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
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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.
