Company Structures That Can Be Established in Order to Purchase Bali Property
If you’re considering acquiring property in Indonesia, it’s essential to understand the different company structures available for this purpose. However, some options have limitations that you should be aware of. In this article, we will explore various company types and ownership structures that can be established to facilitate property acquisition in Indonesia.
1. Local PT Company with Nominee Structure
The Local PT, a local limited liability company, was once a common choice for property acquisition. However, it is now fraught with risks due to increased scrutiny from the Investment Coordinating Board (BKPM). The BKPM examines such companies more closely, particularly when an Indonesian citizen appears to own multi-million dollar properties without sufficient income to support such ownership.
Notable aspects of Local PT:
- Foreigners cannot invest in this type of company or hold shares.
- Micro and Small PTs have lower operating capital requirements, which is a positive aspect.
- A ‘side’ agreement with nominees and foreigners is required.
- Disagreements with nominees can tie up assets and cause delays in changing local shareholders or directors/commissioners.
- Facilitation fees to local nominees are common when making changes to the company’s management or shareholders.
- Medium Size PTs can apply for work permits for foreign workers but require a minimum capital of 1 billion IDR.
2. Usaha Dagang (UD) – Sole Proprietorship
The UD is a sole proprietorship that can only be formed by Indonesian citizens. However, the foreign spouse of the proprietor can work for the UD. It is important to note that UD is not a legal entity, meaning there is no separation of assets between the business and the owner. Additionally, UD cannot have foreign shareholders, and it cannot apply for KITAS and IMTA to employ unrelated foreigners.
3. Commanditaire Vennootschap (CV) – Limited Liability Partnership
A CV is a limited liability partnership that requires at least two participants: a managing partner and a limited partner who typically invests capital as a silent partner. All partners in a CV must be Indonesian citizens. The partnership may employ the foreign spouse of the managing partner, provided they hold a spouse-sponsored KITAS/KITAP. While a CV provides a separation of assets for the limited partner, it does not offer the same protection for the managing partner. Like UD, a CV is not a legal entity.
4. Hak Pakai (Right of Use)
The Hak Pakai is a type of right-to-use title issued to foreign individuals who are domiciled in Indonesia and spend a considerable part of each year in the country. A foreigner can hold only one Hak Pakai title in their name, and it is typically used for residential properties. However, there are some limitations, such as the property size being restricted to 5,000 square meters, though this can be increased to 7,000 square meters with 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 and must have a valid KITAS before applying for Hak Pakai. It is important to note that the Hak Pakai is established between an individual and the government, and the land must be registered with the land office, with the landowner surrendering the land to government control for the duration of the title. Some landowners may attempt to arrange a Hak Pakai without registering it at the land office, which is illegal.
5. PT PMA (Limited Liability Company with Foreign Direct Investment)
Establishing a PT PMA, a limited liability company with Foreign Direct Investment (FDI), allows for a right-to-use title for property acquisition. This is considered a preferred choice over using local nominee structures due to the following benefits:
Benefits of buying real estate with a PT PMA:
- Full freehold ownership is granted if using a PT PMA, unlike with nominee structures.
- Transactions are protected by internationally recognized contracts under commonwealth law.
- The Indonesian Investment Coordinating Board (BKPM) regulates, checks, and audits the entity, providing an added layer of security.
- A verifiable tax number (NPWP) is obtained through PT PMA.
- Dispute resolutions can be conducted in international courts.
Additionally, PT PMA offers the following advantages:
- Foreign companies and investors can be shareholders.
- Directors and commissioners can be either foreign or Indonesian nationals.
- PT PMA can own or lease assets, with no limitations on the number of assets that can be included.
- HGB title over property allows for development, construction, leasing, and selling of interests in the property offshore.
- Shareholder agreements can be customized to suit specific requirements.
- All shareholders, directors, and commissioners are eligible for work permits, enabling foreigners to work and live in Indonesia under company sponsorship.
- Income can be legally received into the company, and salaries can be paid to KITAS holders.
- Dividends can be distributed to shareholders.
- PT PMA also allows for structuring in Singapore to rent out properties and receive income offshore.
In conclusion, when considering property acquisition in Indonesia, it’s crucial to choose the right company structure to ensure legal compliance and protection of your interests. While options like Local PT, UD, and CV have their limitations and risks, establishing a PT PMA with Foreign Direct Investment offers significant advantages, including full ownership rights, international legal protection, and regulatory oversight. However, since legal matters can be complex, it is advisable to seek qualified legal advice to make informed decisions about the best company structure for your specific needs.