Buying Considerations

  1. Foreigners are not legally allowed to own land. There are schemes in which an Indonesian local is used to hold the unit for the investor, but these schemes will not protect the investor.
  2. There are different types of ownership of properties.
    • Right to build (Hak Guna Bangunan) : the right to develop and use the land and property, normally valid for 30 years, extendable for another 20 years with the possibility of renewal. Can be held by foreign joint venture companies and it can be sold, exchanged, transferred and mortgaged.
    • Right to own (Hak Malik): Fee simple or freehold title, can only be held by Indonesians or the state, can be sold, mortgaged or transferred.
    • Right to use (Hak Pakai): the right to use the land for a specific purpose. If it is on state land, it can be renewed for an indefinite time. If it is granted on a Hak Malik, it is valid for a maximum of 25 years non renewable. It can be held by any Indonesians, foreign invested entities, foreign embassies or representatives of foreign entities and individuals staying in Indonesia. The land can be sold, exchanged or transferred subject to the approval of the land owner.
    • Right to exploit (Hak Guna Usaha): Right to use the land for agricultural, fishery and husbandry purposes. Valid for a maximum of 35 years and another 25 years renewal. It can be held by Indonesian individuals or entities as well as foreign joint venture companies. The right can be mortgaged.
    • Right to operate (Hak Pengelolaan): Right to operate state-owned land for purposes approved by authorities and is given exclusively to government institutions or state owned companies for an unspecified period. It can be transferred to third party as Hak Guna Bangunan or Hak Pakai.
  3. There are other forms which includes convertible lease agreements. For this scheme, the foreigner signs a convertible Lease agreement with the property management office stating that if prevailing laws and regulations permit the Lessee to become the legal owner of the property, the lessee and the Lessor will be obliged to sign a Deed of Sale and purchase and the title will be transferred to the foreign Owner. This is  also not a good scheme to own the property as the Lessor can change their mind at any point of time and there is no legal recourse for the lessee
  4. Foreigners can operate a companies in Indonesia. The steps to incorporate a company can be found in the Indonesia Investment Coordinating Board Foreigners and foreign entities can only hold the right to use title(Hak Pakai).
  5. There are special provisions for foreigners to own residential and commercial properties 100% in Batam. However, low cost or very low cost housing is excluded from this provision. This is a state provision. The Indonesian National Law is still applicable and thus there is a certain level of risk for property buyers.

Buying procedure

  1. Before purchasing any properties, due diligence of the seller must be done. The buyer can request to see the following documents from the sellers
    • Original five latest PBB (Tax of Land and building) including receipt of payment
    • Original land certificate
    • Original building permit (This document will be given to the buyer after the process of Deed of buying and selling is done, ie conveyancing)
    • Proof of payment of electrical, telephone and water
    • In the event of an existing mortgage, a letter of Roya from the related bank is needed
    • a copy of the IDs of the directors and representing person, if seller is a company.
    • Copy of complete corporation Statue including the document from the Minister of Judicial Court for the incorporation of the company, if the seller is a company.
    • General meeting of company shareholders with written statement to sell, notarised by a notary public, if the seller is a company.
  2. Buyers need to have
    • a copy of the IDs of the directors and representing person, if the buyer is a company
    • Copy of complete corporation Statue including the document from the Minister of Judicial Court for the incorporation of the company, if the buyer is a company
  3. Before proceeding, the buyer and seller have to cross check each other’s documents. The buyer will need to check the land certificate with the land office. The buyer has to pay a deposit, which is negotiable.
  4. After the checks are done, the buyers and sellers will have to pay their individual taxes and bring the receipts to the Land deed official to start the transaction with all the documents mentioned above and sign the land transaction deed.
  5. The buyer has to settle the remaining payment to the seller.
  6. Upon the signing of the land transaction deed, the certificate of transfer of ownership has to be done within seven working days with the following documents attached.
    • Proposal of registration of ownership title transfer certificate
    • Original deed of transfer
    • Original latest PBB (Tax of Land and building) including receipt of payment
    • Original land certificate
    • Proof of payment of relevant taxes.
    • Photocopy of the identity card of buyers/sellers.
  7. The transaction will normally take one month. Normally when the Land transaction deed is done, the seller will handover the rights of the land to the buyer while waiting for completion from the transfer of title of ownership.

Selling procedure

  1. Sellers have to get the following documents in order.
    • Original five latest PBB (Tax of Land and building) including receipt of payment
    • Original land certificate
    • Original building permit (This document will be given to the buyer after the process of Deed of buying and selling is done, ie conveyancing)
    • Proof of payment of electrical, telephone and water
    • In the event of an existing mortgage, a letter of Roya from the related bank is needed
    • a copy of the IDs of the directors and representing person, if seller is a company.
    • Copy of complete corporation Statue including the document from the Minister of Judicial Court for the incorporation of the company, if the seller is a company.
    • General meeting of company shareholders with written statement to sell, notarised by a notary public, if the seller is a company.
  2. You can get a property agent to secure a buyer for you. Once the buyer is found, he/she will pay a deposit for the purchase after they verify the documents from you.
  3. The seller has to pay the relevant taxes and come back with the receipts.
  4. A trip to the Land Deed office is needed to sign the land transaction deed. At this time, the buyer will pay the remaining balance and the seller has to vacate the properties.
  5. The sale and purchase process is completed for the seller.

Taxes

  1. Buying
    • Transfer tax: 5%
    • Sale and purchase of land deed: 1%
    • Legal Fee: ~1%
    • Registration Fee: 0.2%
    • Luxury tax(Pajak Penjualan atas Barang Mewah): 20% on purchase price for condominiums bigger than 150sq m and landed houses bigger than 400sqm or electricity usage above 6600W
  2. Holding
    • Withholding tax for foreigners: 20%
    • Property tax(SPPT(Surat Pemberitahuan Pajak Terhutang)/PBB): 0.5% of assessed value
    • Value Added Tax(Undang-undang Pajak Pertambahan Nilai atas Barang dan Jasa): 10%
    • Company tax: 25% of profit
  3. Selling
    • Land and building Transfer: 5%
    • Real Estate Agent Fee: 5%
    • Capital gains tax: 20% of capital gains
    • For property sold within 5 years, it will be subjected to income tax of 15%

References

the State Regulation / PP No. 24/2007