Bali has been since the end of the covid attracting foreigners and Indonesians looking for property investment and opportunities.
When it comes to purchasing property, the answer is clear: Yes, a foreigner can buy a villa in Indonesia. However, if the question is whether a foreigner can operate a villa on Airbnb in Bali and Indonesia, the answer requires a more detailed explanation.
Officially, foreigners are not permitted to run a short-term rental business in Indonesia under their own name. This restriction is not unique to Indonesia – many countries require a tax ID for locals to run a business. Misinformation suggesting otherwise is not only misleading but can lead to legal complications. Our experience as an investment and legal advisory company includes assisting clients who have encountered issues from operating without the proper licence.
Hotel Licence
The Indonesian regulatory landscape is dynamic, making it challenging for investors to understand the property market in Bali and Indonesia. Foreigners are allowed to operate short-term rentals under a hotel licence, provided they have invested in a company that can hold such a licence. However, Indonesia permits foreign ownership and operation of a hotel only if the land area exceeds 4,000 square meters. The licence will be classified as either Hotel Melati or Hotel Bintang. For smaller land sizes, Indonesian companies without foreign capital are eligible for these licences.
For properties with less than 4,000 square meters, alternative solutions exist, and we’re available to discuss these options.
Obtaining the licence under the company is one part of the process. Once the company has been established and the licence applied, the company has to follow a process of verification and inspection and apply for additional licence regarding the following points:
- Safety training
- Standard operating procedures
- Proof of laboratory test results resulting from Compliance with Environmental Health Quality Standards (SBMKL)
- Location and Building Plans of Business Places
- Business Licensing from the Ministry of Tourism and Creative Economy
- Certificate of capacity building/training for accommodation cleaners (cleaning service)
- Food handler training certificate related to food hygiene and sanitation
As a foreigner or investor you often hear ” It is OK, it will be fine, no problem”. This kind of affirmation is usually a warning for investors. Indonesia has rules and regulations. You are fine until the regulation changes or somebody starts to make some report. As an investor having professional advice on how to set up a hotel in Indonesia is crucial.
Pondok Wisata and Vila License
Pondok Wisata
This licence is normally issued for business owners living on the property and looking to get extra revenue from their place. There is a limitation on the number of rooms.
The Indonesian law defines this licence as businesses providing lodging services to the public with daily payments made by individuals using residential buildings occupied by the owner and partially used for rental by providing opportunities for tourists to interact in the owner’s daily life.
Per definition this licence is not for foreigners and cannot be applied by a foreigner or an Indonesian company with 100% ownership.
As the hotel licence owners have to respect some criteria in terms of Hygiene and safety.
If Pondok Wisata is not the most appropriate licence, which licence foreigners can legally use to rent their villa on Airbnb?
Vila License
The regulation defines the license as businesses providing lodging services to the public, which are private houses. The tourists use the facilities and the owners manages the property themselves.
The interesting point of this licence is that the owner itself is authorised to manage and rent the facility. As the ownership of a villa or property can be a PT PMA (foreign owned company), the licence holder has the right to to generate income with this licence.
Airbnb and other platerform are increasingly checking and reporting revenue, asking for licensing as well.
It is forbidden for local and foreigners to rent out a property or villa in Indonesia without a business licence. There are some possibility to delegate a licence to a company but in any case a foreign company or a property management company can get a direct revenue of a property without processing the licence. As a foreigner you would be exposed to important consequences. It is important to always check which income is promised to you.
Now that we know which licence is necessary, how to get the licence? How to open a company in Indonesia?
Setting up a company in Indonesia
In general, Foreign investors can set up a company in Indonesia and own land with it. By owning land we define full ownership and not leasehold. It is important to remember that transferring a lease is illegal and not recognised by Indonesian law. A lease is a rent for a longer period and the lessee has no right on the property except and cannot sublease something the lessee doesn’t own.
Company can own a freehold with a building on it or not building on it. The purpose of this article is not to provide all the steps. We do have an article on the company setup here. However setting up a company in Indonesia is fast 3 days to 1 week and allow you to:
- Own a property
- Having the proper licence (Hotel, Real Estate, Property management) and make your income legit
- Optimise your tax (check our article on tax)
- Avoid your business to be shut down (interesting article here on how the Indonesian government is checking properties)
For more information on how to set up a company you can consult our article here
Management process and options
You can invest in a property in Bali, Lombok or the rest of Indonesia if you follow different steps and apply different scheme.
Proceed the licence under your company
By using this solution all legal documents will be under the company and it will be easier to minimise your tax. This solution does not refrain from using a property management company or a third party. It makes your income legit and also allows you more flexibility.
Proceed with a third party for the licence
This solution is suitable if you are not able to proceed with the licence directly under your company. The third party will proceed with the villa under its name and will have a management agreement with your company. This solution allows you to generate an income as manager of the property you own.
We recommend to check your objective, tax profile and perspective as an investor with your tax consultant before having a decision. Making a business legal is not a cost, it is an insurance to have a recurrent revenue.
