|
|
|
|
Indonesia Property Law

General
There are two main types of land tenure: certificated land and
un-certificated land. Certificated land has been mapped and recorded
with the local office of the National Land Agency. Whereas
un-certificated land is held under unwritten customary land law (hukum
tanah adat) applicable in the particular location.
As a matter of policy, customary land titles are being phased out
especially in urban areas, but are still the predominant basis of
land rights in rural areas throughout Indonesia . By contrast, all
modern commercial and residential properties in Jakarta are built on
certificated land.
The Basic Agrarian Law (Law No.5 of 1960) created a uniform, though
somewhat complex, system of land rights throughout Indonesia . Land
titles under the Basic Agrarian Law may be roughly classified into
primary titles, i.e., those normally derived directly from the
State, and secondary titles, i.e., those granted by the holder of a
primary title. Following is a brief description of each of the most
important primary titles, followed by a few comments on the most
important of secondary titles, i.e., leaseholds.
INDONESIAN TITLES
A. REGISTRABLE RIGHTS
Hak Milik "Ownership" , HM
Hak Guna Usaha Right to use land for cultivation, HGU
Hak Guna Bangunan Right to establish and use a building on another's
land, including on state land, HGB
Hak Guna Bungunan Induk Developer's right prior to subdivision
Hak Pakai Right to use of land on state land, HP
Hak Pengelolaan Right of land management, HPL
Hak Wakaf Edified land
Hak Tanggungan Mortgage , HT
Hak milik atas satuan rumah susun Apartment unit ownership HMASRS
B. UNREGISTRABLE RIGHTS
Tanah Negara State land Hak Penguasaan Government infrastructure
right Hak Sewa Lease (of building - not a property right) Hak Sewa
untuk Bangunan, Lease of land for building (Contrast lease of
agricultural land which was to be phased out)
C. UNCERTAIN RIGHTS
Hak Ulayat Right of disposal of community land
A: Primary Land Titles
Primary land titles are those normally obtained directly from
the State, although the holder of a Hak Milik can grant certain
inferior titles such as HGB and Hak Pakai, both of which are
considered primary titles. All primary land titles are certificated
and registered with the National Land Agency.
1. Hak Milik (Right of Ownership):
Hak Milik corresponds roughly to fee simple or freehold title, and
is the most complete form of land ownership in Indonesia . Subject
to zoning restrictions, the holder can use the land for any purpose,
although it does not entitle the owner to exploit the natural
resources found on or under the land. (These rights are regulated by
the Basic Mining Law (Law No.11 of 1967).
This title may only be held by individuals of Indonesian nationality
and special legal bodies stipulated by the government, e.g.,
government banks, cooperatives and religious and social bodies.
Neither limited liability companies nor foreign individuals may hold
such title.
The title has no time limit and may be sold, gifted, exchanged and
bequeathed. Hak Milik may be made the subject of a security interest
in the form of an Indonesian mortgage (Hak Tanggungan). The holder
of a Hak Milik may also grant inferior titles over the land to third
parties, while retaining the reversionary rights.
2. Hak Guna Bangunan (Right to Build):
The holder of Hak Guna Bangunan ("HGB") is entitled to construct
and own buildings or other structures on the land. This is the most
common title for residential, commercial and industrial properties.
This title can be owned by individuals of Indonesian nationality,
and Indonesian legal entities including foreign capital investment (PMA)
and domestic capital investment (PMDN) companies (as described more
fully in Section II below.)
In principle, the right is granted for an initial period of up to 30
years, although it may be extended for another 20 years. Based on
Government Regulation No.40 of 1996 regarding HGU, HGB and Hak Pakai
("GR 40/96"), an approved capital investment company (i.e., a PMA or
PMDN company) may obtain HGB rights for a period of 80 years (i.e.,
30-year initial term, plus 20-year extension term, plus 30-year
renewal term) by payment of certain up-front official costs ( Uang
Pemasukan).
Like Hak Milik, HGB can be sold, gifted, exchanged, by an Indonesian
bequeathed, and/or encumbered mortgage.
3. Hak Guna Usaha (Right of Exploitation):
Hak Guna Usaha ("HGU") is a right granted over State land to
exploit the soil, and is the principal title used for agricultural
projects, including plantations, fisheries and cattle ranches. The
owner is also entitled to construct buildings and structures on the
land related to such agricultural uses.
HGU may be held by Indonesian citizens and by legal entities
established under Indonesian law, including PMA and PMDN companies.
In general, HGU is granted for an initial period of up to 35 years,
and may be extended for a further 25 years. The provisions of GR
40/96 also apply to HGU titles, thereby allowing PMA and PMDN
companies longer term certainty with respect to their land rights.
HGU titles cannot be granted on areas of less than five hectares,
and special rules apply for areas over 25 hectares.
This right can also be sold, gifted, exchanged, bequeathed, and/or
encumbered.
4. Hak Pakai (Right of Use):
Hak Pakai entitles the holder to use the subject land for the
specific purposes described in the deed of conveyance. Foreign
individuals and foreign representative offices, as well as
Indonesian citizens and legal entities, are entitled to hold Hak
Pakai titles. Traditionally, this title has been granted to various
foreign governments and religious and social institutions (e.g.,
embassies, consulates and churches) for an indefinite period as long
as the premises continue to be used for the agreed purpose.
The following summary outlines the essential steps involved in a
foreign investor transacting a Hak Milik ("Freehold Title") property
in Indonesia and creating a Hak Pakai ("Right of Use") certificate
of title directly in the name of the foreigner investor as an
encumbrance on the underlying Hak Milik.
This certificate of title is highly secured and known as Hak Pakai
atas Tanah Hak Milik which translates as "Right of Use over Freehold
Land".
In conclusion, 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 Indonesiai.
The mortgageability of the Hak Pakai gives rise to future financing
options for foreign buyers in Indonesia.
Under GR 40/96, Hak Pakai for most commercial uses can be granted
for up to 25 years and extended for another 20 years, and like HGB
and HGU a longer term of fixed rights may be obtained by an up-front
payment of the Uang Pemasukan. Slightly different procedures apply
to Hak Pakai titles granted by the owner of a Hak Mi/ik title. Hak
Pakai titles may be sold, gifted, exchanged and/or bequeathed,
unless the deed of conveyance specifies otherwise. With the
enactment of the new Mortgage Law (Law No.4 of 1996), Hak Pakai
titles derived from State land or HPL titles (but not those derived
from Hak Milik titles) may be encumbered for security purposes.
The most prevalent commercial use of Hak Pakai titles is in
connection with modern condominium and other strata title projects
aimed at attracting direct purchases by foreign individuals and
companies. Such arrangements, however, are still relatively uncommon
and present certain issues and concerns as discussed in Section II.C
below.
5. Hak Pengelolaan (Right of Management):
Hak Pengelolaan ("HPL ") is normally granted to State-owned
companies as well as Provincial (Level I) and Regional (Level II)
Governments for purposes of developing State land. It is commonly
used for industrial estates, low-cost housing projects and port
facilities. The duration of the right is usually tied to the length
of time the holder uses the land for the intended purpose. This
title may be sold and transferred but may not be encumbered by a
mortgage.
B. Secondary Land Titles
Secondary land titles, i.e., those contractually granted by the
holder of a primary title, include Hak Sewa (Right of Lease), Hak
Usaha Bagi Hasil (Right of Share Cropping), and Hak Menumpang (Right
of Lodging). Of these, the only significant one for most foreign
investors is Hak Sewa which is briefly described below.
I. Hak Sewa (Right of Lease):
Hak Sewa grants the holder the right to build or to use
buildings on someone else's land for a fixed period of time. The
period of lease must be specified, but there is no limit on the
duration of the lease.
In accordance with general principles of lease law, the right cannot
normally be sold or otherwise transferred without the consent of the
lessor. Hak Sewa cannot be encumbered by an Indonesian mortgage nor
can it be registered with the National Land Agency (although in
practice some local land offices will allow a notation of the lease
to be made in the official land records and/or on the title
certificate itself).
Hak Sewa may be acquired by Indonesian individuals, Indonesian legal
entities, and foreign individuals and legal entities resident in
Indonesia .
Leases of office space, factory buildings and residential premises
are all examples of Hak Sewa titles.
Residential properties in Jakarta include apartments, condominiums,
town houses and stand-alone houses. Rental arrangements vary, but
one or two years rental in advance is common, especially for
privately leased houses. VAT and withholding tax provisions apply
and should be addressed early in rental negotiations.
2. Strata Title
Strata title is a relatively new concept in Indonesia , but can
be acquired in numerous office and residential properties in Jakarta
. The qualifications for ownership of a strata title depend on the
underlying land title, e.g., if the underlying title is HGB, only
persons qualified to hold HGB title may purchase a floor or unit
within the strata title building.
3. Hak Pipil
Land that has been passed down through a local family but has
never been formally registered with the Land Registry Office (Pipil),
or Land that has already been registered with the Land Registry
Office. Only land that has a certificate can be sold.
The conversion of 'Pipil' land into certified status normally takes
4-6 months. Once the required land has a certificate, a transaction
is normally completed within 1-2 weeks.
II. Foreign Ownership Rules
The rules relating to foreign ownership of real property
in Indonesia have again recently been relaxed, but are still far
from unrestricted Notwithstanding that acquisition procedures have
been simplified and clarified, and the duration of land titles has
been extended under GR 40/96, land rights continue to be among the
mo~ sensitive topics facing foreign investors.
Most direct foreign investment in Indonesia other than in the oil (
gas and financial sectors is carried out by foreign capital
investment (Penanaman Modal Asing or "PMA") companies approved
through the Board of Investment and State-Owned Enterprises ("BPM
PBUMN'!), (which has recently replaced the Capital Investment
Coordinating Board generally referred to as "BKPM"). Domestic
capital investment (Penanaman Modal Oalam Negeri or "PMDN" companies
require similar approvals and obtain similar duty exemption and
other facilities.
The rules applicable to PMA companies, Foreign Representative
Offices and foreign individuals are discussed below.
A: PMA Companies
PMA companies are entitled to hold HGB, HGU and Hak Pakai,
titles, thereby permitting them to purchase land and buildings for
nearly any type of commercial or residential use. PMA companies can
enter into short- or long-term leases of land and/or buildings and
can acquire strata title in many commercial and residential
properties.
B: Foreign Representative Offices
"Foreign Representative Office" refers to any of the various
types of representative offices permitted under Indonesian law,
including Trade Representative Offices (approved by the Minister of
Industry and Trade), Regional Representative
Offices ( approved by the Board of Investment and State-Owned
Enterprises), Bank Representative Offices (approved by the Minister
of Finance), Construction Representative Offices (approved by the
Minister of Public Works) and other similar offices.
Foreign Representative Offices can hold Hak Pakai titles and also
enter into short- or long-term leases for both commercial and
residential property. They are not permitted to hold HGB or HGU
titles.
C: Foreign Individuals
Foreign individuals are still severely restricted in their access to
the Indonesian property market. Recent regulatory changes, however,
allow foreign individuals to purchase Hak Pakai titles over
State-owned land or enter into long-term leases for residential (but
not commercial) purposes. Moreover, the leasing out of the premises
during the owner's absence is expressly authorized. A foreign
individual is permitted to purchase only one residence unless the
area is otherwise regulated by the local regional authority.
Unfortunately the relevant regulations and decrees are somewhat
inconsistent and confusing and may, as a matter of law, be in
conflict with the Basic Agrarian Law, particularly in respect of the
definition of "domiciled in Indonesia". Any discussion of this topic
is, therefore, necessarily somewhat tentative.
III. Land Acquisition
Every transfer of a primary land title in Indonesia must
be prepared by a land Deed Official (Pejabat Pembuat Akta Tanah or "PPAT"),
who is normally a local notary.
The procedures for large land acquisitions have recently been
improved, as reflected in State Minister of Agrarian
Affairs/Chairman of National Land Agency Regulation No.2 of 1999
regarding Location Permits (February 10, 1999). Different procedures
apply depending on whether the land is State-owned or privately
owned.
Residential Ownership by Foreign Individuals
Government Regulation No.41 of 1996 regarding Ownership of
Residences by Foreign Persons Domiciled in Indonesia (cGR 41/96")
grants to foreigners who are "domiciled" in Indonesia and whose
presence "benefits national development the right to own a
residential property built on a Hak Pakai title over State land.
Such residence may be a single family dwelling or a strata title
condominium unit, as long as the underlying land title is Hak Pakai
over State land. GR 41/96 also reaffirms existing law and practice
under which foreigners are permitted to enter into lease agreements
with holders of Hak Milik and HGB titles.
A fundamental question arising under GR 41/96 is the meaning of the
terms "domiciled" and "benefits national development. After a period
of some uncertainty, this question appears to have been answered in
a somewhat circular fashion. Under a 1996 implementing regulation
and a separate letter, both issued by the State Minister of Agrarian
Affairs/Chairman of National Land Agency, a foreigner who is in
Indonesia "from time to time" and who "maintains an economic
interest in Indonesia by making an investment in the ownership of a
house" is deemed to be both a person domiciled in Indonesia (at
least for purposes of this regulation) and a person whose presence
benefits national development. [Although not specifically addressed
in any of the applicable regulations, query whether such a
"domiciled" foreigner would be deemed a resident tax subject under
the Indonesian Income Tax Law, particularly if the property were
rented out during the owner's absence.]
This appears to be a clear policy statement that Indonesian
residential and holiday homes are now available to foreigners
willing to make a modest personal investment and periodically use
the property .Given the sensitivity and complexity of such
purchases, however, competent professional advice should be obtained
regarding the details of any particular transaction prior to making
a financial commitment.
B: Location Permits
For most developments, a Location Permit (izin Lokasi) should
first be obtained by the investor from the Regional (Level II)
Government. The Location Permit is essentially a preliminary
approval for the acquisition of land for a particular investment
project. It authorizes the investor to enter into discussions and
negotiations with the land owners, but these are open negotiations
-the land owners are under no obligation to sell their land.
Obtaining a Location Permit normally requires public participation
in the discussion.
Various minimum and maximum size restrictions are imposed depending
on a multitude of factors. Location Permits are valid for one to
three years, depending upon the size of the area governed by the
Location Permit. A Location Permit is not required for several types
of acquisitions including, among others, in-kind contributions to a
company, land located in industrial zones, and adjoining land
required for business expansion.
C: Transaction Costs
Following is a brief summary of the transaction costs involved
in typical transfers of land title in Indonesia .
Acquisition Fee:
The purchaser is charged an acquisition fee of 5% of the
transaction value in excess of Rp. 30 million. If the transaction
value is less than the officially assessed value of the property,
tax will be calculated on the assessed value.
Capital Gains Tax:
Real estate companies and individual sellers are charged 5% of
the transaction value (or the assessed value, if greater) as a final
withholding tax. Other classes of sellers.(e.g., other types of
companies) must also pay a 5% withholding tax, but a credit equal to
the value of this withholding tax may be claimed on the seller's
annual tax return.
PPAT and Legal Fees:
All transfers of primary titles must be handled by a PPAT
(notary) who usually charges a fixed percentage of the transaction
value, although reduced fees can frequently be negotiated. Legal
fees typically depend on the complexity of the acquisition and the
scope of services requested by the investor.
Value Added Tax:
VAT is generally not imposed on land and building transfers. VAT
at 10% is applicable to residential and commercial leases (6% on
service charges}, and VAT at 10% is applicable on a one-time basis
to development projects.
Sales Tax on Luxury Goods:
Up market residences, i.e., luxury houses, town houses and
condominiums, buyers are charged a 10% Sales Tax on Luxury Goods.
Withholding Tax (Rentals):
Rental Income is subject to a final withholding tax on gross
receipts applied at 6% for companies and 10% for individuals.
Stamp Duty:
Stamp Duty is negligible, a maximum of Rp. 6000 on any document
executed or to be used in Indonesia .
Land and Building Tax:
The general rate of the annual Land and Building Tax is 0.1% of
the assessed value of the land and building. Values are reassessed
every three years (or every year in rapidly developing areas).
Luxurious residential properties valued in excess of Rp. 1 billion
are taxed at to a rate of 0.2%.
Exemptions are granted for buildings valued at under Rp. 8 million,
and land and buildings used for religious, social, educational and
other public uses.
|
|