation of a structure Avoid paying VAT Reduce or avoid the leasehold tax This mechanism is offered to foreigners who arrive in Bali and have the impression of buying a villa while, in reality, the leasehold is a Hak Sewa, meaning the contract is a long-term rent. This distinction is important between owning a property and owning a leasehold. This difference directly impacts how the tax office classifies the overseas investment and how the money is returned and taxed in the investor’s country of residence. Implications of reducing the leasehold tax Indeed, Indonesia has a tax facility with only 10% on leaseholds based on the seller’s charge. However, it is common practice to have notaries sign an agreement with a value lower than the real price. The local person does this to pay less tax. The consequences for the foreigner can be dramatically important with the tax office in its country of residence. Indeed, if the foreigner is not able to justify the amount that has been transferred with a supporting document with a correct value. In fact, some foreigners have had to pay fines due to their inability to show a contract with the proper value because the real contract had disappeared. These scenarios are often a part of real estate scams that target unsuspecting buyers. Implication when it comes to selling the leasehold Again, to be clear, purchasing a leasehold is not purchasing a property. A leasehold itself is not a lease to build, and the foreigner has not its name on the land title. This is important when it comes to selling the leasehold. Indeed, some foreigners on some advice think that selling the property will subject them to only 10% leasehold tax. However, when it comes to bringing the money back, the tax office in the home country can requalify the amount as an income taxable on the personal income tax as this amount is not related to a property purchase or a lease to build as it is simply an income from a contract. Implication when it comes to renting out the property To be clear, a foreigner cannot rent out a property in Indonesia under their personal name. Having a leasehold under a personal name does not allow the foreigner to rent their property on Airbnb in Bali or Lombok. It is possible to have some investment mechanism, but the personal name is not part of the legality. Understanding these implications can help avoid falling victim to real estate scams in bali and ensure a smoother investment experience. Also read: Can Foreigners Rent Out Property in Bali? Make navigating real estate in Indonesia easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. The scams on construction in Bali Leasehold and Right to Build For people looking to build a villa or apartment, the leasehold does not allow foreigners to build a villa or any apartment. For foreigners, the only possibility of building is to have a right to build on top of the leasehold or to purchase a freehold property and convert it into an HGB. Building permit PBG and SLF Most of the current in Bali are illegal and do not have a right to build. By law, the regulation requires the developer to apply for a building permit before the construction. The applicant must hold the building permit, but foreigners are not allowed to do so under their personal name. However, foreigners can obtain this right to build by establishing a company called PT PMA. As an individual, if the foreigner has no company, he will not be able to apply under its name for the building permit and will always be dependent on the local person. The building permit is required to apply for licenses like hotels or villas to rent out property. Always check the building permit before any transactions, especially for off-plan projects, to ensure they have building authorization. The consequences can be important, such as: An important fine Destruction of the property Impossibility to have the proper licence to rent out the property or run the business Common mistake Deposit payment We have seen a lot of foreigners losing their deposit due to a lack of an unsecured contract or for payment paid to a notary without having made a proper contract before paying a deposit. You pay a deposit under certain conditions, but a strong contract ensures you can get it refunded. Local Nominee in Bali Clients often explain that they deposited money into the bank account of a local friend they met during their vacation, who promised to
How To Invest In A Property In Bali and Lombok
One of the recurring questions of people buying a property in Bali or Lombok is whether they should invest under their personal name or under a company. The article has the objective to reply to this question and give some clues on how to invest in a property in Bali and Lombok and if it is better to invest under a PT PMA or under a personal name. Legal considerations One of the most important points when it comes to investing in a property in Lombok or Bali is the legal considerations. First of all, an individual cannot own a land under its own name or a villa. Building permit (PBG) For anyone considering Bali and Lombok property investment, it’s important to note that it is impossible to build a villa under a foreigner’s name. The ability to build a villa and get the building permit PBG and SLF is only the name of a company if this company has obtained an HGB (Right to Build). Bali has a lot of illegal construction due to the lack of rights for developers on the land. Having a lease without an HGB on the top doesn’t allow the developer to build under its name, and they often use a local person or local company (PT PMDN) to get a building permit if they have one. Licence to Rent out a property in Bali and Lombok The licence to rent out a property in Bali and in Lombok is only available to a foreigner under a company (PT PMA) despite it being available under local Indonesian under their own name. However, renting out a property can be under certain conditions and circumstances depending on the following licence: Villa Apartment hotel Hotel Pondok Wisata (guest house) Some of those short-term rental licences are not open to foreigners, and some mechanisms might be necessary to make it legal. Again, a foreigner cannot legally rent out a property under its own name. For long-term rental, PT PMA can lease out on a monthly basis or more a property. It is important to note that a building permit is necessary to obtain the appropriate licence. Make navigating real estate in Indonesia easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. Tax considerations The second aspect to consider is the tax exposure of the foreigner by having a property under their own name or under a company. The section considers the scenario of an investment done properly with all the legal aspects fulfilled. Withholding tax on revenue sent aboard on daily rental income As mentioned earlier, a foreigner cannot rent out a property under its own name. However, some property management offers to use the name of a local person to pay the tax under the local person and send the money overseas to the foreigner. The withholding tax on this transfer should be 20% for non-residents, with an additional VAT. In this scenario, the person will pay 10% local tax with an additional 20% and 11% tax. By investing under their own name, foreigners are exposed to a personal tax heavier than under a company. Indeed, the revenue sent cannot be entered under the double tax treaty as this income cannot be classified. Reselling the property When it comes to reselling, how the investor initially chose to invest property in Bali and Lombok can significantly influence taxation. The country of residence of the foreigner can impose heavy tax, especially on a leasehold. Indeed a lease is not considered as an investment in property as a lease is a long term rent. Reselling or subleasing is similar to receiving a long-term income from rental and not reselling a property. Some countries tax heavier revenue issued from short and long-term rentals than dividends. In the case the foreigner resells the property and takes a dividend, the tax office will apply the double tax treaty on dividends between Indonesia and the country of residence. Another way to optimise is also to resell the shares of the company instead of paying a lease tax and a dividend. To summarise, buying a leasehold under the personal name: Do not fasten the process, as 5 days are usually necessary to open a company. Expose the foreigner to heavy taxation in their home country after reselling the lease Expose the foreigner to heavy taxation on daily rental by sending the money outside the country By handling a company, the foreigner can: Get tax benefit with the double tax treaty with Indonesia Protect its assets under a company Get a residence permit to live in Bali and in Lombok Get options on the way to resell the property Get all documents under the company name Make the process legal with optimal taxation Also read: How to Start a Company for Property Investment in Lombok
Guide To Setting Up A Company To Invest In A Property In Lombok
Investing in a property in Lombok can be the right thing to do, while Bali is starting to have overpriced property and uncontrolled developments. Lombok offers affordable lands with a sea view. Despite the precautions to take with the project offered, here is a step-by-step guide on how to set up a company in Lombok. Why invest in a company One of the most common questions investors have is whether we should invest under our name or under a company name. Legal reason The only possibility for a foreigner to own a property is to acquire one of the different types of land certificates eligible in Indonesia. A foreigner can use a company PT PMA to purchase a freehold property and apply for the HGB (right to build and own a building). By purchasing the land with the company, the foreigner can apply for all necessary licenses and building permits under the company’s name, making Lombok property investment smoother and more secure. Tax Reason Despite some common misunderstandings, the company in Indonesia aligned with a stay permit (KITAS), which gives some tax benefits. As a reminder, DTT (double tax treaty) are applicable only to a certain type of financial movement. Income generated in Indonesia has to be paid on an Indonesian company account. If this amount is sent overseas, it is subject to a withholding tax of 20% and VAT. A company can help to reduce the amount of tax in Indonesia and in the country of residence of the investor. Start your investment journey in Indonesia the right way With so many diverse investment opportunities in Indonesia, you need to make sure you’ve got the right setup to do business here. Get help from our team of experts to register your company, navigate the real estate market and secure your visa and stay permit. Schedule a free call with us today to plan your next steps with ILA. Company structure The only form of company allowing foreign investors is a PT PMA. This type of company is a Limited Liability Company. The company is open to 100% foreign investment for most of its activities. To establish a company in Indonesia, a minimum of one director and one commissioner is required. The director is responsible for implementing policies and overseeing the company’s management. Shareholders must reappoint the director every five years. Shareholders The shareholders of a PT PMA can be individuals, foreign entities or other PMA. The individual foreigner must be over 18 years old to be a shareholder. A shareholder is not necessarily a member of the board of directors. Shareholders have to be present at the general shareholders meeting. Commissioner The company has one commissioner. The commissioner of a company is responsible for overseeing the director’s activities and reporting to the shareholders. The commissioner has the authority to suspend the director if their actions are not aligned with the company’s interests. The key responsibilities of the commissioner include: Ensuring compliance with Indonesian law Providing advisory support to the board of directors Approving the annual report Director The director of a company is written in the status of the company in the deed of establishment. The role of the director is important as the director of the company takes responsibility for the orientation of the company. A PT PMA can have several types of directors: President director Director Operational director The director assumes the main responsibility and has the authority over the bank account of the company for the opening. In case of bankruptcy, the director cannot assure this role in another company for a period of 5 years. Capital Requirement of the PT PMA The capital requirements for a PT PMA (Foreign Investment Limited Liability Company) vary based on the company’s business activity and classification. Certain sectors, such as cryptocurrency or construction, may have higher capital requirements. However, the minimum declared capital for a PT PMA is 10 billion IDR. Registration process The registration process to start a company for Lombok property investment takes around 5 days. For other types of activities, it is important to check the required licenses. When choosing the company name, it is important to understand the difference between a legal name and a trademark. The legal name of the company is not a logo and it is a combination of words. Certain words, like “OF,” are not eligible for registration. Combinations of symbols, letters, and numbers are also ineligible. Terms that oppose the Indonesian government, religion, or morality are prohibited. The name must align with the business activity and not be misleading, and it cannot resemble or represent a government institution. The registration process can be done remotely as long as the shareholders are in measure to provide a power of attorney to the signing person. AKTA or Deed of Establishment The articles of association are governed by corporate law, with standardised terms. The AKTA cannot revoke shareholders’ rights to receive financial dividends. However, it may establish different classes of shares to limit certain voting rights or influence within the company. Key elements included in the AKTA are: Names of shareholders and their respective share classes Rights attached to each share and the nominal value Authorised, issued, and paid-up capital Company name and location Description of business activity Board of Directors and commissioners Methods and locations for holding shareholder meetings Procedures for profit distribution and dividend payments Duration of the company’s incorporation (typically 5 years) After the registration of the deed of establishment, the Ministry of Law and Human Rights issues the approval (SK), and the company is officially registered with an address in Lombok. Domiciliation When it comes to a first investment, the company usually has no commercial address with a building permit (SLF) classifying the address as a commercial address. For investors buying a land or pre-establishing a company the address needs to rent a commercial address such as a service provider such as ILA Global Consulting. Tax card – NPWP The company has to get a tax number to
Land Ownership And Land Title Transfer In Bali And Lombok
When it comes to acquiring rights on land in Bali and Lombok, it can be confusing to define which rights and obligations a foreigner gets. While in Bali, most of the transactions are on a lease (Hak Sewa), Lombok’s transactions are on a freehold property (HGB). The article below describes the different types of land ownership in Bali and Lombok. Land Titles in Bali and Lombok Bali and Lombok are part of Indonesia and follow the rules of Indonesia regarding the transfer of ownership. It is important to remember that having a lease doesn’t allow the foreigner to own a house, and taxation in their country of residence might be highly impacted. HGU HGU (Hak Guna Usaha) is a right granted to individuals or legal entities. The title can be translated as Business Use Rights for agriculture, plantations, livestock, fisheries, forestry, etc. It gives the right to have a business on the land. This right is typically granted for a set period of up to 35 years and renewed for another 20 years. There are specific conditions that ensure that the land is used productively and in line with the designated purpose. Local entities such as PMA and Indonesian individuals have the right to use the land, but full land ownership in Bali stays with the state. The owner of the HGU (Hak Guna Usaha) has obligations to meet certain requirements and respect the environment. The duration is stipulated in the contract, and the extension can be done at least 2 years before the expiration. The entity can request to transform the HGBU into an HGB under certain conditions. All the terms are regulated in the Basic Agrarian Law Number 5 of 1960 and Government Regulation Number 18 of 2021. HGB The HGB is a right to build on a land under the name of the entity owning the HGB. The Undang Undang gives rights to build and own buildings on land that initially doesn’t belong to the entity having the HGB. The terms of the HGB are initially for 30 years and are extendable for 20 years with a renewable option of 30 years. The total rights are for a period of 80 years. At the end of the period, the land goes back to the Indonesian state. The owner of the land is no longer the original owner but the government. The HGB is a right provided by the Indonesian government to build and manage the land. One of the advantages of the entity owning a HGB is the ability to use the land as collateral. According to Article 44 in the law 18/2021, holders of HGB (Hak Guna Bangunan) have the following rights: Use and utilise the land as specified in the granting decision and agreement. Build and own structures on the land for personal or business purposes, following legal provisions. Conduct legal actions such as transferring ownership, changing land use, or imposing dependent rights on the property. Hak Pakai The right of use (SHP) grants individuals or entities the ability to use and benefit from land controlled by the state or owned by an individual landlord through an agreement with the landowner. In terms of land ownership in Bali, the Hak Pakai can be obtained by: An Indonesian A legal entity in Indonesia A representative office A foreigner Each area and sometimes Kapubaten in Bali and Lombok define the minimal conditions to obtain a Hak Pakai. For example, the minimum requirement is a 5 billion investment with a building already built on a land with a maximum size of 20 ara in Badung. The Hak Pakai is providing the following rights: using and utilising the land utilising natural resources and water resources on the land ability to transfer the rights. Similar to the HGB the Hak Pakai can be collateralised with another party. The Hak Pakai has a validity of 30 years with an extension of 20 years and can be renewed for another 30 years. Also read: Complete Guide To Buying Property in Bali as a Foreigner [2024] Right of Freehold (SHM) Sertifikat Hak Milik known as SHM is granted to Indonesian individuals. It is the highest form of land or property ownership in Indonesia. It grants full and indefinite rights to the owner. Unlike the HGB or HGU, which have time limits, SHM is permanent and can be passed down through generations. Despite the certificate having no time limitation, it is important to note that the government and court can revoke the rights in certain circumstances or expropriate the landlord, as has happened in some areas in Bali. Foreigners and Legal entities are not eligible for this type of certificate and land ownership. HPL or Right to Manage The HPL is a certificate granting rights to entities to manage land for a certain period of time. This certificate is provided by the government to manage land owned by the government. Unlike other certificates, it is not possible to collateralise the certificate or transfer the rights to another entity. Make Navigating Real Estate in Indonesia Easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. Regulations for Foreigners Transferring Land Titles in Indonesia As described above, only a few types of land titles can be acquired and transferred by foreign entities: HGU or Business Rights HGB or Rights to build and own buildings Hak Pakai or Rights to use It’s important to note that Hak Sewa or Lease, which many foreigners commonly use in Bali, doesn’t grant legal land ownership in Bali or rights over buildings, and it cannot be transferred. The lease itself can be based on the contract but not legal ownership. The titles above are recognised by the Indonesian government in Bali and
How To Buy A Property In Lombok
When it comes to buying a property in Lombok, buyers might find the scene slightly different from that in Bali if they are used to buying a property in Bali. The government spent a lot of investment to attract property investors. However, it is still sometimes difficult for foreigners to understand how to buy a property in Lombok. Lombok is one of the fastest-growing areas in Indonesia for foreigners to invest in. The price is cheaper than Bali and the return on investment starts to be interesting. Find out how to buy a property in Lombok as a foreigner. Buying a property in Lombok Leasehold versus Freehold in Lombok While in Bali leaseholds are the most common practice, Lombok offers a more straightforward and secure solution for buying a property. Most of the transactions in Lombok are done on a freehold property (SHM). The foreigner establishes a PT PMA and purchases the land and the property under its company. The buyer and the seller do a sales and purchase agreement (Akta Jual Beli) in order to transfer the land title under the company. Unlike the leasehold, the buyer acquires the right to build on the property and registers the land under their company. This brings some advantages as the ability in the future to leverage and eventually get a loan with the property. Can a foreigner buy a property in Lombok? A foreigner can buy a property in Lombok if they own a company or they purchase a leasehold (Hak Sewa). However, there are several types of property ownership in Indonesia, from the HAK MILIK to the HGB and HAK PAKAI. The highest level of ownership is HAK MILIK and only Indonesian individuals can own the HAK MILIK and transfer the ownership to the next generation. Foreigners willing to own land need to set up the company (PT PMA) and purchase under the HGB to own rights to build and do business on the land. The HAK PAKAI is a right to use with no real advantages except being able to own some rights to use the property. The process of buying a property in Lombok The process to buy a property in Lombok is simple and follows the different steps: Make an offer or review the offer of the seller and sign the offer Set up a PT PMA, open a bank account and inject the funds Pay a deposit to an escrow account Make an independent due diligence Proceed with the sales and purchase agreement Pay tax on the transaction Change the land title under your company Get the building permit The difference with a leasehold property is that the terms and conditions on the purchase are straightforward as the buyer becomes the registered holder of the land title. However, due diligence on the land is an important step to ensure the land can be developed properly for construction, the buyer can get the proper building permit (PBG), and the property is located in an area where the buyer can do short term rental on platforms such as Airbnb or Booking.com. Make navigating real estate in Indonesia easy Save time and money by letting ILA’s team of experts guide your real estate journey in Indonesia. We can help with due diligence, land title transfers, notary services, contract drafting and reviewing, building permits, various licences and more. Find more information about our broad range of real estate services, or reach out today for a free consultation. Things to consider before buying a property in Lombok Lombok is a new place of investment and the process to buy a property in Lombok can be confusing. Here are the things to consider before purchasing a property in Lombok. Real estate agent The easiest way to buy a property is to go with a real estate agent. There are several legitimate property agents in Lombok, but there are also several ones working closely with developers and having an interest in the seller. We recommend always doing due diligence on the Lombok real estate agent and making sure they have the proper licence to work as a real estate agent. The occupation is regulated by the Indonesian government and a real estate agent is supposed to be part of the AREBI association. Developers Lombok is a new playroom for a lot of developers. New projects are growing fast without a proper study on the Return On Investment for the buyer and proper legal due diligence on how the buyer can obtain the licence to get a legit revenue. Several big players are now investing in Lombok and are offering legitimate projects that are interesting to look at. Infrastructure The infrastructure in Lombok is still not as developed as the one in Bali or Jakarta. Despite the road being in good condition, the access to the property is sometimes unclear or not well-defined. Some villas or projects are still not connected to the public water system or the public electricity. Locations Lombok is a wide island and most of the new Lombok real estate projects are concentrated in the south of the island. Despite Kuta Lombok being the epicentre of this new development, lot of projects start to emerge on the South West of Lombok along Selong Belanak since the new road is connecting it with Kuta Lombok. The East of Kuta Lombok is not surrounded by the moto circuit which makes the area noisy for property owners who want to rent out their property. Business in Kuta Lombok is growing and Lombok is certainly a place to look out even if the occupancy rate and ROI is not yet as in Bali. Also read: Can Foreigners Rent Out Property in Bali? Key Regulations Help to buy a property in Lombok With experience in Indonesia, we have overlooked several property purchases on the buyer and developer side. We can assist buyers and sellers in reviewing the contract for property in Lombok, doing due diligence, providing notary assistance in Lombok, and inspecting the property.