Land and Building Ownership
According to Indonesian Law concerning Land, there is no concept of freehold land rights for business. To foreign as well as domestic investors, the following three main rights are significant: The Land Cultivation Right (Hak Guna Usaha, abbreviated as HGU), The Right of Building on Land (Hak Guna Bangunan, abbreviated as HGB) and The Right of Use on Land (Hak Pakai, abbreviated as HP).
- The Land Cultivation Right(HGU) is the right to use a State- Owned land for the purpose of agriculture namely plantation, fishing, or cattle raising. By law the title is granted for a maximum period of 35 (thirty-five) years, but may be extended to 25 (twenty five) years if the land is properly used and managed. This title of right is given to Indonesian partners or legal entities domiciled in Indonesia including PMA companies. It can be used as a collateral or transferred to a third party with the governments approval.
- The Right of Building on Land(HGB) is the right to construct and own buildings on a piece of land that one has purchased. The title is granted for a maximum, period of 30 years which can be extended for a maximum period of 20 years. The HGB title is granted to Indonesian individuals and/or legal entities domiciled in Indonesia, including PMA companies, and can also be used as collateral or transferred to a third party.
- The Right of Use on Land (HP) is the right to use land for any purpose for a period of 25 years, it can be extended for 20 years. It has no collateral value to the owners and not transferable.
Obtaining Land. Many foreigners have had problem in the process of having land rights on the land that they have bought. It is because they didn’t have good enough information re the Indonesian Land Law .
There are 2 (two) alternatives that we introduce for foreigners to obtain land in Indonesia :
- Having an Indonesian nominee, either an individual or a company.
The land you buy will be on the Indonesian nominee. It is considered safe for you if you have some legal deeds that made before Notary Public. They are :
Power of Attorney that gives the power to you to transfer, sell, lease the land without any reference from the Indonesian nominee.
Statement that states that the money to buy the land belongs to the investor, and not the Indonesian nominee.
- Forming a PMA company (Foreign Investment Company).
It is the most secure way to buy land or to enter a business in Indonesia, indeed. With a PMA company that the share is owned by you, you can buy land on the name of the PMA company.
Building. A house or a residence that can be owned by a foreign person shall be:
A separate house constructed on a piece of land with the right of utilization on state land or controlled on the basis of an agreement with a land title holder; or
An apartment constructed on a piece of land with the right of utilization on state land.
B. FOREIGN INVESTMENT COMPANY (PMA COMPANY
A PMA company is in general established as a joint venture between foreign and Indonesian partners. The partnership may involve legal entities (corporations) or individual persons. A joint venture entity shall take the form of a Limited Liability company, which is subject to Indonesian Corporate Law, denoted as PT (Perseroan Terbatas). There is no requirement on the minimum amount of investment (equity plus loan). The amount is for the parties concerned to determine, based on their economies of scale and business considerations.
- PMA companies in infrastructure projects such as port, generation and transmission as well as distribution of electricity for public use, telecommunications, shipping, airlines, potable water, public railways and nuclear electric power generation should be established by way of joint ventures between foreign and Indonesian partners provided that the Indonesian share is maintained at least 5%.
- A PMA company may be established as a straight investment, or 100% foreign ownership. It is required, however that not later than 15 years of commercial operation, the company starts to be divested by selling some of its shares to Indonesian individuals and/or business entities, through direct placement and/or indirectly through domestic stock exchange
C. FOREIGNER COULD HAVE PRIVATE LAND IN INDONESIA
There are several techniques how foreigner could buy land in Indonesia.
II. According to Indonesia’s Act
Act No. 5 / 1960 about land main rule (UUPA). It has written that land in Indonesia only for Indonesian’s or organization’s, which have permission, by the Indonesia government.
Chapter III, Article 21, UUPA says:
1.Land in Indonesia only for Indonesian’s.
2.Organization’s which have permissions by Indonesia government and with its condition’s.
UUPA also gives opportunity to foreigner to have land in Indonesia with authority to use it/explore it.
Chapter VI, article 41 UUPA, says:
- Applied Rights is authority to use and / or explore the land which directly powered of attorney by the state or belong to someone, who gives authority and duties to decide by some one who has authority or agreement with the owner which not lease agreement or land explore agreement, or anything aren’t brake the law and life.
- Authority to apply the land can be given if:
a. as long as he / she can;
b. Free, with payment’s or fees;
- Applied Rights should not do by any harmful.
Chapter VI, article 42, UUPA says:
Who have authority to apply the land?
b. Foreigner’s who stays / lives in Indonesia;
c. Organization’s which was made by law and located in Indonesia;
d. Foreign organization’s which has branch office in Indonesia.
According to Indonesia Government’s Rule (PP) No. 41 / 1996
PP No. 41 / 1996 about houses whose belong to foreigner who stays in Indonesia.
Article 1, point 1, PP No. 41 / 1996 says:
- Foreigner who stays in Indonesia can have a house for staying with some authority rights.
Article 2, PP No 41 / 1996 says:
Foreign could have a house in Indonesia as written in article 1 are:
- A house which built on land:
a. Applied rights on state land.
b. By agreement.
- Houses that were built on land with applied rights.
Article 5, PP No. 41 / 1996 says:
- An agreement in article 2, point 1 could give approximately 25 years.
- The time above could add 25 year again if there are any new agreement or new application.
Practicing Law and Government Rule
Practicing laws above are ruled by Head of National Land.
Foreigner could have a house in Indonesia with some ways:
- Application of applied rights on state land.
Foreigner should register the application to state in order to use the land as houses. To continue using this applied rights they should pay as compensation to state. By the time of applied right is finish, the land must release / replace to someone. If 1 year not release after the time was ended, the state will sale the land in public sale.
- Application of applied right on own rights / applied rights of the building.
In this way, they should make an agreement between the owner of the land and foreigner. The agreement should write on PPAT / Notary (someone who has authority to make Land Acts). Continuing the applied rights must write on other agreement between owner and foreigner. If the time is end or foreigner does not live in Indonesia anymore, so the land is belong to the owner again.
- Application of applied rights on own rights with release way.
In this way, Indonesian or the owner releases the land and foreigner make application to use the land. Continuing using the land should register to state with payment as compensation. This applied right could be released or buy-sale by the user to Indonesian or foreigner and then the buyer make the application. If the time is end or foreigner does not live in Indonesia anymore the land will belong to state or someone who makes application to use the land.
III. There are two choices in the practice.
Practically, foreigner could have private land in Indonesia with these ways:
a. Foreigner who bought land in Indonesia with Indonesian citizen name written on the land act.
Here are systematically to make land act by foreigner:
– Purchase acts must be signed by Indonesian who has been trusted by foreigner, so certificate will issue as Indonesian.
– In addition, they should sign a Statement Agreement, which amount of money written on it. The money that were used in buying land is belong to foreigner and Indonesian only representative. Also, it should be ruled or written that Indonesian could not do harm to foreigner who was bought land in Indonesia; and Indonesian and his / her relatives must help foreigner when she / he intend to sell or lease the land.
b. Using Loan Agreement.
Here are systematically in making Land Acts:
– Purchase acts should be signed by Indonesian who has been trusted by foreigner;
– Then, Indonesian should sign The Loan Agreement, which Indonesian owes some money to foreigner as much as land price with land as guarantee.
– Together, they also should sign Statement Letter, which amount of money written on it. The money that was used in purchasing land which was borrowed from foreigner.
– Next, both of Purchase Acts and Loan Agreement should register to Land Dept. Office so then Owner’s Certificate will issue as Indonesian where loan guarantee to foreigner written on it, also Credits Guarantee Certificate as foreigner will issue too.
Above are laws which can do by foreigner who want to stay / buy / explore the land in Indonesia
This investment information brochure is made with the hope that it will be useful to the investors
And more read ———–> Property law in Indonesia