Land/Villa Ownership Options

Indonesia is a complex foreign investment environment, so it's absolutely essential that you are familiar with the various purchase options and taxation consequences, and therefore you should engage competent and impartial legal counsel and an accounting specialist to advise on taxation matters.

Only Indonesian nationals may own freehold land in their own name (indeed even Indonesian companies may not own freehold land), but there are several tried and trusted means by which you can acquire and control property in Bali.

There are essentially three options for property ownership for foreigners:

1. Leasehold (Hak Sewa)
2. Freehold (Hak Milik)
3. Corporate tenure (Hak Guna Bangunan or "HGB")

When you examine your reasons for purchasing, it is usually clear which option is most appropriate for you.

1. Leasehold

Leasehold can be an attractive option for those wishing to purchase an interest in a property that they can use for a specified period. You should be aware that a lease is only a temporary interest in the land. Once your lease term is up, the property – and any improvements you might have made to it – reverts to the owner of the underlying Hak Milik. The length of the lease is critical in terms of possessing a transferable asset that will appreciate with time and be attractive to anyone wishing to buy the lease if you decide to on-sell during the lease term.

A further consideration is that you may wish to extend the term of the lease beyond the original term. A properly drafted lease will contain provisions for renewal of the lease, the stage of the lease the renewal can be requested, and the price mechanism of the renewal. For example, the lease document should include whether you can opt to renew the lease at any time during the lease term, or whether this can only be done within a certain timeframe prior to the expiry of the initial term. The price of a rent increase for further terms is often linked to the price of a commodity such as rice or gold – if a mechanism for rent increase is not specified in the lease, you may face a crippling rent increase when the time comes to renew for a further term.

Leases in Indonesia, whilst often formal documents prepared by a Notary, are not registered with the Indonesian Land Office as an encumbrance on the Hak Milik title and are thus considered a private agreement between two individuals. There are however strict laws protecting the interests of a lessee in land.

Leasehold interests in property are often more suited to those looking for a 'lifestyle' choice – as the asset itself is a limited right to the land for a limited period, and is not guaranteed to appreciate with time. For example, a general rule of thumb is that to purchase a leasehold interest lasting 40 years will cost approximately 60% of the price of buying the freehold rights to the same property. As the term of the lease reduces throughout its course, the lease may become difficult to resell as potential buyers may be more interested in buying an asset with longer, and more secure, tenure.

2. Freehold

The reality of 'owning' land in Indonesia as freehold is that you need an Indonesian nominee to own the Hak Milik title. This type of interest in land is attractive to investors because it is linked directly to the freehold title and gives the benefit of an asset that can capitally appreciate.

A nominee holder of the Hak Milik is someone that you are going to have an ongoing relationship with, so you should carefully consider the nominee used and, if possible, your Notary may be able to recommend a 'professional nominee'. It is essential not only for your comfort but for the security and effectiveness of your asset that the relationship is governed by a fair and detailed Nominee Agreement.

We recommend that the following matters be addressed in the Nominee Agreement:

  • An annual fee payable to the Nominee
  • A percentage of the sale price payable to the Nominee if the land is on-sold
  • Legal and taxation indemnities in the Nominee's favor – as the Nominee remains the taxation object, this is an essential part of the agreement
  • Obligations on the Nominee to cooperate in applications for licenses such as building approval, pondok wisata licensing for commercial rentals, and for leasing the property

The next consideration is the type of security that you wish to use to note your interest in the property. There are essentially two types:

A. Simple Nominee Structure

In a simple nominee structure, there is no official title to the land in the foreigner's name. The terms of the agreement are governed by the Nominee Agreement, which may be supplemented by a mortgage over the title and in some cases a lease.

Such a mortgage should be set at the transaction value to prevent the owner of the Hak Milik from dealing with the title contrary to your interest. The problem remains that a mortgage is a mechanism designed to secure a debt and is not the ideal protection for an "owner's" interest in land. Over several years, the value of the land may increase dramatically and the nominee owner of the Hak Milik may pay out the mortgage on title, and then be able to deal with the freehold as they wish. By that stage the freehold land may be worth well more than the value of paying out the mortgage. An unscrupulous nominee owner may then deal with the title contrary to your interest in the land, without any encumbrance registered over the title to prevent them from doing so.

B. Hak Pakai atas Hak Milik – "Right of use over freehold"

A Hak Pakai, or right of use, is an alternative to a simple Nominee Agreement, and is a mechanism specifically designed by the Indonesian government to allow foreign ownership of land. A Hak Pakai is a certificate that is granted by the Indonesian Land Office, and operates as an interest that 'floats above', and is recorded as an encumbrance on, the Hak Milik title.

This obviously gives a much more secure interest in the land, but a possible downside to this ownership option is that the parties may have ongoing two-tiered tax liabilities, both in relation to the Hak Milik title and the Hak Pakai title. Taxes for the transaction granting the Hak Pakai will be assessed on the government assessed value of the freehold property ('NJOP").

We consider the Hak Pakai atas Hak Milik to be currently the most attractive option available for foreign land ownership in Indonesia given its security, certainty, and its value is linked to the appreciation of the underlying land title.

3. HGB Title

The third option for foreign land ownership is only available for corporate ownership. Under this form of title, a foreign investment company is incorporated in Indonesia with approval of the Indonesian regulatory authorities. The freehold title to the land is relinquished to the state, and replaced for a set period (normally 30 years, with rights of extension for 20 years and 30 years, totaling 80 years) with the HGB title.

During the term of the HGB title, the company may deal with the land and build upon it. The company may also mortgage the land. As the title is a form of ownership, registered with the Indonesian Land Office, the interest is somewhat more secure than using a nominee structure.

The difficult aspect of obtaining and maintaining HGB title is that the establishment of a foreign investment company is a detailed process, which may take up significant time and expense. The rationale behind allowing foreign companies ownership to land is to encourage commercial investment in Indonesia. Accordingly, to keep track of those investments, the Indonesian regulatory authorities impose stringent taxation and regulatory requirements and ongoing reporting obligations on foreign companies. There are also requirements for capital establishment and social responsibility of foreign investment companies. It is usually necessary for a foreign company with HGB title to retain the ongoing advice of legal and/or accounting specialists to assist with its corporate obligations.

As in all countries, a purchaser should seek independent legal advice and consult with professional counsel to determine what is best for their personal or company circumstances.



There are obviously taxation implications for the transfer of interests in property, building on land, and ongoing land tax obligations. The Indonesian government, like any other government, imposes taxation obligations on foreign investors and it is therefore essential to obtain the advice of a qualified accountant. Here we do not intend to replace such advice but merely give a brief summary of some of the taxes that you may likely be liable for upon taking an interest in property in Indonesia such as Income Tax, Value Added Tax (Pajak Pertambahan Nilai or "PPN"), Stamp Duty and Levies, and Land and Building Tax.

Taxes on Leasehold

Non VAT-able leases in Indonesia are subject to PPH (Income Tax), which is charged at 10% of the total amount paid. On a 25 or even a 40 year lease, this can be quite a large sum. The tax is payable as an income tax, and is accordingly assessable on the income of the party receiving the money – the Lessor. Leases may also be subject to PPN if the Lessor is entity obliged to charge PPN. It is very important when preparing your lease documentation to ensure that, if the lease is not expressed as including an amount for PPH and PPN, then the obligation to pay any applicable taxes is clearly stated as belonging to the Lessor. Nominal stamp duty may be payable if the lease is prepared as a Notarial Deed.

Taxes on Simple Nominee Agreements

Whilst a simple Nominee Agreement gives contractual rights in land, the amount of tax payable on the transaction will depend on the form that the security for the Nominee Agreement takes. For example, if a lease is taken as security, PPH will be payable, whereas if a mortgage is taken as security, there are not taxes or duties payable in relation to that mortgage. Further, nominal stamp duty will be payable if the deed is prepared as a Notarial Deed.

Taxes on Transfer of Freehold

Taxes on a transfer of Hak Milik are payable on the Tax Object Acquisition Value ("NJOP") which is the higher of the amount paid for the property, and the NJOP, or pre-assessed government value of the land and any improvements on it. The tax rate is 10% of the NJOP and is incurred as 5% to the seller and 5% to the buyer. It is common for the Notary handling the transaction to retain certain amounts of the settlement proceeds, pending final assessment and payment of the taxes assessed on the transaction, to avoid the buyer being left after settlement with a tax liability higher that that anticipated, and contributed to by the seller.

This tax amount is payable on transfers for Hak Milik and HGB purchases of title. It is also payable for the creation of a Hak Pakai, again assessed on the NJOP. A potential purchaser should be aware that if Hak Milik land is purchased simultaneously with the grant of a Hak Pakai, tax will be payable as 10% of each transaction, both for the transfer of the Hak Milik and on the grant of the Hak Pakai, making the total tax payable for the transaction at least 20% of the value of the NJOP of the land. The Nominee will not likely pay the tax, leaving the seller to pay 5% of the value of the Hak Milik transfer in tax, and the buyer to pay 5% of the value of the Hak Milik transfer in tax, in addition to the 10% tax on the value of the grant of the Hak Pakai.

Land and Building Tax

Taxes are also payable yearly as a proportion of the NJOP, and also on any buildings erected on land. In relation to taxes on buildings, tax is generally assessable at 10% of the total cost of building, if contractors are used. When entering into an agreement with a contractor to build, the agreement should clearly state which party is responsible for payment of the tax on the amounts paid pursuant to the contract.

This rate of tax may be reduced to 4% of the total cost of building, which will only be allowed in the case of "Self-Building". Self-Building is very strictly interpreted by the tax office, and is only available where the person claiming the lower rate of tax can establish that they actually did build the property themselves, with proof such as logs and spreadsheets covering the daily costs accrued over the course of construction.

When purchasing a property with buildings already established on the land, you should ensure to obtain proof of payment of tax on the construction of the buildings. If a government assessor determines that tax has not been paid the liability rests with the current owner of the property – you – despite the fact that the property may have been on-sold any number of times since the buildings were constructed.

Taxes on Rentals

Taxes on rental properties, both commercial and retail, are payable as PB1 and as withholding taxes, and the taxation object (in most cases the owner of the asset) must be accountable for withholding and reporting obligations, even if the object is not a resident of Indonesia for taxation purposes.

Luxury Tax

Luxury tax may be payable in relation to certain land and building transactions and the applicability is subject to quite a complex range of regulations. You should discuss this in detail with your accountant as to what transactions and goods will be subject to Luxury Sales Tax when purchasing land or constructing buildings.


The above information is provided as a guide only. The above information does not constitute and is not to be relied on as legal and/or taxation advice. Before entering into any transaction you should always discuss the relevant Indonesian legal, regulatory and taxation obligations with qualified advisors.


Sign In

Forget your password?
Not a member yet? Sign up


Thank you.

Your enquiry has been sent.


Thank you.

Your enquiry has been sent.