1. Leasehold Investment Until recently, this was the only means for a Foreign Investor to secure land in Indonesia. A Leasehold Investment offers complete protection to the foreigner during the term of the Lease Agreement. A Lease Agreement is prepared, specifying the period of time, usually in terms of up to 25 years, and often with an option to extend. Any options that the Foreign Investor would like to include, such as the right to demolish, the right to extend, the right to build and the like are discussed, agreement is reached with the owner and clearly stipulated in tight legal documentation prepared by a public notary and lawyer. At the expiry of the lease period, the Agreement can be extended or the property allowed to revert to the Owner. An application to extend the Lease Agreement period should be submitted no later than a year before expiry. The Foreign Investor can negotiate directly with the landowner at the time of renegotiation in order to agree to a property lease rate for the extended lease period. 2. Indonesian Nominee Power of Attorney Agreement Currently, Foreign Investors are not entitled to own freehold property known in Indonesia as the Right of Ownership (Hak Milik). However, it is possible to enter into a legal agreement with an Indonesian Nominee, who secures the title to the property on behalf of the foreigner. While the Indonesian Nominee is the registered owner, the Foreign Investor holds the land certificates as security. In Indonesia land cannot be sold without an authentication procedure which includes sighting of the original land certificates. At the time of property purchase, the Indonesian Nominee and the Foreign Investor simultaneously sign a legal Power of Attorney. The Power of Attorney waives all rights of the Indonesian Nominee and gives full beneficial rights of the property to the Foreign Investor. The Foreign Investor is then able to build on the property, onward sell or lease the property and transfer the property to their next of kin. Additionally it is possible to specify that if the laws in Indonesia change allowing Foreigners to own land, that the titles will automatically be transferred into the Foreign Investors name. The Indonesian Nominee may receive a pre-agreed fee for their responsibilities as the titleholder. The amount largely depends on the relationship the Foreign Investor has with the individual Nominee. 3. PMA Foreign Investment Company Structure Property acquisition through a PMA (Penanaman Modal Asing) Foreign Investment Company structure enables Foreign Corporations to own land in Indonesia, without having to have Indonesian partners. The PMA can be 100% owned by the Foreign Investor. This was originally established for large Multinational Corporations but has been extended to land holdings by smaller off-shore companies. Audited accounts must be regularly furnished to the Government showing the PMA trading position, and operating taxes must be paid. The cost of setting up a PMA structure varies depending on the line of business and can take 4 months or more to set up. Once completed the company can apply for work permits for foreign directors, with a total of 3 work permits in the first year of operation. The disadvantage of a PMA Company property acquisition is that the property should be used for company projects only, and that a PMA Company, like any other corporate entity (Indonesian or Foreign), is not eligible for Freehold (Hak Milik) Title. Whenever freehold land is transferred to a corporate entity, the property title is changed to Right to Build (Hak Guna Bangunan - HGB). 4. Right of use on top of freehold (Hak Pakai atas Tanah Hak Milik) The Hak Pakai is a land title recognized by Indonesian law. Hak Pakai may be held by a foreign citizen contributing to the national development of Indonesia by owning a residential property in Indonesia and by being present in the country from time to time. To create the Hak Pakai, the foreigner must be actually present in Indonesia and provide to the Notary executing the transaction with a KITAS or a passport with a valid entry visa stamped therein. The Notary acting in his capacity as a PPAT (Government authorized conveyance officer) executes a Deed of Grant of Hak Pakai (“Akta Pemberian Hak Pakai atas Hak Milik”) between the Hak Milik owner/designee and the foreigner pursuant to which the Hak Milik owner grants the Hak Pakai title to the foreigner. The title created is known as a Hak Pakai atas Tanah Hak Milik which title effectively encumbers/charges the underlying Hak Milik title and may be granted by the Hak Milik owner to the foreigner for an initial fixed 25 year term. By separate Notarial Deed, the Hak Pakai owner may also prepay to the Hak Milik owner a number of agreed 25 year renewals i.e. 25 years + 3 x 25 year renewals =100 year tenure. Renewals are subject to prevailing Indonesian law. A conversion clause in the documents provides that if a Hak Pakai renewal is prohibited by subsequent Indonesian law, the unexpired Hak Pakai terms will convert to leasehold by operation of law. The Hak Pakai owner obtains a certificate of title in his name and with the agreement of the Hak Milik owner is entitled to keep the original Hak Milik title in his possession until expiration of the term. It should be noted that the Hak Pakai must be renewed at least two years before its expiration and the renewal costs are presently again government transfer taxes of 10% of NJOP (which taxes may be subject to future government adjustment). It should also be noted that a foreigner is entitled to hold only one Hak Pakai title, for residential purposes, at any time in Indonesia and the land area must be less than 50 are (5000 M2). Incidental documentation includes a Power of Attorney (“Surat Kuasa”) for the Hak Pakai owner to represent the Hak Milik owner (or their respective beneficiaries under their wills) upon renewals of each pre-paid 25 year term and a Statement Letter/Pernyataan from the Hak Milik owner to the effect that the Hak Milik owner will abide by the directions of the Hak Pakai owner in respect of the sale/transfer of the Hak Milik at any time. Often as part of the transaction, where a number of Hak Milik titles are held, an amalgamation of titles must occur prior to creation of the Hak Pakai as the Hak Pakai must be granted over only one Hak Milik title. The Hak Pakai may be transferred to another foreigner, Indonesian company or Indonesian citizen or released and a new Hak Pakai created over the Hak Milik. Hak Tanggungan encumbering Hak Pakai The Hak Pakai title is capable of being mortgaged and certain deletions are made by the PPAT to the Deed of Grant of Hak Pakai so that the prior approval of the Hak Milik owner to the encumbrance is not required. The lender/mortgagee is granted a separate Sertipikat Hak Tanggungan and holds possession of the Hak Pakai certificate to secure repayment. The Hak Pakai atas Tanah Hak Milik represents a secure government sanctioned structure for foreign investors wishing to take advantage of an investment in one residential property permitted by prevailing Indonesian law, and so the structure should be regarded as a leading investment option for securing freehold property in Indonesia.
Posted on: Mon, 04 Nov 2013 00:01:58 +0000
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