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Buying property in Bali using a PMA

Buying property in Bali using PMA - HGB title

Even the Post Office uses HGB title for their property

Today I want to explore the topic of buying a property in Indonesia using a PMA company. I have touched on this previously in a post about how foreigners can buy property in Bali. Firstly, what is a PMA? PMA is an abbreviation of “Perseroan Terbatas Penanaman Modal Asing”. It is basically a company type which foreigners can own, or at least a percentage of, depending on the type of company.

Each time I write about property laws, someone writes a comment about how I am not qualified and no one should trust what I write. I agree! You should always get legal advice from qualified practitioners. My aim in writing this post is that you will hopefully be armed with some knowledge and be able to prepare your own questions when you meet with a lawyer, consultant or notary who can explain the details further.

As we know foreigners cannot own property in Indonesia. For a long time foreigners “borrowed” an Indonesian’s name so they could buy property using a nominee type of arrangement. After some high profile cases hit the media, this is less common and is viewed as an attempt to circumvent the ownership laws.

It seems that now some business consultants are recommending foreigners to buy property using a PMA. It sounds logical of course, but like most things in Indonesia, it is unfortunately not always so clear cut.

PMA Business Categories

So when you start a PMA, you need to choose a business category which your company will operate in. It is governed by the “Negative Investment List”. Some business categories only allow a certain percentage of foreign ownership, while others allow 100 percent. Want to start your own Cashew Plantation? Well, you will be happy to know, at least according to the 2016 regulations, foreigners can own 95% of this business (but obviously not the land the cashews are grown on).

For accommodation businesses like hotels, foreigners can own 67% of no star, one star, two-star or a motel. So if you are starting a hotel, then this would obviously be the best path to take and at least you can get majority ownership.

Since Bali has been going through a hotel construction boom, it is not so easy to get this kind of license, especially in the most popular areas like Seminyak and Kuta. There are various regulations you will need to follow such as zoning laws and land size requirements. It is extremely important to do proper due diligence on any property before you purchase it. Don’t just assume everything will be “ok” without getting the proper checks done. I have heard people buying houses that were built in green zone areas. Just because a villa was built, doesn’t mean it has a building permit or has been built in accordance with the zoning regulations.

So if you just want to buy a villa and rent it out on Airbnb legally without having a complete hotel, what category would this fall under? This is a good question and one I have not easily found an answer to. I have seen companies suggesting to start a PMA under the category of Real Estate and Property, which has the code of 68200 on the Negative Investment List. The 2016 regulation, however, says this requires 100% Domestic Capital, which my reading of the Negative Investment Document means that this business is only for Indonesians, otherwise it would say Foreign Capital % if foreigners could invest in this business. Nevertheless, some agents are suggesting this business category, to rent out the villa to guests. At least you could also run your own real estate agency with this category.

Property Ownership Types

So as we know foreigners cannot own freehold or Hak Milik land. The options for a PMA are Hak Pakai (right to use) or Hak Guna Bangunan (right to build and to own buildings on the land). There is also Hak Guna Usaha, which grants agricultural rights to land use.

There is some useful information here on the BKPM website:

Can foreigner or PT. PMA purchase a property in Indonesia? Yes, it depends on the type of property:

For a landed building (house, office, factory) it is only allowed for a foreigner or PT. PMA and the status of the land is The Right of Building (HGB) or the Right of Use. Regarding the ownership of a landed house, recently the Government of Indonesia has revealed the new Government Regulation No. 103 of 2015 on House Ownership of Foreigners Residing in Indonesia. This regulation allows foreigners to buy a landed house under the Right of Use category for a period up to 80 years (an initial period of 30 years and can be extended twice by 20 years and a further 30 years).
For a condominium or apartment and office space, the foreigner or PT. PMA can own it as long as it isn’t a part of government-subsidized housing development and the land status of the building is strata title status under the Right of Use. Still based on the same regulation, regarding apartments, foreigner allows to purchase an apartment under the Right of Use category and this only involves luxurious apartments priced over IDR 10 billion.

Hotel licences and permits

So while a PMA gives you a company to hold the land, you still need a license if you wish to run a business from the property. Since we are talking about renting out a property to tourists, this requires an accommodation license. If you are planning on starting a 2 or 3-star hotel or motel, then this license would be applied for with the company formation as described above.

How about a single villa then? You will see people talking about getting a Pondok Wisata license to rent out their villa. This is the obvious choice, but what is the catch? Well, this license is intended for small home stays and guesthouses and cannot be held by a foreigner or a company, like the company you may have just set up. The property owner needs to apply for the license and they are responsible for the applicable taxes.

Of course, some people will ask a local friend to assist with this, but then you are going to start asking, wasn’t starting a PMA supposed to solve this problem?

Pros and Cons of Buying Property using a PMA

Pros:

– You can buy a house and lease it in your company name for a period of up to 80 years
– You can get a working visa to stay in Indonesia and legally run a business
– Can sell shares in the company to investors

Cons:

– Ongoing administration costs and company taxes
– Ever-changing regulations and laws concerning PMAs
– Hefty compliance costs

What Questions to Ask your Agent?

Setting up a PMA is typically done through an agent or business consultancy. Before anyone asks for recommendations, I would prefer not to recommend any particular company. I would suggest contacting any companies mentioned on online forums or advertising in newspapers like the Bali Advertiser. Ask them some questions and see which company provides timely information and takes time to explain the intricacies of setting up a company.

I can’t imagine that it is an easy job being an agent in Indonesia, since the laws and regulations are always changing. Even if a regulation does get changed by Jakarta, it is not always implemented straight away in local government offices. The agents need to help their clients do what they want, within the laws and regulations while of course making money from charging fees to their clients.

Here are some questions you may wish to put forward to your prospective agent:

– What business category should the PMA be set up in?
– What percentage can be owned by foreigners in the category? (You can check this yourself after they give you an answer)
– Does any of the business licences need to be in an Indonesian person’s name?
– Can the PMA be structured to the run the business you want to run without any complications?
– Can I get a working visa to work in the business?

In Conclusion

It seems like there is a bit of a trend of people starting PMA companies just to buy property which they can rent out, with some agents encouraging the trend. My feeling that the laws which allow PMAs to own property are not intended for starting a short term rental business, unless of course it is done using a hotel/motel licence. It is not cheap to start this kind of company and I would encourage anyone to do their own research before taking this path. I would love to hear from anyone who has a experience starting a PMA to buy property in Bali or anywhere else in Indonesia.

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