Anyone with an interest in Bali, will know that the island has been going through a boom in tourism that past few years or even decades. While most tourists stay in hotels and guest houses, a greater number want to stay in a private villa. It is not surprising then that many foreigners come to Bali and think how wonderful it would be to operate their own small hotel, guest house or villa.

Buying a villa sounds like a great idea. You can enjoy the benefits of having your own place to call “home” in Bali, while being able to rent it out to people and help make some money. Perhaps to offset the expenses of running the villa, or have some extra spending money for your holidays in Bali.

While there has always been several well known internet booking sites for holiday homes and villas, Airbnb’s platform, part of the so-called ‘sharing economy’ has really made it possible for anyone to become an accommodation provider, whether you are renting out a tent in your backyard or 5 star villa.

So is it possible or even legal, for a foreigner to rent out accommodation in Bali on sites like Airbnb? Well, of course it is possible, but like with many things in Indonesia when it comes to running a business, it is not easy (at least for foreigners). This topic is not an easy one to answer and the information should only be used as a basic guide and I can only suggest getting legal help, before making any big decisions. The good news is that the government has never had a problem with Airbnb like in some countries.

At the very least you will need a commercial building permit (IMB), an accommodation provider license and the land must be zoned for tourism. In the case of a small operation, most people go with a Pondok Wisata license, which is an accommodation license for a property with up to 5 rooms. Anything larger than 5 rooms, will require you to get a Melati licence. The Pondok Wisata license can only be in the name of an Indonesian person.

If you have seen foreigners running small guest houses in Bali, then they more than likely have an Indonesian spouse, whose name the property is in, or they are using a ‘nominee’. A nominee is the legal Indonesian owner of the property, but the funds to purchase the property have been typically provided by a foreigner. As you can imagine this is fraught with problems. If you are renting the property, then the license will be the land owner’s name. There have been a few high profile cases with foreigners having trouble with their nominee, which makes this less popular now. The government is also much stricter from a tax perspective and some Indonesians will be less willing to become a nominee.

The main legal route for foreigners looking to get in the accommodation business is to start a PMA company. With a PMA company, as a foreigner you can have up to 67% ownership of the business for non, one and two star hotels. See the complete Negative Investment List here.

A PMA can also provide you with a KITAS and a certain amount of legal status, such as being able to legally open a bank account and get a local driver’s license. The downside is that is expensive to set up and is mainly for medium to large investments rather than a single villa or small homestay.

So if you are a foreigner and have villa and want to rent out a spare room, is it possible without getting a license? For sure there are many people who do it and take the risk of getting into trouble. Immigration have been known to Google people’s names when they apply for a visa. There have been cases of immigration finding visa applicants advertising properties for rent and then getting into trouble for breaching their visa conditions.

Some people advertising properties for rent on Airbnb use their housekeeper’s name and photo for their property’s profile. While this is better than using your own details, there is still the chance of getting reported by a jealous neighbor or disgruntled former worker. I have heard of this happening, especially if you are actively involved in the day to day operations of the villa.

I would be happy to hear anyone’s experience renting out villas or other accommodation in Bali, or if you would like to point out any inaccuracies with what I have written. And just to reiterate, this article is meant as a guide only and as always you should get professional legal advice before making any major financial decisions.