Property Tax in Indonesia: A Comprehensive Guide
In this article, we’ll review the key aspects of property taxation in Indonesia, focusing on rental income, land and building tax, and income tax implications for property owners. Those tax rates are important to know before leasing or purchasing a property in Indonesia. Property taxation in Indonesia and Bali BPHTB – Sales and purchase tax When it comes to settling a buying property transaction, both parties have some tax obligations. The first one is the land acquisition tax or Bea Pengalihan Hak atas Tanah dan Bangunan (BPHTB). The buyer and seller have to pay the tax before the notary signs the deed. Land and tax is calculated at a flat rate of 5% for the buyer (the seller pays an income tax PPH at 2.5%). The tax for the buyer is calculated as follow. The calculation of the tax varies from a region to another one based on the non-taxable real estate objects, called Nilai Perolehan Objek Pajak Tidak Kena Pajak (NPOPTKP) that is deducted from the Tax Object Acquisition Value, called Nilai Perolehan Objek Pajak (NPOP). BPHTB = 5% x (NPOP – NPOPTKP) Let’s take an example for a property sold at 3 000 000 000 IDR in Jakarta. The NPOP is then equal to 3 Billion IDR. The government is fixing the NPOPTKP at Rp 100,000,000 IDR in Jakarta the calculation becomes: 5% x (Rp 3,000,000,000 – Rp 100,000,000) = Rp 145 000 000 PBB – Land and Building Tax One of the property taxes in Indonesia is PBB. The land and building tax in Indonesia (Pajak Bumi dan Bangunan) is with a maximum national rate of 0.5%. Each region in Indonesia defines its own rate. The local government determines: The NJOP (Nilai Jual Objek Pajak) that can be described as the sales value of the property. This amount is the average price obtained during the last real estate transaction. If there has not been a real estate transaction recently, the NJOP is determined by the local government by comparing the property on the market. NJKP (Nilai Jual Kena Pajak) is the appraisal value from a calculation using the NJOP. 40% for properties above IDR 1 billion 20% for properties under IDR 1 billion To make it simple, if the property transaction is at 2 000 000 000 the PBB tax will be 20% x 2 000 000 000. The final tax will be 0.5% x 20% x 2 000 000 000 = 20 000 000 IDR. PPH – Income tax and Lease tax in Indonesia Lessors are responsible for this tax. The tax is based on the lease value. The amount of the lease tax in Bali is at 10%. This tax is due after the signature of the lease and the transaction. In case of freehold property, the income tax from the seller is at 2.5%. The tax is calculated on the value of the income (sales price). VAT (PPN) Oftenly missed, buyers may have to pay a VAT on the property called PPN Pajak Pertambahan Nilai. The lessee or the buyer needs to pay the tax when a transaction occurs with a contractor or a developer registered as VAT collector. The tax rate is at 11%. However this tax doesn’t apply for second hand properties. It is important to check if the seller iwill collect the VAT for the government and is in right to charge the VAT to you. Construction tax 1.75% for a company with a classification as a small business or for individual with a competency certificate 4% if the company has no business qualification 3.5% for a company declaring itself designing and managing the building project as a developer (6% if the company has no business qualification) PPH is due by the contractor except if the client is a company with a tax number in Indonesia. In this case the client needs to withhold the tax. Stamp Duty (DST) The Payment of Documentary Stamp Tax serves as legal evidence during the signature of the boh parties. The standard stamp duty has changed the last few years but is stabilizing at less than 1 USD. How can we help you? Property tax compliance and tax planning For individuals and businesses involved in property transactions, ILA Global Consulting offers expert guidance on property tax planning. We help clients to optimize their tax liabilities while ensuring full compliance with Indonesian tax laws. This includes assistance with Transfer Tax (BPHTB), Land and Building Tax (PBB), and other related taxes. Transaction structuring We assists our clients in structuring their transactions in the most tax-efficient manner. By considering the specific details of each transaction, they can provide tailored advice on how to minimize tax exposure while adhering to legal requirements. https://www.pajak.go.id/id/peraturan/perubahan-kedua-atas-peraturan-pemerintah-nomor-51-tahun-2008-tentang-pajak-penghasilan https://www.pajakku.com/tax-guide/12413/UU/1%20Tahun%202022
How To Rent Out Property As A Foreign Investor In Bali
Investing in a property in Bali may seem confusing, as contradicting information is sometimes provided by different actors. If finding a property in Bali is easy, investing legally and making a rental business as a foreigner in Bali requires the investor to comply with the regulations. Despite what some actors or other investors can say, there is only one way to legally rent a property out on Airbnb or on the market. It is important for the investor to understand that different solutions provided by some actors are sometimes illegal or expose the investor to high taxation in case of audit or control. We will study the different options that are suggested and will review the consequences of each option. The number of offers on the market is now increasing and investors have a lot of options and areas where to invest. However, it is crucial for the investors to look at what could be the return of investment and how to select properly the best property to start a rental business in Bali. How to select a property to invest in Bali As mentioned above, in the last few years a lot of developers have taken the opportunity to build a number of properties in Bali. Farmers, Balinese owners and developers are now offering lands and villas in areas that nobody would have considered a few years ago. Find the right location and your target market Despite your budget and your investment plan, the location of a property remains the main criteria when investing in a property in Bali. The location has always to be correlated with your target market. Different projects may fit for one type of client and do not fit for another type of socioeconomic client. While Seminyak and Ubud are certainly places for short-term rental offering a high occupancy rate, other developments, such as in Tumbak Bayu or Kedungu, might find more difficulty in getting a higher occupancy rate. Indeed, investing in property and starting a property business requires a business-minded approach. Are there people willing to rent property in Bali 25 minutes from the beach, restaurants, or cultural activities? The answer is certainly YES. However, how frequently can you rent out this property if 30 new villas are being developed around you in the next 5 months? The market is indeed constantly changing and evolving. The tourism industry is changing and the behaviour, nationality and type of people coming to Bali is moving. Some actors and professional real estate agents can help to find the right place. Define a proper Investment strategy Investing in a property is like investing in another asset. Each investor has to think about its exit strategy and the terms of the investment. Bali is offering a lot of leasehold property that might affect the exit strategy. While leasehold property requires cashing out quickly, freehold property gives investors more time to get their return on investment. The price of a property plays an important role in the decision to invest. Even if the location is great, an investor may get a quicker Return on Investment on a property slightly further from the beach with an occupancy rate one or two points lower. Here are the things to consider before investing in a property in Bali When do I plan to cash out? What is the occupancy rate in the area? Is this area close to activities? Am I looking to rent out the property for a short-term or long-term stay? Can I resell the asset after a few years? Understand the market trend Even if the location is great and the current numbers predict a good return on investment at the time of the investment, it is important to understand how the market is evolving to understand how it can affect the occupancy rate and the ROI. Indeed, Bali or other areas such as Lombok have today a lot of projects in construction on areas that are not yet developed. Some projects start to attract investors not because of the tourists willing to go to this place but sometimes because the developers are pushing to invest in an area where the developers could get cheaper land. This presents a chicken-and-egg dilemma: Is there a lack of tourist interest because there’s no property, or is it due to the area being less appealing? Likely, it’s a combination of both. For investors looking to rent out property in Bali or achieve quick returns, this factor is crucial. Some projects make sense due to their proximity to beautiful beaches, while others are developed far from attractions, lacking appealing features like beaches or cultural activities. Understand the Competition Bali has seen such development that it is important to take into consideration how the competition is developing around your investment. Properties take time to develop, and with the current trend, you may be surrounded by other properties around you affecting your occupancy rate but, worse, bringing complaints to your Airbnb account. Indeed, it is not rare to see investors having to cut their price or take out their property from Airbnb due to the development around their villa and offering the villa on long-term rental due to the noise of construction. Make your own numbers Investing is your own responsibility, and no agent or developer will sign on to any numbers. Despite the occupancy rate they can provide or any information, it is important for the investor to make their own mathematical calculations. Each party has an interest to sell something and the only one with an independent view is the investor. 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. How to purchase the property We have covered
Legal Considerations For Leasehold Property In Bali
This article identifies the key things to consider when leasing property in Bali and the rest of Indonesia, such as Lombok. There are some steps and factors to pay attention to when dealing with developers, real estate agents, and sellers of a property. As a reminder, a leasehold is a private contract between two parties. This means that the terms and conditions are defined by the content of the agreement, and any dispute will be related to the clauses in the agreement. Due Diligence on the party During my first trip to Bali, I remember arriving to a world at the opposite of the cartesian rules and clear functions of each party involved in a transaction or a contract. As I used to say, Indonesia has clear rules however their application and how some actors play with the rules might be disorienting buyers in their purchase journey. Due diligence on the Broker or Real Estate Agent When purchasing a property, the first party you will probably meet is the broker or real estate agent. Indonesian law clearly states who can be an agent or a property broker. The broker needs to have a special licence and be a member of the Broker Association (AREBI). However, it is unfortunately common to see brokers acting on a system commission without any licence. The broker or real estate agent is taking a commission from the seller. By definition, this broker or real estate agent is not representing your interest but the interest of their client, which is the seller. Professional real estate agents take care of both sides, and there is a lot to recommend when working with proper license and professionalism. The agent is supposed to also advise the client about the regulation and how the process works. However, having an unlicensed agent might cause you to face some issues during the process of leasing property in Bali, with the broker exercising pressure on the buyer. Check on the Seller When leasing property in Bali, whether dealing with an agent or not, it is important to understand who the seller of the leasehold is. It is not rare to see some leaseholders in Bali selling a lease while they are not the owner of the land or the building if they decide to sublease or transfer the lease ownership. The owner of the land or the leasehold will be the person with whom you need to deal on the day-to-day or if something happens. By law, having a leasehold doesn’t mean the lessee is the owner of the land. It is recommended that you initiate good relations with your landowner or lessor in order to prepare the terms and conditions of your contract. It is not rare to see multiple owners on a property in Indonesia. I remember a case with 11 owners all around Indonesia, and the difficulty there was in the end in getting everybody to sign the lease. Those 11 people or their descendants will be the owners and people you will have to deal with. Due diligence on the Developer Bali and Lombok have magically seen developers and contractor companies emerging in the last few years, selling off plan properties. Some developers might have rights on the lease and subletting or transferring you a leasehold property they have purchased in order to build and resell the rights to the lessee. Developer and contractor professions are highly regulated in Indonesia. We recommend analyzing the licence of the developer before entering into an agreement with the party. We have seen several developers on the market who have no experience overseas or even operate here with no license. A proper contractor is required to have at least an Indonesian partner in order to operate in the construction field. Indeed, depending on your contract, a contractor or developer with no licence might disappear and let you have a property once the deal is done without any insurance on who to complain to if there is an issue. The Indonesian procedure might take months and years. Even the recent episode with a big developer in Uluwatu shows that the incident might let investors off-plan property with delays and delays on their project. Other experiences in Sumba have also been reported. Therefore, it is essential to thoroughly vet developers when leasing property in Bali to avoid potential pitfalls. Also read: Property Contracts And Due Diligence In Bali And Indonesia Use an independent Notary Once you have found your property, one of the third parties you or the lessee will engage in the transaction is the Notary. This profession is also highly regulated in Indonesia. However, notaries work closely with developers or sellers. I rarely see a transaction ending with a NO GO from a notary who gets commission on the transaction. We usually recommend that the buyer choose a notary independent of the seller (contact us for recommendations). Fees from notaries usually range from 0.5% to 1% of the transaction. Once all parties in the process have been identified and defined, the next step is to understand the key points to check on the property itself when leasing 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. Due Diligence on the property Zoning When leasing property in Bali, it’s crucial to consider the zoning regulations, which dictate the permissible activities for each type of zone: Green Zones: Reserved for agriculture. Yellow Zones: Primarily residential with some allowance for business activities. Pink Zones: Designated for tourism and larger-scale activities. However, the color designation alone provides an indication, not a definitive confirmation. Each plot must be thoroughly assessed to verify what activities are permissible based on the
Freehold Vs. Leasehold Bali: Which Is The Better Choice?
Investors and property buyers have to choose between freehold vs leasehold Bali for their investment in Bali, Lombok, or the rest of Indonesia. What is the best option for a foreigner? Which option is better, freehold or leasehold? Plunge in Bali’s history Historically, the Bali real estate market has been selling property under a leasehold agreement. First, foreigners who invest in Indonesia and Bali were looking at options for investing in a property. The law did not allow foreigners to own property. At the time, two options were possible. Invest under a nominee (wife, husband, partners) but without any insurance to get rights on the property as a nominee agreement is illegal even between husband and wife. Invest by renting the property for several years under a leasehold agreement. Indonesians who used to sell their freehold certificate with a notary pursued the process by using notaries with foreigners purchasing leaseholds. 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. What is a Leasehold? Purchasing a leasehold property is a long-term rent of a property with some terms and conditions. A leasehold is a private agreement between several parties that defines some rights and obligations. The lessor and the lessee can write an agreement about a land or a building. Both parties can be individuals or corporations. A leasehold agreement delegates some rights on a property to the lessee (the buyer). The rights and obligations are in the agreement for both parties. The agreement frames the relationship between the lessor (seller) and the lessee (buyer). A lease agreement can be notarized or non-notarized. The notarization can be helpful in case of a dispute. A lease agreement can be transferred or subleted to a third party if the agreement authorizes the lessee. In the case of the transfer lease agreement, the lessor has to be informed by the current lessee who is substituting its rights and obligations. Some agreements for freehold property in Bali differentiate between the building and the furniture to minimize tax. Lessees and lessors in Bali often sign both an official agreement and a non-official one, usually stating a minimized amount in the official document to reduce tax while keeping the unofficial document aside until full payment is made. First, this practice is totally illegal. Second, the lessee will not be able to justify the purpose of the funds transferred to the tax office in its country. Third, if the lessee buys through a company, the lessee will not be able to claim this amount as part of the investment. Especially in areas like Bali, where long-term lease agreements are common, understanding the legalities and tax implications is crucial for both parties involved. Also read: How To Buy A Property In Bali: What Is the Most Tax Efficient? What is a freehold (SHM, HGB, Hak Pakai) A freehold property (Setifikat Hak Milik) in Indonesia is only for an Indonesian Citizen. The SHM will be transferred to the next generation. However, in order to facilitate investment in Indonesia, the regulator has introduced other forms of ownership. Hak guna bangunan (Right to Build) The HGB (Hak Guna Bangunan), or Right to Build, authorizes Indonesian companies to own land and build on this land and property. This form of ownership is valid for a first period of 30 years, extendable for 20 and 30 years. The extension is done at the Badan Pertanahan Nasional (BPN). The company owning the land will see its name written on the land certificate, while the SHM owner will see its property rights revoked. It is possible to convert the HGB to an SHM if the owner decides to resell the land title to another Indonesian or to another company. Hak Pakai (SHP) The SHP (Sertifikat Hak Pakai) or Right to Use is for an individual or a company willing to own a property already built. The initial term of a SHP is 30 years. This certificate is usually for apartments and to encourage foreign investment. It allows foreigners to own the apartment or the house they want to live in. The same principle as the HGB, the Hak Pakai is extendable for a certain period of time (20+30). The conditions for a property under Hak Paki are depending on the province of the property location. For example, Jakarta and Bali apply different criteria based on the size and value of the property. The criteria vary if the property is an apartment or a villa. Also read: Bali Property Market Trends 2023 to 2024 Freehold or Leasehold Bali The answer to the question of Freehold vs Leasehold in Bali property largely depends on the profile of the investor. From a legal perspective, however, the HGB and SHP grant more rights to the buyer, making the purchase more secure and providing more peace of mind regarding what the buyer can do with the property. From a business or economic point of view, this is depending on several factors: Purchasing power of the buyer and its financial situation Market Value of the Freehold and Leasehold The price of the leasehold has reached such a peak in the last few years in Bali that the gap difference with a freehold is reducing. For an investor looking to invest in a property with more than 25 years’ duration, the price of the freehold should be mathematically advantageous. Another criteria is the investment plan of the investor. If the investor decides to cash out and make its return on investment (ROI) without taking advantage of the capital gain, then the leasehold can be advantageous. A leasehold is surely a good first investment for investors with a lower budget. However, each investor in their home country
Property Contracts And Due Diligence In Bali And Indonesia
Purchasing a property in Bali or Indonesia is a magical experience that can turn into a scam or a nightmare if nothing is done by following some steps of due diligence. Social media are full of happy stories showing happy endings with high return rates on investment. However, some stories can end with some drama. Whoever you are, a buyer looking for a retirement place, a buyer of a villa or a developer, it is crucial to follow some steps and make sure your contracts cover all points and perform due diligence on the property you want to buy. Property Contracts in Bali and the Rest of Indonesia Memorandum of Understanding or Letter of Intent Once the property you found is the one you want to lease or purchase, the first step is to send a formal offer before signing a lease or purchase agreement. The formal offer is a Memorandum of Understanding or Letter of Intent. This document is crucial as it will define the next steps of your purchase. This document has to cover a few points. Name of the party Price and terms of the lease Who will be in charge of the due diligence process Where will the money be transferred and how will the money be released to the seller You are going to purchase the property under a company that you are going to set up, and the final agreement will be made once it is established if you plan to have a business. Who will be the notary appointed in case of purchase (notary is not mandatory for lease agreement) To protect your interests, ensure you formally sign your contract. We recommend avoiding direct payment of the deposit to the seller to prevent future disputes. The process of taking back your deposit can be long and frustrating. Lease Agreement and Purchase Agreement Once the legal team completes the due diligence in Indonesia, the second step is to draft the lease agreement or the sales and purchase agreement. Those agreements are the proof of the transaction. The regulation doesn’t really define the terms and conditions of a lease agreement as it is a private contract between two parties. However, some minimum recommendations have to be followed. Bali has historically involved notarized agreements. Our experience shows that going to court doesn’t change much in dispute resolution, especially with biased appointed notary. Some notaries historically minimized agreements, causing tax issues. We advise against this practice due to difficulty in recovering full payments during disputes. At the difference with the Sales and Purchase (Akta Jual Beli), the lease agreement (Hak Sewa) has to be strong. It defines the obligations of each party and how the lessee can use the property and how the lessee can extend the lease. On a separate note, the seller cannot be forced to renew the lease. The last few years a few agreements mentioned conditions to renew the lease, letting some foreigners think they will be able to renew the lease with a prime right. Having a priority doesn’t mean the seller has to accept the renewal. The first extension will happen in a few years and we will see how the market will react. On the other hand, the sales and purchase agreement (AJB) is a standard contract. The buyer becomes the owner and the owner loses its right on the contract. It is important to indeed check the details of the party and the property. Read also: Complete Guide To Buying Property in Bali as a Foreigner [2024] 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. What to Check Before Buying a Property in Indonesia Property Due Diligence in Indonesia Ownership One of the most important steps is property due diligence when you buy a property in Bali, Lombok and the rest of Indonesia. Checking the ownership and the right of the person to lease the land to the buyer is important, especially when conducting property due diligence in Indonesia. In Bali, it is not rare to see lands belonging to several owners or transferred to a person for a certain period of time without authorization to lease or sell the property. It is indeed rare to see an issue for a sales and purchase agreement but it happened a few times to see the owner or lessor not authorised to sublease the property. The due diligence also has to identify if, for example, the property has some mortgage. The mortgage can have consequences: a bank taking the property and pushing the lessee out of the land by buying back the lease. This could not be an issue if the value of the lease has been clearly declared and the value of the villa is part of the lease. Zoning The other aspect after the ownership is to check the ITR (zoning of the land). The zoning classifies what it is possible to do with the land. For example some residential zones authorise or do not authorise daily rental and to apply for a VIlla License or Hotel License. Areas like Uluwatu are dry areas with a lower access to Water like in South Lombok. Lombok had a lot of land to sell for the last few years without having access to a general system of electricity or water. We recommend including those points in your due diligence and in your contract to cover those points. Some lands, like in Tabanan, have been declassified as a green zone to allow more construction. However, those soils have been used for agriculture for centuries. Those kinds of soil may not be suitable for all types of construction and having a test can help to check
How To Buy And Rent A Property In Bali: What Is the Most Tax Efficient?
During the process of purchasing a property in Bali, one recurring question we got was how to buy a property in Bali and the rest of Indonesia. The main purpose is obviously to understand the legality of the law and to understand the best way to be tax efficient and protect the investment. While some agents push the process to go fast, considering the best way to optimise the investment is crucial to facilitate the transmission of the investment. As a reminder, nominees are totally illegal in Indonesia and are not secure for investment. We will not study below this option and focus on buying a property as an individual or under a company. Buying a property under a personal name or company Buying a property as an individual Indonesian law authorised individuals to purchase leaseholds. A leasehold contract is a long-term agreement transferring some rights to a party during a certain period. For example, you can rent for a period of 10, 20 or 30+ years a villa in Bali. You will get the rights to a property based on the terms and conditions. The other option is to buy an apartment or a villa under Hak Pakai. The Hak Pakai “Right to Use” gives the right to the buyer on the property for a duration of up to 80 years. The advantage compared to the leasehold is that the buyer becomes the owner of the property and can eventually resell the property at the price of a freehold. Each province, such as Bali, Jakarta, Lombok, etc., defines the minimum requirements for getting a freehold under Hak Pakai. If you’re looking to buy a property in Bali, considering options like Hak Pakai could be beneficial. Buyers can also obtain a stay permit (KITAS), such as a Second Home Visa, by buying a property in Indonesia. The minimum requirements have changed in the last few months, so we invite you to contact us to learn more about the options for property acquisition and property ownership. Buying a property under a company In recent years, the Indonesian government has authorised foreigners to establish corporations to purchase properties under a leasehold or a freehold (Hak Pakai, HGB, for example). In other words, buyers can buy a property or lease a property in Bali under a PT PMA. Differently from the individual, a company can purchase freehold lands while individuals are limited to leasehold. Freehold offers obvious advantages, such as the possibility of transferring ownership to the next generation through some mechanism. Real estate investment is a key consideration in such purchases. One of the important factor is the ability to apply for a “Vila license” under the PMA to be able to manage and rent the property legally. LEASEHOLD vs FREEHOLD LEASEHOLD FREEHOLD Individual Hak Sewa Hak Pakai (only villas and apartments with a minimum value) PT PMA Hak Sewa Hak Pakai HGB Duration No limit 30+20+30 Extension Ownership No Yes Business as individual No No Business as company Terms and conditions in the contract Yes Selling option According to contract Yes 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. How to optimise your tax to buy a property This section will cover the legal ways to optimise taxes in Bali and Indonesia when you buy a property, including tax-saving strategies. There are some common practices for establishing two lease agreements established by the notary that will not be covered here as it has some consequences: It is illegal You cannot claim your money back in case of litigation and have no proof for the tax office in your home country if they ask you why you had to pay overseas. You will not be able to claim the full amount of your investment in your company. Tax on individual property rental Renting out a property in Indonesia is illegal for Foreigners under their personal name as the operation to rent a property out requires a licence even for Indonesian citizens. One possibility for a foreigner to rent a property out as an individual is to delegate the management of the property to a management company. This management company will need to proceed with the licence under the villa. In this option, we assume the property has the correct legal documents, such as a building permit (PBG/SLF), in order to obtain the licence (Vila or Pondok Wisata, for example). Once the property gets the licence, the property management will distribute the revenue after paying the local tax and paying its management fee. Tax on Non-resident The taxation will then be 20% of the remaining income. This tax is a withholding tax on money sent to non-residents. Some tax treaties offer lower taxation rates, but they need to be studied case by case. Tax on Resident (KITAS Holder) KITAS holders are responsible each year for declaring their personal income tax. An income coming from a company without any capitalistic relation will highly affect the personal income tax of the resident. Indeed, the progressive rate is important, with a last threshold of 35%. Read also: Bali Development Blueprint: Indonesia Real Estate Developer Guide Tax on companies on property rental A company offers more tax advantages than at the individual level, and it also offers more flexibility to rent out a property legally. In short, a company can be classified as a property management company or real estate company (contact us how to rent out a property legally or consult our other article here) Once the property management company has paid the local tax, then the company will be taxed at 0.5% on its income during the first 3 years if it doesn’t exceed a certain level of
Your Guide To Become A Real Estate Agent Or Broker In Indonesia
Are you looking to work legally as broker in Bali, Lombok and other places in Indonesia? Bali have seen the property market booming and lot of new actors entered the market as brokers or real estate agents. The demand from potential buyers for land, villas, or other properties has attracted many agents to work independently without being licensed real estate agents. This article explains how to become a broker in Indonesia as a foreigner and highlights the importance of verifying the licenses of all brokerage firms. The real estate industry in Bali and the rest of Indonesia comes with specific legal requirements for those who want to work as or become an independent broker. Here’s a guide to selling property in Bali as a broker. What is a real estate brokerage? A broker, also known as a real estate trading intermediary company, is a type of business entity engaged in activities such as acting as an intermediary on property between buyers and sellers. Buyers and sellers are considered as the clients of the agent. The broker can also act as an intermediary to rent a property and conducts research for the clients. The real estate agents work independently as an individual or a legal entity such as a real estate agent company. The broker or real estate agent is authorized to advertise and offer marketing service for the property. As we know, real estate brokers or agents consist of two types: those who work under the auspices of a brokerage firm and those who work independently. Foreigners cannot work independently as a an individual broker and need to work under a company. 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. What licenses do you need as a real estate brokerage company? Here’s what you need to prepare before embarking on your real estate journey in Indonesia: Getting your company in a form of limited liability company. The real estate agent business also facilitates both local and foreign investment portfolios (PT PMA). Obtain the business license (NIB) through the Online Single Submission (oss.go.id) as a real estate agent company. In addition, the operation of a real estate agent/brokerage necessitate the possession of additional types of licenses. Which is called SIU-P4. SIU-P4/Brokerage Licensed real estate agents SIU-P4 is an abbreviation for Real Estate Trading Brokerage Company Business License known as a brokerage license, which serves as a certificate or license allowing property brokers to work professionally. This is in conformity with the Ministry of Trade of the Republic of Indonesia’s Regulation No.33/M-DAG/PER/8/2008 on Property Trade Intermediary Companies. Every broker company must have a SIU-P4. The Director of Business Development and Company Registration of the Ministry of Trade, renews the license every five years. As a result, SIU-P4 is a necessity for establishing a property agent and being regarded as qualified to serve as a property broker. Read Also : How to get a building permit in Indonesia How to get a SIU-P4 or brokerage license? Brokers who want to apply for SIU-P4 must meet the following requirements: A Real estate brokerage company (PT PMA) needs to have a minimum of two certified experts. These experts must demonstrate their expertise with a Property Trade Intermediary Competency Certificate and may not work for another real estate brokerage company (Article 5 of Minister of Trade Regulation 51/M-DAG/PER/7/2017). To become a broker in Indonesia as a foreigner, the first step is to register the company with the Indonesian Real Estate Broker Association (AREBI), which offers training for aspiring real estate brokers. Next, complete an expert assessment at the Professional Certification Institute (LSP). After undergoing training at AREBI, prospective brokers must pass an exam. If all requirements are met, the broker will receive expert certification. Once the certification obtained along with the company’s legal documents and the AREBI certifies itself, the broker can get the license from the Ministry of trade. What is the importance of the SIU-P4/Brokerage License in Bali? SIU-P4 is an essential legal requirement for brokers and property agents in Indonesia. Having a SIU-P4 demonstrates that the property agent is a legitimate business company that has met the government’s standards. As a property agent with SIU-P4, you will have an easier time accessing housing developments and obtaining government approvals. SIU-P4 provides legal protection for property brokers when conducting business. If there is a dispute or legal problem involving a property transaction, the presence of a SIU-P4 will provide as confirmation that the property agent is functioning legally, lowering the danger of major legal complications. SIU-P4 is an essential certificate for agents and brokers to operate legally. For those looking to become a broker in Indonesia as a foreigner, understanding these licensing requirements is crucial. Ensuring compliance with local regulations will help you establish a reputable and legally compliant brokerage business in Indonesia. Social media and advertising Facebook and other market places have seen recently a large number of real estate agent claiming themself independent broker. A few locals are also working without the appropriate license. This is due to a lack of knowledge where individuals or company operate without knowing the regulation. If you work independently or as a property agent, this license authorizes you to promote your company as a broker. Things to consider A broker license is also here to bring trust and protect buyer. Professional broker can offer several services. The license is worth if you consider to operate in Indonesia as areal estate agent in Bali. If you aim to become a broker in Indonesia as a foreigner, obtaining the necessary licenses and understanding local regulations are crucial steps. Contact ILA today to schedule a consultation and explore how we can help you navigate the exciting opportunities within the Indonesian
Real Estate Developer in Bali and Indonesia: A Comprehensive Guide
Are you contemplating an investment in Bali’s real estate market or aiming to collaborate with a Bali Indonesia real estate developers to bring your property vision to life? This guide provides a clear overview of key roles, common mistakes to avoid, and essential legal requirements. Discover the strategic services offered by Bali Indonesia real estate developers and explore attractive locations for your next investment project. Key Takeaways A property developer in Bali and Indonesia is focused on adding value and selling property at a profit, whereas a contractor is responsible for the actual construction; A foreign-owned developer (PT PMA) must partner with a local contractor to operate as contractor When building a villa in Bali, common mistakes to avoid include selecting an overcrowded location, neglecting legal complexities such as road access agreements and lease terms, and ensuring stringent quality checks on materials. Success in real estate development in Bali hinges on legal compliance with Indonesian property laws, deployment of professionals for market studies, and due diligence in aspects such as land ownership, zoning, and tax payments. 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. What is a property developer? Developer versus Contractor In the realm of real estate, the roles of Bali Indonesia real estate developers and contractors often intertwine, yet they differ significantly in their objectives and functions. A real estate developer in Bali initiates a venture with the primary aim of adding value to a land acquisition. Whether it’s purchasing land to build a villa, a restaurant, a complex of villas, or any structure that enhances the land’s worth, the developer’s goal is to sell it at a higher price than the acquisition cost. On the other hand, a contractor is hired to bring the developer’s vision to life. They build and manage the project, translating the developer’s concept into reality. The distinction becomes more significant in the context of a foreign-owned company, also known as a PMA. In Bali and Indonesia, a PMA cannot operate as a contractor without partnering with a local company classified as a contractor. 8 mistakes to avoid while building a villa in Bali While the process of constructing your dream villa in Bali can be thrilling, it also comes with potential pitfalls. Recognizing these mistakes will help you avoid them and facilitate a seamless journey to property ownership. Business issues One such mistake is buying a villa from an owner and finding yourself boxed in by other villas. This could limit your privacy and potentially reduce the value of your property. It is common to see landowners leasing properties to foreigners and using the cash to build next to the property, reducing the attractiveness of your development—a situation that knowledgeable Bali Indonesia real estate developers can help you navigate. Road access agreement. Legal complexities can also pose significant challenges. For instance, the absence of a road access agreement to the property can lead to logistical issues later on, a challenge often addressed by experienced Bali Indonesia real estate developers. Some developers or investors had to pay extra fee to access to their property as the road access was not negotiated during the original lease or purchase agreement. Choosing the right location that not suits your target market. Lot of developers are developing properties far from the main attraction or active areas. Finding property 20 to 25 minutes from the main restaurant might suits expat looking to live in a residential area. However this type of location will be unlikely attract tourists booking properties for 2 nights. Not conducting rigorous quality checks on materials used by the contractor to ensure durability and longevity. Trying to cut construction cost and use poor quality materials. Legal issues Weak contracts with the owner or contractor can also spell trouble. If the owner challenges the lease after a few years or the contractor disappears, you could find yourself in a precarious situation. Lack of Legal Compliance and Transparency. Understanding the legal landscape plays a key role in property development in Bali. Ensuring a developer’s adherence to Indonesian property laws, particularly regarding leasehold or PT PMA structures, is vital for legal compliance in property transactions. Equally important is the zoning law, which ensures that development respects cultural and environmental landscapes. Contracts for off-plan investments should have clauses safeguarding the investor’s interests, such as specifying compensation or options for withdrawal in case of project delays. With the increasing significance of sustainable and environmentally friendly development practices, aligning with legal compliance has never been more critical. Not choosing the right partner for the construction might seen your building permit rejected specially if you have ongoing projects. This lack of building permit has consequences for the investor in its ability to rent out its property on Airbnb. How to succeed as Real Estate Developer in Bali? Property development in Bali encompasses a wide array of services designed to cater to the varying needs of investors. Developers, including Bali Indonesia real estate developers, often partner with property management firms and legal experts while executing thorough professional market analyses, ensuring robust support for their clientele. In exploring these auxiliary entities, we will shed light on how they enhance the process of property development within existing endeavors. Partnership with a property management company to increase the value of the project A real estate company in Bali can significantly bolster the worth of a project through collaboration with a property management firm. The expertise of a Bali Indonesia real estate developers is vital for adeptly overseeing the daily aspects of commercial properties, including upkeep, repairs, and fostering positive tenant relationships. Not only does this facilitate seamless operations within these properties, but it also heightens their attractiveness to prospective tenants or purchasers. This enhancement in appeal directly contributes to
Bali’s Balancing Act: A Crossroads of Paradise and challenges
Bali, a tapestry woven from emerald rice paddies, turquoise waters, and time-honored traditions, has always captivated hearts with its intoxicating blend of beauty and serenity. Yet, amidst the growth in Bali, this idyllic island finds itself at a critical juncture. Will it navigate the tumultuous currents of globalization and climate change, emerging as a beacon of sustainable prosperity and cultural vibrancy? Or will it succumb to the siren song of unchecked development, sacrificing its very essence at the altar of progress? Define Bali’s future The Tourist Conundrum: Tourism, the lifeblood of Bali’s economy, pulsates through its veins. But this dependence, like a potent elixir, can become a double-edged sword. Unfettered tourist influxes strain infrastructure, deplete resources, and threaten the delicate fabric of local culture. Beyond the Beach Blanket: Diversifying the economic orchestra is the key to a sustainable future. Nurturing the fertile soil of agriculture, fostering the tech sector’s budding blossoms, and harnessing the sun’s renewable energy are just a few melodies in the symphony of economic diversification. Digital Nomads: A New Verse in the Narrative: As the growth in Bali intertwines with the rise of remote work, the island’s allure will draw a new wave of inhabitants – the digital nomads. These skilled professionals, equipped with laptops and a thirst for adventure, present an opportunity to infuse fresh talent and innovation into Bali’s economy. Bali must carefully manage their arrival to prevent widening existing inequalities and to ensure equitable access to resources and infrastructure for all. Nature’s Whispering Warnings: Bali’s low-lying geography, nestled in the ocean’s embrace, makes it vulnerable to the rising sea levels and extreme weather events that climate change unleashes. Adapting infrastructure, shielding coastal ecosystems, and embracing renewable energy are not just whispers on the wind, but urgent calls to action. Waste Not, Want Not: Rapid development, while bringing progress, has also brought with it the burden of waste management. Implementing efficient collection and recycling systems, alongside promoting responsible consumption habits, are critical steps in keeping Bali’s pristine beauty from drowning in its own waste. Cultural Crossroads: Balancing the growth of Bali with the preservation of its rich cultural heritage requires a delicate approach. Safeguarding ancient traditions, languages, and art forms is not about resisting change but about preserving the threads that make Bali uniquely captivating. A Collaborative Symphony: Navigating these challenges and seizing the opportunities requires a harmonious orchestra. Government, businesses, communities, and individuals must join hands, each instrument contributing its unique melody to the symphony of sustainable development. 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 Road Ahead: Navigating Bali’s Future: Sustainable Tourism: Promote responsible tourism practices that minimize environmental impact, support local communities, and preserve cultural heritage. Encourage eco-friendly accommodation, responsible waste disposal, and cultural sensitivity among tourists. Economic Diversification: Invest in agriculture, renewable energy, technology, and other sectors to create new jobs and reduce dependence on tourism. Support local businesses and entrepreneurs, and foster a climate of innovation and creativity. Climate Change Adaptation: Develop and implement comprehensive plans to address rising sea levels, extreme weather events, and water scarcity. Invest in infrastructure that is resilient to climate change and promote sustainable land management practices. Waste Management Revolution: Implement efficient waste collection and recycling systems, and encourage responsible consumption habits among both residents and tourists. Explore innovative solutions like composting and waste-to-energy projects. Cultural Preservation: Support local artists and artisans, promote traditional languages and customs, and ensure equitable access to education for all. Encourage cultural exchange while respecting local traditions and values. Community Engagement: Empower local communities to participate in decision-making processes, ensure equitable distribution of benefits from development, and promote social and cultural cohesion. Bali’s future is not preordained. It is a canvas waiting to be painted, and the brushstrokes we choose today will determine its hue. By embracing a sustainable and inclusive path, we can ensure that the island of God can take and lead changes of the next decades Read also : Is Bali a Bubble About to Explode? Technology: Orchestrating a Sustainable Future for Bali Technology, once viewed as a disrupter, can be a powerful ally in Bali’s quest for a sustainable future. Imagine smart irrigation systems whispering to thirsty rice paddies, precisely delivering life-giving water while minimizing waste. Envision waste management apps connecting residents with efficient collection and recycling services, transforming waste into a resource, not a burden. Picture e-commerce platforms showcasing local crafts and agricultural produce, empowering small businesses and amplifying their reach beyond island shores. These are not mere figments of imagination, but the potential melodies technology can weave into Bali’s sustainable symphony. The growth in Bali can be further supported by smart grids powered by renewable energy, illuminating villages and resorts with minimal environmental impact. Additionally, eco-friendly transportation options, such as electric scooters and bicycles, can play a pivotal role in reducing carbon footprints and enhancing air quality across the island. Precision agriculture techniques can optimize yields, minimize water and fertilizer use, and empower farmers to make informed decisions. Impact on Communities: A Tapestry of Change and Opportunity The tapestry of Bali’s future is not woven in uniform color. Different communities will experience the impact of technology and development differently. Farmers, the backbone of the island’s agricultural heritage, must be equipped with tools to adapt to changing market demands; likewise, they should embrace sustainable practices to preserve their legacy. Similarly, fishermen facing depleting fish stocks can benefit from technology that tracks fish populations and promotes responsible fishing practices. Digital literacy initiatives and access to online marketplaces empower women, who often play crucial roles in household finances development. The conversation must include Indigenous communities, who act as custodians of ancient traditions and knowledge. Efforts must amplify their voices
Things to know before investing in a property in Bali
Are you into property investment in Bali? Everyone who has been to Bali and Indonesia has in mind how to invest in a property in Bali. How to invest in the property market in Bali and Indonesia? There are several ways to enter the market for property investment in Bali (comprehensive guide for investors before investing in property, especially in Bali). The market offers different possibilities for off-plan projects, apartments, villas, and hotel rooms. The type of product depends on the investor’s profile and budget. While a new investor will prefer to invest in an off-plan villa, other investors will prefer to buy land and develop their villa themself for a higher Return on Investment. Off-plan projects offer payment and allow smaller budgets to enter the market. However, we recommend paying attention to the section of the project and having a strong contract with the developer by checking its license. Recently, some developers have been unable to finish their projects. Despite the type of project, the property investment in Bali needs to be approached cautiously: Define the best legal structure before your property investment in Bali, Lombok or the rest of Indonesia Choose the appropriate location Perform due diligence on land, building permits, contractors, developers Never pay a deposit to a seller without a contract reviewed by a lawyer Choose an independent legal or notary Optimize your tax structure Apply for license 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. A stable market with high-return investment It is not unusual to see a 15% return on investment per year from the short-term rental, while other markets usually offer 5 to 10%. Those numbers obviously depend on the location and your tax exposure. The stability of Bali offers an excellent occupancy above 50% with 80% in well-known locations such as Canggu and Seminyak. Other areas, such as Nusa Dua or Amed, have more difficulty reaching this threshold. You can often recoup your entire investment money in 6 years. This means you can expect to purchase additional property quickly, and the levels of passive income can be off the scale if you invest for long periods of time. Digital nomads, in particular, often eschew a permanent residence in favour of owning or buying investment properties in places like Bali. A market entry cost is lower than in the mature market Bali and Indonesia’s market has not reached their maturity and still offer lower entry prices than buying a property in Australia or Europe. The gap with western, Singapore, China or Tokyo is still important. It is feasible to enter the market with 150,000 USD or less and have a property to rent out on Airbnb or booking.com. Some actors nowadays provide fractional investment where investors can even buy a part of the property with only 25,000 USD. Out of the property to accommodate tourists in the form of villas or hotels, the entertainment industry is also following the trend. Restaurants, beach clubs, and nightclubs are also developing and accommodating different and long-term investors. Read also: Bali Property Market Trend 2023 – 2024 What are the limits, or what should you be cautious about before investing in property? 1. Property Regulations The development has not always been done in line with the regulations. Unfortunately, some agents or sellers have contributed to offering some properties in areas that are, for example, not able to get a proper building permit and, as a consequence, a proper license to operate on Airbnb or other platforms legally. Buyers are exposed to sanctions the day the government is going to reinforce the law. Indeed during this period, the investor can take its return on investment but it might happen before. 2. Tax Required The government is indeed responsible for not reinforcing the law, but developers also fail to inform clients about the regulation. Tax is the perfect example of this omission. Taxation is an important factor that can affect the investment. Having proper tax planning on this is crucial. 3. Property Ownership for Foreigners Foreigners can own properties in Bali and Indonesia under a company. This allows foreigners to acquire the property and have the property under the company name. The advantage is that the seller has no rights on the property at all after the transaction. The other advantage is also to make the income legit. The advantage is also in terms of tax. The most common practice has been for years to lease land for a certain period of time. This form of investment can reduce the capital needed to enter the market. A lease at 150,000 USD for 20 years may let you get a return on your investment. 4. Financing and Mortgage As foreigners, it might be difficult to get a loan in Indonesia. Most of the time, the payment of properties requires an upfront payment. Some banks might be able to discuss how to finance the investment of a second property if you already own the first property. As a reminder, having a leasehold agreement is not an ownership. It is a long-term rent, and as a consideration, the bank will not lend money to the buyer or be able to have a mortgage on it. First-time buyers are probably recommended to enter the market by trying to get a loan in their home country or purchase a freehold property. 5. Building Permit and Design Buildings in Indonesia require a building permit (residential, commercial) divided into 2 documents called PBG and SLF. Indonesia does not recognise architects who do not have a license to apply for a building permit in Indonesia. It is possible to hire an architect, but this one will need to collaborate with a local architect.