Understanding the legal landscape of Bali's property market
Grasping the laws and regulations is crucial for investors looking to make informed decisions, as it provides a solid foundation for navigating the complexities of the market.
Investing in real estate can be a lucrative endeavor, but it's important to understand that the process is not always straightforward, especially in certain jurisdictions. We recognise that navigating the real estate market can be challenging, which is why we aim to provide potential investors with valuable information about the various complexities they may encounter.
We'll cover several topics, including:
Our goal is to bring your attention the the important laws and regulations in the Bali real estate industry and to give you a high level understanding of the relevant concepts. However, it's crucial to work with the right service providers who have a thorough understanding of the intricacies involved. We encourage you to seek professional advice and consultation before making any investment decisions to ensure that you have the information you need to make the best choice for your specific circumstances.
Freehold and leasehold are two common types of land ownership in Bali's property market. Freehold ownership grants the purchaser complete ownership of the land, whereas leasehold ownership allows the purchaser to lease the land for a certain period of time. Both ownership types have benefits as well as drawbacks in terms of risk and complexity to set up.
Leasehold
Freehold
Overview
The most common method for foreigners to obtain land in Indonesia is through a leasehold agreement. The typical lease terms are between 25 and 30 years with an option to extend. Leasehold properties can be bought and sold, and the value of the property is determined by the remaining lease term and other factors such as location, condition, and amenities. Leasehold agreements are typically expressed in terms of annual lease payments per Are (100SQM), measured in millions of IDR.
Overview
Freehold property ownership in Bali is typically limited to Indonesian citizens or companies. Foreigners are not allowed to directly own freehold property, but there are options for securing freehold property through a nominee or a legal entity such as a PT PMA. While freehold ownership may offer greater security and control over the property, it comes with higher costs and a more complex legal process. Additionally, foreign ownership of freehold property may be subject to certain restrictions or limitations.
Avantages
Advantages
Disadvantages
Disadvantages
Selling leasehold property
The master lease agreement can be transferred to the buyer if they plan to lease the land for the remainder of the lease term and for the entire land area of the master lease. This can be done with the help of a notary who will notify the landowner of the lease transfer, allowing for a smooth transition of leasing relationships between the new buyer and the landowner. This is useful when selling a property that sits on a fraction of a larger master lease land plot. In such cases, subleasing a portion of the land to the new buyer is possible, ensuring that they lease the particular fraction of the whole land plot that belongs to the purchased property. It's important to note that the master lease will be held by the original leaseholder unless they sell all of the subdivided lots to one owner. This allows for subleasing the land an infinite number of times by current owners without involving the master lease owner.
Selling freehold property
When selling freehold property in Bali, the transfer process can be more straightforward than leasehold. Once a purchase agreement has been signed and the agreed-upon price has been paid, the seller will transfer the title of the land to the buyer through a notary. The notary will verify that the seller is the rightful owner of the property and will ensure that all taxes and fees are paid.
Once the transfer of ownership has been completed, the buyer becomes the legal owner of the property, with the right to use and develop it as they see fit, subject to any zoning and building regulations. However, it's important to note that foreign ownership of freehold land in Indonesia is subject to certain restrictions and limitations, and it's advisable to work with a reputable legal professional to navigate the process.
Conclusion
Understanding the difference between leasehold and freehold and which is better suited to your investment needs is a good starting point. To ensure you make the best decision, it's important to weigh up your options carefully. An experienced property broker will listen to your requirements and show you properties that meet the criteria.
Once you have a few options, a financial planner can provide you with supporting budgets and forecasts for each option so you can weigh up which is better suited to you. Once you have decided on the right property and want to move forward a notary will ensure all legal aspects are in order. At Avanti, we work with a network of trusted professionals who can assist you throughout the process.
Zoning is the division of land into different designated areas, each with specific regulations and permitted land use. Zoning regulations are created by local government bodies and dictate what can be built on a property, how it can be used, and what activities are allowed. Zoning regulations can vary widely between different areas, and it is essential to understand the zoning regulations in any area before purchasing or developing property.
Green Zone
Area designated for conservation and preservation of natural resources, including forests, rivers, and other natural features. The Green Zone is regulated by the government to protect the environment and prevent uncontrolled development that could negatively impact the ecosystem.
In general, building permits are not granted for commercial development or construction of residential villas. The focus is on conservation and preservation of the natural environment. Under certain circumstances, construction in Bali's Green Zone is permitted for particular purposes, including ecotourism or the creation of temporary structures.
Yellow Zone
Residential areas where building height and land coverage restrictions are implemented to maintain the balance of the surrounding environment. The regulations in the Yellow Zone are intended to ensure that the development of the area is in line with the local community's values and lifestyle.
The Yellow Zone also has restrictions on the type of buildings that can be built, with limitations on commercial buildings and a focus on residential developments. There are three different yellow subzones which are categorised based on the level of density.
Orange Zone
Primarily designated for commercial activities, such as hotels, shops, and offices. There are some restrictions on building heights and floor space ratios, depending on the location within the Orange Zone and whether it falls into the K1 or K2 sub-zones
Pink Zone
Area is designated as a tourism zone, which means that it is intended for commercial activities related to tourism such as hotels, resorts, villas, restaurants, and tourist attractions. The Pink Zone covers areas with high tourism potential and is usually located near the beach or other popular tourist destinations.
Conclusion
One of the key considerations when buying property in Bali is the zoning of the land. It's crucial to ensure that the zoning is suitable for your intended project before making a purchase. Your notary will check the official zoning certificate before completing the transaction, changing the zoning can be an extremely difficult and time-consuming process. This is why it's important to work with a reputable broker who can guide you through the zoning regulations and help you identify properties that meet your needs. By doing so, you can avoid the risk of buying a property that is unsuitable for your intended use and the potential headache of trying to change the zoning.
If you are planning to build, renovate, or maintain a building in Bali, you may need to obtain one or more permits depending on the type and scope of your project. Understanding the permit requirements can be complex and time-consuming, but it's essential to ensure that your project is legal and safe. We recommend working with knowlegable real estate experts who can assist in navigating these permits.
What are the main permits you need to be aware of?
In Indonesia, it is mandatory for all buildings to have two permits - a building permit called PBG (Persetujuan Bangunan Gedung) and a certificate of permitted use called SLF (Sertifikat Laik Fungsi). These permits have replaced the previous single building permit known as IMB (Ijin Mendirikan Bangunan). The PBG outlines the approved design of the building and remains valid throughout the building's life. On the other hand, the SLF specifies the building's permitted use and requires periodic renewal.
What is PBG?
The PBG permit, which stands for "Persetujuan Bangunan Gedung," is a mandatory permit that regulates how buildings should be built in Bali. Anyone who wishes to construct, renovate, or maintain a building must obtain this permit. Unlike its predecessor, IMB, PBG does not require building owners to apply for a permit before constructing a building, but instead acts as a licensing rule that regulates how buildings should be built. It's essential to work with an experienced builder who is familiar with all the requirements and can guide you through the application process in order to increase your chances of approval.
Building regulations in Bali, including PBG requirements, are frequently changing and vary by location, making it challenging to stay up-to-date without expert guidance. An experienced builder can help you design a project that meets all the requirements and ensure that your PBG application is approved in a timely and stress-free manner.
What is SLF?
The SLF permit, also known as Sertifikat Laik Fungsi, is another permit that is required for buildings in Indonesia. This permit certifies that a building is safe to use and meets all relevant regulations and standards. The SLF permit is typically required before a building can be occupied, and it must be renewed periodically to ensure ongoing compliance with safety standards.
When applying for an SLF permit, building owners typically need to provide a range of technical documents and certifications, including structural calculations, electrical and mechanical plans, and certifications from relevant experts. The application process can be complex and time-consuming, so it's essential to work with a qualified builder or consultant who can guide you through the process and ensure that all the necessary requirements are met.In summary, the SLF permit is an important requirement for buildings in Indonesia, and it is essential to work with a qualified professional to ensure compliance with all relevant regulations and standards.
Conclusion
Obtaining the necessary permits for your construction, renovation, or maintenance project in Bali can be a complex and time-consuming process. However, it's essential to ensure that your project is legal and safe. By working with an experienced builder or consultant, you can navigate the permit requirements and ensure that your project is in compliance with all regulations. Contact us today to learn more about how we can help you with your permit needs.
When investing in Bali real estate, it's important to be aware of the taxes and fees associated with the purchase and ownership of property. Understanding these costs can help you plan your budget and avoid any unexpected expenses down the road. These costs can vary based on factors such as property location and ownership structure. By familiarising yourself with the tax and fee landscape in Bali, you can make informed decisions and ensure a successful investment.
Acquisition Tax
Acquisition tax, also known as BPHTB (Bea Perolehan Hak atas Tanah dan Bangunan), is a tax imposed on the acquisition of property rights and is paid by the buyer. It is calculated based on the transaction value or the government's assessed value of the property and is usually around 5% of the value.
Transfer Fees
Transfer fees are fees that are paid to the government to transfer ownership of the property from the seller to the buyer. The transfer fee rate in Bali is 5% of the purchase price.
Capital Gains Tax
This is a tax on the profit you make when you sell your property. The capital gains tax rate in Bali is 2.5% of the sale price for Indonesian citizens and 5% for non-Indonesian citizens.
Rental Tax
Rental property tax in Indonesia is calculated based on the gross rental income earned from the property either monthly or yearly. Property owners who rent out their property to tenants are subject to this tax. The tax rate is 10% of the rental value for taxpayers in Indonesia, and 20% for non-taxpayers or using double tax avoidance regulations (tax treaty between countries).
Property Tax & PBB
Property tax in Indonesia, also known as Pajak Bumi dan Bangunan (PBB), is a state tax based on the land and any development present on that site.
It is paid annually and is calculated based on both the land’s valuation and any buildings on it. The tax is administered by the local offices of the Directorate General of Taxes and is levied at progressive rates on the assessed value of the property:
0.01% - properties under 200 million IDR (Usd $13,100)
0.10% - 200 million - 2 billion (Usd $131,100)
0.20% - 2 billion - 10 billion (Usd $655,500)
0.30% - Over 10 billion (Usd $655,500)
Tax benefits
The Indonesian government has recently amended its tax laws to incentivize individuals to invest in real estate within the country. The 2020 Omnibus Law proposal, which was later implemented as Regulation no.11 the Ciptaker year 2020, aims to encourage investment in income-generating properties by allowing individuals to delay and reduce taxes through reinvestment of their business income.
If you own a business in Indonesia, you can benefit from these tax incentives by reinvesting your income into an income-generating property. By doing so, you can reduce your taxes from 10% to 2.5% on dividends that are withdrawn, as outlined in article 15 of the Ministry of Finance regulation No.18 PMK/03/2021. This presents an excellent opportunity for investors to optimize their tax payments while building their real estate portfolio.
Land and Building Transfer Duty
During the transfer of land and construction rights in Bali, both purchasers and sellers should pay specific taxes. Sellers must pay for the income tax from the transfer of their land or building rights per the Indonesian Law GR 34/2016.
The rate is 1% for simple flats or simple houses and 2.5% for regular structures, excluding simple homes or apartments.
Notary and Legal Fees
When purchasing property in Bali, you will need to hire a notary to draft the sale and purchase agreement. The notary fee is typically around 1% of the purchase price. You will also need to pay legal fees to ensure that the transaction is legally binding.
Conclusion
Understanding the tax obligations associated with owning and renting out property in Bali is essential to avoid any penalties and ensure compliance with the tax laws. With the guidance of experienced service providers, property owners can ensure they are in compliance with tax laws and regulations, avoid penalties, and maximise their profits. It's important to work with knowledgeable professionals who can provide assistance in navigating the complexities of property taxes in Indonesia.
