Indonesian Land Law differs significantly from the regulations in many Western or developed countries. Foreign nationals looking to purchase land in Indonesia must understand these distinctions, as the legal principles from their home country may not apply in Indonesia.

          Key among these distinctions are the rules and regulations concerning foreign ownership, which we strongly advise you to thoroughly familiarize yourself with.

          Indonesia’s Agrarian Law, known as Undang-Undang No.5 Tahun 1960, Article 16 (1), is based on the Indonesian Constitution and outlines seven different types of land ownership structures. However, for our purposes, only four are relevant:

• Hak Milik (Freehold)
• Hak Pakai (Right to Use)
• Hak Guna Bangunan (HGB) or Right to Build
• Hak Sewa (Leasehold)

          While Indonesian citizens have access to all these structures, foreigners do not. Recent updates to property ownership laws have made it easier for foreigners to acquire land and property under Hak Pakai (Right to Use) and Hak Sewa (Leasehold) for residential properties, and Hak Guna Bangunan (Right to Build) for commercial purposes. Although using an Indonesian nominee to obtain a Hak Milik (Freehold) title may initially seem like a practical solution, it is not a legal form of ownership for foreigners. This practice, though common, carries inherent risks, so it’s crucial to seek proper advice to choose the right legal structure for ownership.

          Hak Milik (Freehold Title), is the most secure and comprehensive form of ownership. This title is reserved for Indonesian citizens or entities fully owned and operated by Indonesians. Foreign individuals cannot directly own land under a freehold title in Indonesia. No Indonesian company, whether it is a PMA (foreign investment company) or otherwise, can hold a freehold title. They must use other types of titles such as Hak Guna Usaha (HGU) or Hak Guna Bangunan (HGB).

          Hak Pakai (Right to Use Title), The Closest Option to “Freehold” for Foreigners. Hak Pakai title is the government-approved method for foreigners to gain exclusive use of Hak Milik land, with the title legally registered in the foreigner’s name. This title is granted for an initial period of 30 years, with the possibility of extension up to 80 years in total (30 years initially, followed by a 20-year extension and another 30-year extension). A foreigner can hold only one Hak Pakai title in Indonesia at any given time, and it must be for residential purposes.

          Hak Pakai can be transferred or renewed if sold to another foreigner and can be upgraded to Hak Milik (Freehold) if sold to an Indonesian citizen. Unlike Hak Sewa (Leasehold), Hak Pakai is a registered proprietary interest in Hak Milik land, not just an unregistered interest.

          Hak Guna Bangunan (Building Rights Title), A Hak Guna Bangunan (HGB) title grants the right to build and own structures on someone else’s land. This title is initially granted for up to 30 years and can be extended for an additional 20 years. Building Rights Titles are available to Indonesian citizens or legal entities (including PMA companies) and can be used as collateral or transferred to a third party.

          For those uncomfortable with Hak Pakai or Hak Sewa, another option is to establish a foreign-owned company, known as a PMA (Penanaman Modal Asing). This type of company can legally obtain an HGB certificate, allowing you to own the company while the company owns the property.

          Hak Sewa (Leasehold). Hak Sewa, or Right of Lease, is commonly known as Leasehold. This title is typically granted to tenants of both residential and commercial properties. Acquiring a leasehold is relatively straightforward, with the foreign lessee’s name appearing on the lease. Lease periods in Indonesia usually range from 20 to 50 years, with extensions often pre-arranged. Hak Sewa certificates can be issued for terms ranging from one year up to the maximum 80 years, similar to Hak Pakai.

          If neither Hak Pakai nor Hak Sewa suits your needs, forming a PMA is another viable option. Through this foreign-owned company, you can legally obtain a Hak Guna Bangunan (HGB) certificate, with the company holding ownership of the propertyt

Q. What is a PMA (Penanaman Modal Asing)?
A. PMA (Penanaman Modal Asing) is a foreign investment company established under Indonesian law, allowing foreign investors to conduct business activities in Indonesia. PMAs can be fully or partially owned by foreigners and are the primary legal structure used by foreign businesses to operate in the country. A PMA is required to comply with Indonesian regulations, including the Investment Law and Company Law.

Q. How can I establish a PMA in Indonesia?
A. To establish a PMA in Indonesia, you need to follow these steps:

• Prepare necessary documents: This includes the company’s Articles of Association, identification documents of shareholders, and a business plan.
• Choose a business sector: Ensure that the business sector you wish to invest in is open to foreign investment under the Positive Investment List.
• Obtain approval from BKPM: Submit your application to the Indonesia Investment Coordinating Board (BKPM) for approval.
• Incorporate the company: After receiving approval, incorporate your company by registering it with the Ministry of Law and Human Rights.
• Obtain necessary licenses: Depending on your business, you may need additional licenses and permits from relevant government agencies.

Q. How long does it take to establish a PMA in Indonesia?
A. The process of establishing a PMA in Indonesia typically takes between 1 to 3 months. This timeline includes obtaining approval from BKPM, incorporating the company, and acquiring necessary licenses and permits. The timeline may vary depending on the complexity of the business sector and the completeness of the required documents.

Q. What are the benefits of establishing a PMA in Indonesia?
A. Establishing a PMA offers several benefits, including:

Ownership rights: Foreign investors can own up to 100% of the company, depending on the business sector.
Legal protection: PMAs are protected under Indonesian law, providing legal certainty and stability.
Access to land and property: PMAs can own certain property rights such as Hak Guna Bangunan (Right to Build) and Hak Pakai (Right to Use).
Tax incentives: In certain sectors, PMAs may be eligible for tax holidays or other incentives provided by the government.

Q. Can a PMA own land in Indonesia?
A. Yes, a PMA can own certain property rights in Indonesia, but not freehold (Hak Milik) land. Instead, a PMA can hold rights such as:

Hak Guna Bangunan (HGB): Right to build on land for up to 30 years, with the possibility of extension.
Hak Pakai: Right to use land for a specific purpose, such as residential or commercial use, also for up to 30 years with possible extensions.

Q. Can a PMA be fully owned by foreigners, or is local partnership required?
A. A PMA can be fully owned by foreigners in most business sectors, depending on the regulations outlined in the Positive Investment List. However, some sectors require a local partnership or limit the percentage of foreign ownership. It’s essential to consult the latest regulations to determine the specific requirements for your intended business sector.

          Due to the property boom in various Indonesian islands, including Sumbawa, the land and building department has introduced stricter regional regulations. The era when investors could freely build on any available land has ended; regulations have become much more stringent across many regions.

          Regional and Spatial Planning (RTRW) regulations are valid for 20 years. Sumbawa RTRW is valid from 2020 until 2024. It’s crucial to consider the following points in light of these regulations:

          Always check the zoning/ITR (Ijin Tata Ruang) before purchasing land for any project.
Confirm if the zoning permits the types of building licenses (IMB – Izin Mendirikan Bangunan) needed for either commercial or residential purposes.     

There are four main zoning categories relevant to most purchases:

-Government-owned land, This category includes beaches, nature reserves, forests, and other public lands. Such areas are restricted and not available for individual investors.
-Residential zoning, This zoning is designated for residential properties like houses or villas. It allows for different building licenses suitable for homes, villas, apartments (or kost), and even certain commercial licenses permitted within residential zones.
-Commercial & tourism zoning, This zoning is allocated for commercial purposes, including hotels, resorts, condotels, apartments, and entertainment parks, as well as residential properties. You can apply for commercial licenses and for a Pondok Wisata permit, which allows for holiday rentals.
-Agricultural zoning (green zone), This zoning is exclusively for farming. Residential or commercial buildings are strictly prohibited, and no building permits will be issued for such purposes in this zone.