Company Structures That Can Be Established in Order to Acquire Property in Indonesia
You may be aware that there are different company structures that can be established in order to acquire property in Indonesia, however some of those options have limitations.
Company types and ownership structures are listed below for your information:
Local PT company with nominee structure (Local limited liability company)
In previous years this was a common practice, however it is fraught with risks.
BKPM (Investment Coordinating Board) look at this more closely than they used to. It looks unusual for an Indonesian to be owning one or more multi-million dollar properties where their income does not support such ownership.
Notable aspects of Local PT:
- Not possible for foreigners to invest into the company, cannot have foreign shareholders
- Lower company operating capital requirements for Micro and Small PT (one positive aspect)
- A ‘side’ agreement needs to be put in place with nominees and foreigners
- A falling out with one or more nominees can tie up assets and delay change of local shareholders or directors/commissioners in the company
- Facilitation fees to local nominees are common place when making changes to nominees – shareholders or company management
- Only Medium Size PT can apply for work permits for its foreign workers and requires minimum of 1 billion IDR capital
Usaha Dagang (UD) – Sole proprietorship
- Only an Indonesian citizen can form the UD but his/her foreign spouse can work for the UD
- Cannot apply for KITAS and IMTA to employ unrelated foreigners
- Not a legal entity and therefore no separation of assets between the business and the owner
- No foreign shareholders
Commanditaire vennootschap (CV) – Limited Liability partnership
- Requires at least two participants: the managing partner and a limited partner (typically silent partner investing capital)
- All partners must be Indonesian citizens
- May employ foreign spouse of the managing partner who is on a spouse-sponsored KITAS/KITAP
- Provides separation of assets for the limited partner but not for the managing partner
- Not a legal entity
Hak Pakai (Right of Use)
- This can be issued to foreign individuals that are domiciled in Indonesia. It is for people actually living in Indonesia a considerable part of each year
- A foreigner can have only one Hak Pakai title on his/her name
- Used for residential properties
- Property size is limited to 5,000 square metres but can be increased to 7,000 square metres with prior approval from the Minister of Agrarian Affairs and Spatial Planning/Head of National Land Agency
- Foreigners cannot apply for working permits (KITAS or IMTA) through this title. Must have a valid KITAS before applying for Hak Pakai
- Established between individual and the government and land needs to be registered with land office. Landowner must surrender his/her land to government control for duration of the title. Some landowners do not want this and may arrange a Hak Pakai without registering it at the land office, which is illegal
PT PMA (Limited liability company with Foreign Direct Investment)
You can get a right-to-use title by opening a PMA company (Penanaman Model Asing Company), that’s registered in the category foreign direct investments (FDI).
This might sound easier than it is as you can’t simply open a PMA company and use it as a gateway to the Indonesian property market. To open a PMA, you need to provide a business plan (this is the standard in most countries, including Hong Kong).
You also need to work actively in Indonesia and deposit money into a local Indonesian bank account. Even if you need to walk the extra mile, opening a PMA company is the preferred choice as you’ll be more protected.
What are the benefits of buying real estate with a PMA company?
Owning property through a PMA company is superior to using local nominee structures and will protect you significantly more.
Some of the benefits of buying property with a PMA company instead of using local nominee structures are:
- You get full freehold ownership if using a PMA, which is not the case with a nominee structure
- You’ll be protected by internationally recognized contracts (commonwealth law)
- The Indonesian Investment Coordinating Board (BKPM) will regulate, check, and audit the entity
- You’ll have a verifiable tax number (NPWP)
- Dispute resolutions can be made in international courts
In addition to above, PT PMA allows for:
- Foreign companies and investors can be shareholders
- Assign a Director and Commissioner which can be either foreign or Indonesian National
- Own or lease assets within the company
- Multiple assets can be added into a PT PMA, not limited to a single property or asset as with the Hak Pakai
- Hold HGB title over property allowing for development/construction, leasing property and sell any interest in the property offshore
- Shareholder agreement can be arranged to your requirements
- All shareholders, directors and commissioners are eligible for work permits. Foreigners can apply for KITAS to work and live in Indonesia under company sponsorship.
- Can receive income into the company legally
- Pay salaries to KITAS holders
- Pay dividends to shareholders
- Take offshore into Singapore structure to rent out properties to take income in Singapore
As we are not qualified legal advisers, we can only provide a general guideline. For those wanting full legal advice, one needs to get qualified legal advice.
If you wish further information, we recommend that you contact a Lawyer/legal adviser or speak with a notary, who can help to answer any legal questions which you may have.