Land ownership/control/rental by foreigners/mixed couples in Indonesia

This article covers the specific topic of foreign land control/ownership in Indonesia for residential purposes. For a general overview of land rights, see here.

Foreign investment

This article covers land that is not used for investment. Investment has a specific legal meaning (UU 25/2007), which is investment to do business (‘usaha’).

Foreign investment is subject to specific restrictions making it illegal in all cases except where the foreigner sets up a foreign investment limited company (PT PMA) which must be run according to company law, with minimum investment, etc.

‘Foreign investment’ refers to a foreigner investing in a business. It does not refer to a foreigner who ‘invests’ in property to reside in. A business has a continuous nature. For example, a foreigner who works in Jakarta and buys a property there, then moves to Surabaya for work is not carrying out a business if he rents out his house in Jakarta to cover his expenses while he is working elsewhere.

According to tax law (Government Regulation 34/2017), property rental income is considered an income subject to 10% final (without any deductions) income tax, while property business income is subject to 0.5% final income tax as a business activity. Property business income includes any income from renting out a room (‘kost’). While it is not totally clear that for example where a foreigner buy a house for 5 billion rupiah, and then takes in a lodger on 1 million rupiah per month that this constitutes ‘foreign investment’, it might be that this is a restricted activity.

The case of a lodger should be distinguished from a joint lease — where several foreigners share the cost of a lease, income tax is payable by the (presumably Indonesian) owner. In this case, there is clearly no ‘foreign investment

Hak Milik (ownership)

Hak milik, correctly translated as ‘ownership rights’ is limited by law to Indonesian citizens.

Voiding without compensation of purchases of hak milik by foreigners

The Agrarian law in Article 26 makes it clear that an attempt to acquire hak milik by a person or entity that is not eligible is void. For example, an Indonesian citizen who legitimately owns hak milik, writes a will leaving their land to their adult child, who is a foreign citizen. In this case, there is an attempt to pass a hak milik to a foreigner, and because the intent of the act is illegal, the hak is extinguished, which means the land reverts to the ‘direct control of the Indonesian state’. In the case of an Indonesian selling to a foreigner the legal position is:

1. the hak milik is erased, and the land becomes land under the direct control of the state
2. the funds paid by the foreigner do NOT have to be returned
3. the foreigner has nothing.

Dual citizens of Indonesia (which is limited to those under age 21 by law), are treated the same as foreigners for these provisions.

Hak milik for mixed couples, and for foreigners/dual nationals inheriting land

In the case where a foreigner inadvertently acquires a hak milik, e.g. as a result of death intestate under inheritance law, then he has a right to sell it within 1 year. After 1 year, his right is cancelled, and the land reverts to the Indonesian state.

The marriage law, Law 1 of 1974 provides that assets acquired during a marriage are owned in common. This does not apply to assets received as gifts, inheritance, or which were owned before a marriage.

Thus for example, where a married Indonesian & foreign couple buy a house, land, car, etc., in Indonesia, then it does not matter whose name is on the deed, the land is a joint asset.

There are various ways to avoid this:

1. Land purchased before the marriage is held in the sole ownership of the name on the deed. However, this is a risk for the foreigner, who, typically, is funding the purchase, in that he/she loses all rights to the land, in the event of divorce, which statistically is a 50/50 event.
2. Purchases made after marriage, require notarized separation of assets agreement, which states that the freehold is owned solely by the Indonesian spouse. Again, this is a risk for the foreigner. However it could be that the agreement makes some allowances for this, e.g., where the couple has other assets. As per Article 21, if such an agreement is not made within 12 months of purchase, the hak milik is voidable (i.e., the best case is that if someone went to the land office and informed them that the land is owned by an Indonesian married to a foreigner, then the Indonesian would have to produce a notarized agreement of separation of assets, made within 12 months of the purchase, or have the land right cancelled)

Hak pakai (limited ownership)

(note: for understanding of ‘hak pakai’, see my separate article on land rights)

The basic qualifications to own a hak pakai are reasonably clear (in addition to meeting minimum price, etc. requirements):

• a foreigner must be in Indonesia legally. They are not required to be a resident (have ITAS/ITAP), visit visa waiver is fine.
• they must visit at least annually, otherwise the hak pakai can be voided.

Specific legal explanation on the qualifications to own a property in Indonesia (skip this section if you don’t require such an explanation)

The agrarian law of 1960 is a ‘sacred text’ in Indonesia and politically sensitive. This means that reforms tend to tinker with it rather than make fundamental changes. Under the law foreign citizens ‘yang berkedudukan di Indonesia’ can own hak pakai.

The phrase ‘yang berkedudukan di Indonesia’ is a victim of Google Translate, which translates it totally incorrectly as ‘domiciled in Indonesia’, which is completely wrong. ‘Yang’ means simply ‘that’ or ‘which’, and ‘di’ means ‘in’, so we are left with ‘berkedudukan’. ‘Berkedudukan’ is probably most accurately translated into Indonesian as ‘postioned as’, ‘stationed in’, or ‘located in’.

For example, the Resident, in the Dutch & British East India Companies, meant a resident (in the colony) manager, rather than one in Europe. As far as native Indonesians are concerned, there was no ‘non-resident’; rather, the distinction was between the ‘Resident’ (white foreigner representing foreign interests in Indonesia), and the hierarchy of native government, which started with a ‘Regent’ /’Regentschap’ — now ‘Bupati’/Kabupaten’, and down levels of native government to what is now called ‘kecamatan’, ‘desa’ and ‘dusun’. So the colonial ‘Resident’, was a foreigner ‘yang berkedudukan di Indonesia’, in order to exclusively represent foreign interests.

The phrase ‘berkedudukan di Indonesia’ has been defined in law in the specific context of land rights:

• Government Regulation 41, 1996, which states ‘Concretely, berkededukan does not need to be interpreted the same as the place of residence (‘kediaman’) or domicile (‘domisili’). In the economic field, for example: people can have interests that must be looked after without having to attend physically, if for a long and continuous period.’ ‘Under such circumstances, what they need is a facility of residence or dwelling periodically, if they must regularly come to manage or maintain their interests. With such considerations, it is necessary to attempt to explain the meaning of “berkedudukan”’, and that this is ‘ a Foreign National whose presence in Indonesia gives benefits for national development’
• This definition of ‘berkedudukan’ was replaced by Government Regulation 103 2015 as a ‘person, not an Indonesian citizen, whose presence gives benefits, does business, works, or invests in Indonesia’

As of the 2021 government regulation, the phrase ‘berkedudukan di Indonesia’ has been deleted entirely, and the term is now simply ‘a foreigner is a person …. whose presence gives benefits …’

Specifically, the 2015 and 2021 laws state:

‘A foreigner who may own a house of residence or occupation with hak pakai is a holder of a stay permit [2021 — Immigration documents] in Indonesia in accordance with the provisions of laws and regulations’. Google Translate strikes again here, as most translations online make the totally incorrect translation of the Indonesian phrase ‘izin tinggal’, which means ‘stay permit’, as ‘residence permit’. ‘Residence permit’ is absolutely a 100% wrong translation, and the 2015 & 2021 laws states that ‘stay permit’ includes ‘visit, diplomatic, official, limited stay, permanent stay’.

Therefore any foreigner with a legal permit to be in Indonesia can own ‘hak pakai’. (note: the definition of ‘foreigner’ as ‘someone who gives benefits ….’ seems to be a vague description of foreigners in Indonesia in general. As there are no concrete requirements beyond ‘legal immigration documents’, it is to be assumed that ‘give benefits’ here refers to ‘investing a large amount of money in property’, ‘spending money in the Indonesian economy’, etc.)

In the context of the immigration status of a foreigner it is common to argue that those who have the legal status of visitor cannot own or rent land. This is certainly false. However in practical terms in some areas the Land Office may insist that you have ITAS or ITAP to buy hak pakai. This is not true, but if that’s the local practice, then you may face trouble buying the land if you do not have ITAS or ITAP. Therefore if your status is not ITAS or ITAP but only visitor, you should speak to the Land Office to confirm this matter.

Is hak pakai ownership?

While ‘hak pakai’ is a ‘limited real right’, and not the full ‘ownership’ right, the devil is in the detail of any limited right, which will vary between ‘nothing like ownership’ and ‘almost identical’.

In practice, ‘hak pakai’ is ‘ownership’, when it comes to housing, since it can be converted to hak milik.

The requirements for hak pakai for a foreigner are set out in Government Regulation 18 of 2021 (which repealed Regulation 40/1996 (on land rights generally), and 103/2015 (specifically relating to foreigners)).

Specific requirements that apply only to a foreigner who wants to own Hak Pakai (not applicable to Indonesian citizens)

The Government Regulation states that specific requirements exist for a foreigner to buy land:

• minimum price, which varies by area
• on its own plot, with at least one wall not against the boundary of the plot
• size of the plot of land (maximum 2000 square metres, which requires a Ministerial declaration to be overriden)
• ownership limits in terms of the number of Hak Pakai a foreigner can own [defined in the regulation as ONE]
• the land must be designated a house of occupation/residence — it’s not for agricultural land

The Ministerial regulation for Hak Pakai was passed in 2016. The Government Regulation from 2021 does not revoke this, but it is reasonable to expect a new Ministerial Regulation to override it in the future, with different requirements, most likely on price. The 2016 minimum price requirements are:

1. 10 billion rupiah for Jakarta
2. 5 billion for Banten, West Java, Yogyakarta, East Java, and Bali,
3. 3 billion for Central Java, West Nusa Tenggara, and North Sumatra,
4. 2 billion for East Kalimantan, and South Sulawesi, and
5. 1 billion elsewhere.

When a foreigner buys a hak milik house, then they must have the land certificated at the Land Registry office, and the procedure is that the land certificate contains the designation that the land was converted from hak milik to hak pakai, and that it can be converted back to hak milik if it passes into Indonesian ownership.

In other words, the foreigner who buys a villa for 5 Billion in Bali from an Indonesian owner of ‘hak milik’ has the ‘hak milik’ converted to ‘hak pakai’, but at resale to a new Indonesian owner, the Indonesian owner would reacquire ‘hak milik’. Therefore while in theory the foreigner has bought a 30+20+30 year lease, in practice it is freely convertible to a ‘hak milik’.

It is common for foreigners buying land for less than the minimum price to pay tax (5%) based on the minimum price, in order to get a certificate of hak pakai. For example, the purchase tax on a 2 billion purchase is 100 million rupiah. However, by declaring 5 billion and paying 250 million tax instead can, then the land transaction will be approved and the buyer acquires good title. In addition, where a foreigner holds a hak pakai as a result of inheritance the price minimums would not be enforced.

Hak pakai for land without a house

In certain parts of Indonesia 2000 square metres of land can be very expensive, and it is possible that an empty plot could meet the minimum price requirements without any building on it. The regulations do specify a house, however the ownership is ultimately of land. The responsibility for the certification is at the Land Registry (this is not just a random piece of paper, but an official document), so it might be that you can get a hak pakai for an empty plot; in any case as long as there is some kind of simple house then the purchase is valid.

Loss of Hak Pakai

The loss of hak pakai is covered in Government Regulation 18/2021. Under Article 50, where a person no longer fulfils the requirements to hold hak pakai, they have one year to transfer or release the right, or the Hak is ‘deleted by law’.

The concrete implementation of this is in Minister of Law & Human Rights Regulation 23/2016. This provides that one year is counted from the exit stamp of a foreigner from Indonesia, after which the land agency can apply for a declaration from immigration that they are no longer ‘berkedudukan di Indonesia’, which would be the evidence required to void a hak pakai.

It is not clear to what extent this provision is used — individuals cannot apply to have a hak pakai voided for reason of a foreigner’s absence from Indonesia, but if they reported that a property held in hak pakai was left empty, then it’s quite possible that the land office could follow this up; however this process clearly is not inevitable.

Hak pakai can be inherited by a foreigner, but they MUST come to Indonesia to arrange the paperwork. Hak pakai can also be sold.

In practice therefore a tourist with no special visa or permit can buy a hak pakai, but must be in Indonesia to do the purchase, and must visit at least every 12 months.

Penguasaan tanah (control of land)

According to law and practice in Indonesia land can acquire a certificate of hak milik after 20 years of penguasaan which can be proven. Thus for example, if land was taken from the jungle 100 years ago, and bought and sold with a simple receipt in numerous transactions over the years, then this represents proof of control of the land. The land could have fundamental status of ‘tanah negara’ (state land), or in some cases ‘hak guna usaha’ (typically plantation land), but in practice it is bought and sold and this transaction is accepted as valid by the local population.

In the case of ‘tanah negara’ (the default status for all land), then an Indonesian buying and selling land is unlikely to have any problems, and they can apply to get a certificate of hak milik. For a foreigner this would not be possible. According to common understanding in Indonesia ‘foreigners cannot own land’. This is not entirely accurate, but according to the agrarian law only Indonesian citizens (not companies) can have a full relationship with the land and soil and acquire hak milik. However ‘control of land’ is not hak milik, and in the case of ‘control of land’, which in fact belongs to e.g. a plantation, then it cannot directly lead to hak milik. (There is a procedure to declare plantation land as ‘abandoned’, and the land redistributed to the squatters.)

Therefore a foreigner buying land which lacks a certificate of hak milik (i.e. it is merely ‘controlled’) is in some ways in a stronger legal position than a foreigner who buys land which is hak milik. In the case of hak milik the purchase is void because the purchaser is foreign, and the land right deleted. While it may still be possible for the foreigner to ‘control’ the land, if they are not disturbed by any party, it will be difficult for them to sell that control, because the status is more uncertain than if the land had never had a hak milik over it. In the case of buying and selling of ‘control’ of land, the control of land by foreigners is not specifically prohibited in law, and therefore the chain of control is not formally broken by the foreigner controlling it for some period of time.

In this case the foreigner has to be sure that there is in fact no hak milik applying to the land, which would make his ‘control’ meaningless, and in practical terms a foreigner who leaves land unattended (e.g., to return to his home country) carries a risk that it will be seized by some neighbour, Indonesian family member, etc., because their ‘right to control’ is generally not recognized by Indonesian society and in many cases such land transactions have resulted in the land at some later stage being grabbed by an Indonesian.

Hak sewa (rental)

Rental is called ‘hak sewa’. Hak means right(s), sewa means ‘rent’.

Rental is mostly governed by the Indonesian Civil Code (KUH Perdata). This in turn is a copy of the 1838 Dutch Civil Code, which has its roots in French law, and before that in Roman law.

These rights are interesting in that a properly made ‘hak sewa’ encumbers the right they are issued above, so for example, a ‘hak sewa’ encumbers a hak milik such that when that hak milik is sold to a third party, the hak sewa persists. This is however, subject to the provisions of the written contract of hak sewa, which could make provisions to end a hak sewa on sale of hak milik (perhaps with compensation), or anything else.

Hak sewa may be called ‘hak sewa untuk bangunan’, that is ‘rental rights for building’. It should be noted that the Agrarian Law was very much written under socialist principles, and Article 10 of that Law says that agricultural land must be worked/cultivated by the owner, except as allowed for in regulations. It is not recommended for a foreigner to rent agricultural land for this reason.

Who can hold rental rights (‘who can rent a house’)?

The agrarian law says ‘yang dapat menjadi pemegang hak sewa’ are:

1. Indonesian citizens
2. Foreigners yang berkedudukan di Indonesia
3. a legal person established in Indonesia, yang berkedudukan di Indonesia
4. foreign legal persons that have a representative in Indonesia

The phrase ‘yang berkedudukan di Indonesia’ is nowhere spelled out, as the hak sewa is considered to be ‘rental’, whereas other rights here are ‘ownership’, so there is less regulation of the ‘hak sewa’. In general, by considering the usage of the phrase elsewhere, ‘yang berkedudukan di Indonesia’, means ‘a foreigner legally present in Indonesia’, and possibly ‘a foreigner who gives benefits’ to Indonesia, however nebulous such a defintion might be.

The other point to note here would be that it says ‘yang dapat menjadi pemegang hak sewa’, which should be compared with ‘yang dapat memiliki/mempunyai hak pakai/hak milik’. Yang=‘those who’ dapat=‘can’ menjadi=‘become’ pemegang =‘holder’, vs. Yang dapat memiliki hak pakai. I.e. ‘those who can become a holder’ versus ‘those who can own’.

The phrase ‘become a holder’ is different from ‘can own’. The latter implies a continuous requirement (for hak pakai, and hak milik), whereas ‘become a holder’ is a one-time requirement. Indeed after a year of not providing, it’s clearly provided that hak pakai is extinguished. It seems then that a validly executed rental is NOT extinguished for reason that the renter (holder of ‘hak sewa’) does not come to Indonesia for a year.

The principles of rental are mostly spelled out in the Civil Code (KUHPerdata). There must be a written contract (Government regulation 14/2016, article 28). The contract need not be notarized, but if it is, then it eliminates arguments about the authenticity of the contract.

Some of the things mentioned in the contract for rental should include:

• a defined rental period (Article 1548). Probably in years or months, but in one Constitutional Court case, a foreigner won a case that ‘his lifetime’ was a defined period
• single (one-off) or periodic payments (Article 28, Agrarian Law)
• the owner is reponsible for delivering and maintanining the house in good order, except as otherwise stated and as below (Article 1551), and must provide compensation where faulty goods have caused a loss (1552)
• the lease is void in case the object is destroyed — but specify clearly what this means, or make other provisions (1553)
• Whether or not you can transfer the lease to a third party.
• the owner is entitled to make repairs to the house, even if they cause annoyance, where it is not possible to delay beyond the end of the lease (1555), but where this goes beyond 40 days the tenant must compensated in proportion to the lost area of the property. If the tenant can no longer occupy the house due to the repairs, they can terminate he lease.
• the tenant is deemed to have received items in good condition unless proven otherwise (1563) and must return in the same condition
• minor repairs such as windows, shutters, locks, are the responsibility of the tenant (Article 1583) if not otherwise stated — so explicitly state in the contract
• the tenant has a right of quiet enjoyment (Article 1550)
• A hak sewa is not affected by death of either party (Article 1575). This means it can be inherited
• A hak sewa continues on sale of hak milik (1576) to a third party, except if provided otherwise.
• If the contract does not provide otherwise, then the renter can sublet a part of the property at his own risk (Article 1559).
• what is being rented — land for building, land with buildings, etc., and what rights both parties have in terms of the use of the land
• Taxes — the owner has income tax liabilities from rental, and it should be spelled out who pays these these in the rental contract
• Notary fees — if a notary is used, again, this should be in the contract

Rental is a very good option for foreigners, who must consider:

• the real owner of the hak milik — a hak sewa is only valid if it is made with their authority, so this is a potential for fraud
• that the hak sewa cannot be registered and that there is an underlying ‘hak milik’, who may be interested to try and disturb the owner
• foreigners trying to create a ‘hak sewa’ that too much resembles ‘ownership’ are at greater risk of legal challenge than those who have a more clearly depreciating rental asset.
• the hak sewa should be a depreciating asset where the foreigner has not enough money to buy a hak pakai (which is an appreciating asset), but wishes to have legal rights over a property in Indonesia.

Hak milik with separate hak sewa

A foreigner cannot own a hak milik. An attempt to do so should be made void and the foreigner left penniless. For example, if a foreigner ‘borrows’ (pinjam nama) an Indonesian’s name, then that is not valid because only an Indonesian can be the owner.

However, if an Indonesian buys or develops a property which they own as normal, then in conjunction with that, the foreigner can rent a land on a long lease.

Some people claim that a rental is limited to a 25 year term, or similar. This is not true. In fact, land for apartment buildings is rented from religious bodies for a 60 year term, then apartments sold to low-income owners (SKBG), and this is fully regulated in primary legislation, so it is quite clear that there is no such general prohibition. There is not a clear maximum limit on rental terms, except that they must be for a defined time period, and anything with excessive length could be deemed unconstitutional as ‘hak milik in disguise’. The latest HGU is valid for up to 95 years, in periods of 35+25+35 years, albeit not all at once, while HGB can now be extended and renewed all at once for a total of 80 years for apartment buildings, after the apartment is signed off. These facts give clear precedent for very long rental terms, but obviously there is a balance. At the very least, the initial issue of a hak pakai is for 30 years, and the extension and renewal to 80 years is a formality.

An example would be that if an Indonesian creates a separation of assets agreement with their foreign spouse, which states that the Indonesian owns the land, then the foreigner can be given a rental right over the ownership. In order to end the rental right, the Indonesian spouse could be required to pay compensation. Care would be needed to make any such agreement a real ‘ownership’ with separate ‘rental’, but this should not be too difficult — for example, if an Indonesian owns valuable land, which a foreigner has a 60 year lease on, then the lease is clearly more valuable than the ownership, in the case that the lease still has many years left.

In the case where a foreigner merely wants to occupy a house that he has built for him on land in the name of an Indonesian, then this could be described as ‘borrowing their name’. However this is not necessarily an accurate description. The important thing is that both parties are clear that the Indonesian is the legal owner and the foreigner has a temporary lease over the property. While there is still potential for legal argument given the Indonesian’s status as ‘owner’, and the foreigner as mere ‘renter’, the foreigner does have legal rights under the rental agreement that can potentially be enforced.

Hak tanggungan

A hak tanggungan is the securing of a debt with a security interest. This is governed by the law on hak tanggungan. It can be issued on land which is:

• hak pakai (historically such land could not be the subject of a security interest, but as hak pakai blurred towards HGB, this is now the same)
• HGB
• HGU
• hak milik

The hak tanggungan is based on the Dutch recht van hypotheek, or mortgage right. The scope is specific to land and apartments, whereas the Dutch right applies to ships & vessels (and still exists in Indonesian law for that purpose).

The hak tanggungan is registered with a land certificate official (PPAT) detailing the value of the debt. As per article 11, the parties to a hak tanggungan can be domiciled outside of Indonesia.

Essentially the hak tanggungan gives the creditor the right to have the property auctioned to repay the debt secured against it.

General implications

It is important to consider tax considerations.

Different structures:

• A ‘gift’ of cash is taxable by the recipient as personal income. If however you (A) give B, the owner of land, money to transfer the title to C, then that creates no gift liability for C — gifts of land are only taxed on the basis of a normal land title transfer, not on the value of the tax. So this is effectively just a normal purchase.
• If the money instead flows from A to B to C, then their could be gift tax liability, so it would be better to avoid that, though arguably if B is simply holding the money to be given to C, there is no tax liability, as the fundamental transaction is not a gift of money but of land.
• the foreigner can make a rental agreement for some years over that land, but the rent will be taxable, so in the case where the agreement is for example expressed as a 500 million loan and 10 million rent per year for 50 years then the rent would be taxable at 1 million per year by the recipient.
• If the foreigner lends the money to buy the land then that does not create a tax implication. If they further create a hak tanggungan, then the loan can be recovered later.
• The hak tanggungan could be combined with a hak sewa, so that the land is burdened with a debt, but the foreigner has an independent and separate right to live there on the basis of rental (the hak tanggungan can contain provisions restricting rental rights).

Apartment ownership

See my separate article.