Indonesian Land Law & Foreign Ownership of Land Indonesian Land Law is quite different indeed to the laws

that apply in most Western or developed countries. Foreigners wishing to use or purchase land for whatever purpose need to be aware of these differences and not assume that legal conventions that apply in their home countries necessarily apply in Indonesia. Legal certainty in Indonesia has always been rather precarious, not least in the realm of land ownership. However, secure land title for foreigners is possible if correct procedures are observed.

Background There are two important "phases" when discussing Indonesian land law, that is, the phase before September 1960, and the phase after this date. Before September 1960 Indonesian land law comprised a mind-boggling cacophony of traditional adat law, Dutch colonial laws, Western civil law, and laws enacted by the Indonesian government from the time of independence in 1949 (proclamation of independence occurred on 17 August 1945). The basis of modern Indonesian land law is Law Number 5 of 1960 (UU 5/1960), also referred to as UUPA (Undang-undang Pokok Agraria, or the Basic Agrarian Law Act). Despite the word "agraria" in the title, the UUPA not only regulates agricultural land, but all land; urban land, forests, rice lands, plantations, mines, and coastal waters including fisheries. Dutch agrarian law tended to have the purpose of favouring the development of large capital interests, in particular Dutch capital interests of course. However, independence brought a very different perspective to the way that land was viewed. Article 33 section 3 of the Indonesian constitution was extremely influential in framing the basic assumptions of the new land law of 1960. It states: "Bumi, air dan kekayaan alam yang terkandung di dalamnya dikuasai oleh Negara dan dipergunakan untuk sebesar-besar kemakmuran Rakyat." (The land, waters and natural wealth contained within them are controlled by the State dan shall be utilised to increase the prosperity of the People.) This article of the constitution is clearly socialistic in nature, and fairly accurately reflects the popular views of the vast majority of the Indonesian population, both at the time of the framing of the constitution up until the present day. Indonesians generally, and Javanese in particular, tend to be communalistic in their outlooks, in contrast to the more individualistic perspectives that dominate the thinking of Western and certain other industrialised nations. Thus, the UUPA of September 1960 is viewed by Indonesian legal scholars as an expression and execution of the aspirations articulated in Article 33/3 of the Indonesian constitution. As such, it is therefore impossible under the UUPA for foreign individuals or foreign legal entities to legally own or use land in Indonesia.

Article 1/3 UUPA states that the connection between the Indonesian People and "the land, seas, airspace and its contained wealth" is eternal in nature, and that there is no power or authority that can break or erase this connection. Article 1/2 states that the lands and seas that comprise Indonesia constitutes a "treasure" given to the Indonesian People by the Supreme God.

Property Tenure/Ownership Land rights can be divided into two categories: Adat land (customary land) Not registered with the relevant land office (Badan Pertanahan Nasional or National Land Agency). Usually held through a (hereditary) traditional joint community ownership structure. A (joint) community may temporarily release valid customary land to be used for agricultural purposes by granting another person a Right of Cultivation (Hak Guna Usaha) and/or a Right of Use (Hak Pakai) over the customary land for a limited tenure. Rights held under this category can be converted to certified titles. Certified land Title is governed by the Basic Agrarian Law of 1960 and is registered at the local land office. There are basically five types of land rights held under the Agrarian Law: 1. Right of Ownership (Hak Milik) Absolute ownership of land and corresponds to a fee simple or freehold title in common law jurisdictions. This right is hereditary and held only by Indonesian citizens. Certain legal entities specified by the Indonesian government can hold a Right of Ownership, namely state banks, community agriculture cooperatives, and religious or social organizations designated by the Minister of Agriculture or Minister of Agrarian Matters. Can be sold, transferred, bequeathed, or hypothecated (mortgaged). 2. Right of Exploitation (Hak Guna Usaha) Right to cultivate or exploit state-owned land for agricultural, fishery, or husbandry purposes. Valid for a maximum of 35 years but extendable for another 25-year period with the possibility for renewal. Can be held by Indonesian individuals or entities as well as Indonesian incorporated companies with foreign ownership. This land right can be mortgaged. 3. Right to Build (Hak Guna Bangunan) Right to develop and own buildings on land owned by others. Right to Build is granted over state-owned land, Hak Milik, and Right to Operate/Manage (Hak Pengelolaan) land. Granted for a maximum initial period of 30 years and extendable for another 20-year period with the possibility for renewal. Can be held directly by Indonesian entities or Indonesian incorporated companies with foreign ownership. This land right can be sold, exchanged, transferred, bequeathed, or mortgaged. 4. Right of Use (Hak Pakai) Right to use state-owned land or land owned by others for a specific purpose as agreed by both parties such as for social activities, religious worship, embassies, and international organizations. Right of use granted over state-owned land is valid for a maximum of 25 years but extendable for another period of 20 years or occasionally for an indefinite period as stated in its grant or agreement (if it is granted to embassies, non-department government institutions, representatives of international organizations, or religious or social institutions). Right of Use granted over an underlying Right of Ownership(Hak Milik) title is valid for a maximum of 25 years and cannot be extended. However, subject to mutual agreement between the land owner and the Hak Pakai holder, the Hak Pakai can be renewed.

Can be held by Indonesian citizens and entities, Indonesian incorporated companies with foreign ownership, individual foreigners residing in Indonesia, foreign embassies, or representative offices of foreign entities. This land right can be sold, exchanged, or transferred subject to approval of the land owner in each case.

5. Right to Operate (Hak Pengelolaan) Right to operate state-owned land for a specific purpose as approved by the authorities. Given exclusively to government institutions or state-owned companies for an unspecified period. Can be transferred to a third party in the form of Hak Guna Bangunan or Hak Pakai. Hak Guna Usaha, Hak Guna Bangunan and Hak Pakai titles are available to companies registered under current Indonesian laws, including Indonesian incorporated companies with foreign ownership. Other Rights of Exploitation include Right to Crop Forest Products (Hak Memungut Hasil Hutan) and Right to Clear Land (Hak Membuka Tanah). Besides the above types of land rights, there is a law (UU Satuan Rumah Susun No. 16/1985) governing the right of ownership relating to multi-story buildings (Hak Milik atas Satuan Rumah Susun) issued to owners of residential/commercial/retail units in multi-story buildings such as condominiums, strata-title office buildings or trade centers. The validity period depends on the expiry date of the land right of the plot on which the building is constructed. Indonesian Land Titles Forms of land title regulated by the UUPA and issued by the National Land Board (BPN) include: Hak Milik -- roughly equivalent to Freehold title of English common law jurisdictions Hak Guna Usaha -- Cultivation Rights Title Hak Guna Bangunan -- Building Rights Title Hak Pakai -- Right to Use Title Hak Sewa untuk Bangunan -- Right to Rent for Buildings Hak Membuka Tanah -- Land Clearing Rights Memungut Hasil Hutan -- Forestry Rights Hak Guna-air, Pemeliharaan & Penangkapan Ikan -- Water Use and Fisheries Rights Hak Guna Ruang Angkasa -- Airspace Use Rights Hak-hak Tanah untuk Keperluan Suci & Sosial -- Land Title for Social & Religious Purposes To foreign as well as domestic investors, the most important titles to be aware of are Freehold Title (Hak Milik), Cultivation Rights Title (HGU or Hak Guna Usaha), Building Use Title (UGB or Hak Guna Bangunan) and Right to Use Title (HP or Hak Pakai). Freehold Title (HM or Hak Milik, Article 20-27) Freehold title is the strongest and fullest title that can be obtained. However such rights are not absolute as the UUPA recognises the "social functions" of land, however infers a right of "peaceful occupation" of land by the titleholder. Freehold title may only be held by Indonesian citizens (natural persons). It is therefore impossible for a foreign individual to have direct freehold ownership of land in Indonesia. All Indonesian companies, no matter if they are PMA (foreign investment companies) or not, cannot possess freehold title over land and are compelled to use other titles such as Hak Guna Usaha and Hak Guna Bangunan. According to the UUPA, land that is titled Hak Milik can be used as security for debt. However, foreign companies and individuals must take care in accepting freehold land as security, and should consult with competent advisors beforehand. Land Cultivation Rights Title (HGU or Hak Guna Usaha, Article 28-34) The Land Cultivation Title (HGU) gives the right to use a state-owned land for the purpose of agriculture, in particular plantations, fishing or cattle-raising. Such title is granted for periods of 25 or 35 years, and may be extended for another 25 years if the land is deemed to be managed and utilised

properly. This title of right is given to Indonesian citizens or legal entities (including PMA companies). A HGU title can be used as collateral, or, with the approval of the government, transferred to a third party. Building Rights Title (HGB or Hak Guna Bangunan, Article 35-40) A Building Rights Title (HGB) gives the right to construct and own buildings on a piece of land that someone else owns. Such title is granted for a maximum period of 30 years, and can be extended for another 20 years. HGB title is granted to Indonesian citizens or legal entities (including PMA companies), and can also be used as collateral or transferred to a third party. Right to Use Title (HP or Hak Pakai, Article 41-43) The Right of Use on Land (HP) is the right to use land for any purpose for a period of 25 years. This type of title should not be confused with a lease contract or sharecropping agreement. Foreign residents of Indonesia and Indonesian legal entities (including PMA companies) may hold HP titles. HP title has no collateral value to the owners and is not transferable.

Land registration officials and bureaucracy

A Land Title Deed is known in Indonesia as a Sertifikat Tanah, and is always accompanied by a Survey Certificate known as Surat Ukur that documents the location and dimensions of the land. Land transfers and land title deeds are drafted by a Land Deed Official known as Pejabat Pembuat Akte Tanah or PPAT. PPAT are very commonly also Notaries, and are easy to find even the smallest of towns in Indonesia. Most of a PPATs work involves land transfers (in the case of sale or inheritance) and land registration. Much are should be taken when selecting a PPAT to handle land matters, especially if the matter involves foreigners or PMA companies. Unfortunately, the vast majority of Indonesian Notarys who commonly handle land transfer procedures lack the knowledge and skill to properly advise foreigners on matters of secure land title, despite giving excellent impressions of seeming competence. The vast majority of land in Indonesia is in fact not registered at the BPN and is held under traditional title (Hak Adat). Occasionally, provincial governments will carry out publicity campaigns urging people, especially those in non-urban areas, to survey and register their land. However, this can be very problematic indeed, as lands are often "owned" by extended families who extent is difficult (and sometimes even dangerous!) to actually clearly define. Serious family disputes can be triggered by the very suggestion. Fortunately, most lands in areas of interest to foreigners and PMA companies will already have some form of clear land title.

How can a Foreigner legally obtain Indonesian land?

From the above discussion it is clear that foreigners are not permitted to have property title in Indonesia. However, foreign individuals can legally acquire property in Indonesia and enjoy full beneficial rights. This is done using one of two models: the first by a nominee arrangement, and the second, by way of an Indonesian incorporated company. With nominee method, an Indonesian citizen or legal entity (including PMAs) is nominated to buy the land on behalf of the purchaser. Land Title deeds will thus be under the name of the nominee. The PPAT handling the land sale and transfer will simultaneously make a Power of Attorney giving the foreign purchaser total and exclusive authority to utilise, sell, transfer, or lease the land without any reference whatsoever from the nominee, along with a statement declaring that the money used the buy the land belongs to the foreign purchaser and not to the nominee.

The power of attorney must give the foreign party full beneficial rights on the property and must waive all rights of the nominee. The foreign party is then free to build on the land, sell or lease the property and transfer the title to next of kin. Often, the nominee will receive a nominal fee for his responsibilities as the title holder. An even more secure way to obtain Indonesian land is to establish an Indonesian company. 100% foreign equity companies are now possible in Indonesia, however a minimum of two shareholders is required, with an initial minimum of 5%. Such a company can then become the legal owner of the land, with the Title Deed in the name of the company. (To set up such a company, see Okusi Associates.) Whist freehold title is not possible with this method, the Building Rights Title has effectively the same strength as freehold title as long as the company continues to operate and utilise the land. A foreigner or company cannot simply buy up land and then do nothing with it. Indonesian land laws are designed to prevent speculation by absentee landlords who leave land idle for years at a time. As long as the land is being used for whatever purpose, then the title is completely secure.

Close
Obtaining land in Indonesia by foreigners is possible and secure as long as proper advice is sought from persons experienced in the area, and that due diligence is performed. Not all PPAT or Notaries were created equal, and in fact the vast majority of PPAT are not competent to advise on such matters, despite being superficially qualified to do so. Indonesian land law has some fundamental differences with land laws of Western jurisdictions, especially in regard to freehold title. Using either a nominee or 100% PMA company, Indonesian property can be safely secured. http://okusi.net/garydean/works/landlaw.html

The Basic Agrarian Law is the main law concerning land ownership in Indonesia and includes a section about ownership by foreign individuals and institutions. According to the law, a foreigner who resides in Indonesia is allowed to own a residential property built on land with a Hak Pakai (right of use) title. Indonesian law recognises several land titles. The most widelyused land titles are: 1. Hak Milik (freehold) exclusively for Indonesians; 2. Hak Guna Bangunan (right to build) for companies and institutions; 3. Hak Pakai for companies and institutions, including foreign individuals. Government Decree #41 stipulates that the maximum period for Hak Pakai ownership is 25 years, but this can be extended for another 20 years. It also adds that a foreigner can buy a strata-titled residential property, which is built on land with a Hak Pakai title. On this basis, a foreign individual is legally allowed to buy, for example, a house that is built on a single parcel of land, but they must convert the title of the property to a Hak Pakai title to comply with the laws. However, it is extremely difficult for foreigners to buy high-rise residential properties, such as condominiums, as almost none of these projects are built on land with a Hak Pakai title and it is difficult to convert the title of such land to a Hak Pakai title, because the land is owned by many individuals (common ownership) and not by one sole individual, as it is in landed housing projects.
http://www.joneslanglasalleblog.com/APResearch/residential-research/foreigners-can-not-buy-propertyin-indonesia%E2%80%A6really

The real estate law in Indonesia is mainly governed in the Law No. 5 of 1960 on Principle Provisions of Agrarian (the Agrarian Law). Right of Land- Under Agrarian Law, there are certain types of land, among others that are related in this regard are as follows: 1. Right to Own (Hak Milik); 2. Right to Build (Hak Guna Bangunan); 3. Right to Cultivate (Hak Guna Usaha); 4. Right to Use (Hak Pakai); 5. Right to Rent (Hak Sewa). Under implementing regulations of Agrarian Law, we also recognize Right to Manage (Hak Pengelolaan). This right is specifically granted to the governmental bodies or governmental companies so that they can manage and determine the use of some plots of lands in their region. Right to Own is the strongest right of land. It can be used for residential or commercial land. However, it is widely and mainly used for residential land. It also has unlimited period of ownership.Right to Build is the right to build and own buildings built over the land. This right is granted for the maximum of 30 years and can be extended for another 20 years. Right to Cultivate is for plantation, fishery or animal husbandry purpose. Right to Use is the right to use or to cultivate the land owned by the State or another party. Under its implementing regulations, the right to use can be granted for the maximum of 25 years and can be extended for another 25 years or unlimited, provided that it is used for certain purpose e.g. foreign embassy representative. Ownership of Right of Land Right to Own can only be owned by Indonesian and limited Indonesia legal entity as determined by the Government of Indonesia. Right to Build can be owned by (i) Indonesian and (ii) Indonesia legal entity that is domiciled in Indonesia. Foreign investment company (Penanaman Modal Asing PMA) falls under the category of Indonesia legal entity that is domiciled in Indonesia. Right to Use can be owned by (i) Indonesian (ii) foreigner (iii) Indonesian legal entity and (iv) foreign legal entity that has representative in Indonesia. The holder of the Right to Rent is the same as Right to Use. Strata Title Building Strata title is regulated under the Law No. 16 of 1985 on Condominium (the Law of Condominium). Under the Law of Condominium, a condominium can only be built over the land of the Right to Own, Right to Build, Right to Use or Right to Manage according to the prevailing laws. It is called strata title because it is a combination of personal and common ownership. The developer of strata title condominium has the obligation to determine the divisions of condominium building before the land officials can produce the certificate of the right to own of strata title. The right to own a strata title is known as the Right to Own of Strata Title (Hak Milik atas Satuan Rumah Susun). This right is individual and separated in nature. This right also includes common land (tanah bersama), common equipment (bagian bersama) and common facility (benda bersama). Right to Own of Strata Title can be owned by an individual and legal entity that fulfills the requirements under the law. These requirements will depend on the underlying land which a condominium is built. If it is built over the Right to Own, then it can only be owned by Indonesian or limited Indonesian legal entity as determined by the Government of Indonesia. If it is built over the Right to Build, then it can be owned by (i) Indonesian and (ii) Indonesia legal entity that is domiciled in Indonesia. This is the most widely used and available concept in Indonesia. Most of strata title building is built over the Right to Build. If it is built over the Right to Use, then it can be owned by (i) Indonesian (ii) foreigner (iii) Indonesian legal entity and (iv) foreign legal entity that has representative in Indonesia. This is the best underlying land that can be owned directly by the foreigner or foreign entity. However, we have never known that there is a strata title building built over this land. One of the reasons is that it is not common for an Indonesian or Indonesia legal entity to own such right. Moreover, the Right to Use, for financing purpose from financing institution or bank, is regarded less value than the Right to Own or Right to Build. Foreign Investment on Property Development/Investment Sector

Currently in Indonesia, there is no limitation for the foreigner or foreign entity to establish an Indonesia legal entity, fully owned by foreigner or foreign entity, which has main business in property development/investment sector. This matter is regulated under the Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment as amended by Regulation of President of the Republic of Indonesia Number 111 of 2007 on Amendment to Presidential Regulation of the Republic of Indonesia Number 77 of 2007 on List of Business Fields Closed and Open with Conditions to Investment. As it is said earlier above, the Right to Build can be owned by Indonesia legal entity. A PMA company is also regarded as an Indonesia legal entity. Further, for property development/investment sector, there is no limitation for a foreigner or foreign entity to establish a PMA company. Therefore, a foreigner or foreign entity, through a PMA company, can own a property or a strata title building which is built over the land of the Right to Build. http://www.lekslawyer.com/index.php?option=com_content&view=article&id=2%3Aoverview-of-real

Under Article 35 paragraph (1) of Law Number 5 of 1960 on the Principle Provisions of Agrarian (Agrarian Law), it is stated as follows: Right to Build is right to establish and to have buildings over land that is not his own, with a maximum period of 30 years. Right to build (HGB) may be extended with a maximum period of 20 years as a request from rights holder and bearing in mind the need and state of buildings. Subject who can be the holder of HGB is an Indonesian citizen or legal entity that is established under Indonesian law and domiciled in Indonesia. Legal entity is an institution that is given a status as legal entity, such as the Limited Liability Company, Cooperative, the Association of Unit Owners and Occupants of the Condominium, and the Foundation. According to the Government Regulation of Republic of Indonesia Number 40 of 1996 on Right to Cultivate, Right to Build, and Right of Use Over Land (GR No. 40/1996), the granting of HGB over a right of ownership is performed by the holder of right of ownership through a deed made by Land Conveyancing Officer (Pejabat Pembuat Akta Tanah/ PPAT). The granting of HGB over a Right of Ownership is made by an agreement between the holder of Right of Ownership and the prospective holder of HGB which is stated in the deed that is made by PPAT. The granting of HGB over a right of ownership shall be registered at the Land Office (Kantor Pertanahan). The period of HGB that is issued over the right of ownership is maximum 30 (thirty) years and may be renewed with the new provision of HGB based on the agreement that is implemented on the deed which is made by PPAT and the respective right to build shall be registered in the local land office (kantor pertanahan setempat). Under Article 41 of Agrarian Law, it is stated as follows: Right of Use is the right to use and/or collect the results of the land that is directly controlled by the State or land owned by others, who gives the authority and duties which is specified in the decision by the competent official or in an agreement with the owner of the land, which is not a lease agreement or the agreement to cultivate a land, all things that are not contrary to the spirit and provisions of this law. The granting of Right of Use over Right of Ownership is performed by the holder of Right of Ownership through a deed made by Land Conveyancing Officer (Pejabat Pembuat Akta Tanah/ PPAT). The granting of right of use over the right of ownership shall be registered on the land book in the Land Office. The right of use over the right of ownership also binds the third party since it is registered. The period of the right of use over the right of ownership is

maximum 25 (twenty five) years and it can not be extended. Right of use over the right of ownership may be renewed with the new provision of right of use based on an agreement between the holder of right of use and the holder of right of ownership, as implemented on the deed which is made by PPAT and shall be registered on the local land office.
http://www.indonesiarealestatelaw.com/2012/06/26/legal-aspect-of-the-grant-of-right-to-build-hakguna-bangunan-hgb-or-right-of-use-hak-pakai-over-the-right-of-ownership-land/#more-517

Major Property Legislation Basic Agrarian Law (and its implementing regulations) Investment Law Taxation Law Regional Autonomy Law No. 22 as amended by Law No. 32 of 2004 (regional autonomy) and Law No. 25 of 1999 as amended by Law No. 33 of 2004 (financial balancing between central and local government) were issued to implement the decentralization of autonomy for all Indonesian provinces and regencies, effective from January 1, 2001. This package of laws allows each regional government to issue new government regulations on taxes and retributions for their regions. These laws, together with several government regulations, also give regional governments the authority to issue permits for investment in forestry, fishery, mining (except oil and gas), etc. Operational Requirements for Foreign Corporations Office Modes of Entry Foreign invested company (either joint venture with an Indonesian party or 100% foreign ownership) Permanent establishment (primarily for oil and gas companies) Representative office Regional representative office Registration/Licensing Requirements Foreign invested company Registration with the Capital Investment Coordinating Board (BKPM) Articles of Association ratification from the Ministry of Law and Human Rights Location Approval (Ijin Lokasi) from the relevant regional authority Other business specific licenses as appropriate Representative office The business specific licenses as appropriate Construction and construction consulting companies should be registered under the Ministry of Public Works Trading representative offices should obtain licenses from the Ministry of Trade and/or BKPM Oil and gas representative offices should obtain a license from the Ministry of Energy and Mineral Resources. Foreign Employment Limitations Expatriates are allowed to hold positions where qualified Indonesian nationals are not available and subject to the condition that such position is open for expatriates and provided there is gradual Indonesianization of these positions. Approval of the foreign manpower utilization plan by the Investment Coordinating Board and/or Manpower Ministry is required. Foreign employees must obtain an employment permit, an entry/exit permit for entering/leaving the country, a police certificate card and a taxpayer identification number. All expatriates residing in Indonesia are required to register with the Indonesian Tax Office and file personal income tax returns on a worldwide basis. Retail Trade

Government Regulations No.15/1998 and 16/1998 (amending various preceding regulations) were issued in January 1998 to allow foreign investors in the manufacturing sector to set up retail companies in Indonesia. Currently, foreign companies (other than large supermarket, minimarket or department store chains) are generally still operating under technical assistance agreements or franchise agreements with locally owned companies. Foreign Investment Incentives Foreign investment incentives for investment projects approved by the Capital Investment Coordinating Board include: Possible exemption from import duties on the import of capital goods, machines, or equipment. For designated provinces and investment in certain business sectors satisfying certain criteria, tax allowances are available potentially including investment allowance of 30% over six years, accelerated depreciation, extended loss carry forward in excess of five years, and 10% dividend withholding tax for non resident shareholders, if required. A tax holiday for up to ten years has recently been introduced for investments over IDR 1 trillion (USD 120m) for five designated pioneering business sectors. Further developments and details are awaited. Restrictions on Foreign Property Ownership Generally, foreign individuals or foreign companies that are not registered under current Indonesian laws enjoy only the Right of Use (Hak Pakai). Under Government Regulation No. 41/1996 issued in June 1996, individual foreigners are allowed to own residential property. Foreigners who provide benefits to national development, reside permanently or temporarily in Indonesia, and have immigration documents or visas may purchase: Non-subsidized houses on land with Right of Use title Strata-titled apartment units on land with Right of Use title Vacant land with Right of Use title or other land use agreements with the land title holder and build a house on the land. The Indonesian government is currently reviewing the 1996 Government Regulation with a view to possibly opening up the ability for foreign individuals to hold a Right of Use (Hak Pakai) title for a longer time (i.e. for 95 years and extendable), although it may be restricted to properties valued over a certain threshold. Whether these changes are implemented remains to be seen. Foreign Exchange Controls Generally, there are no foreign exchange controls but foreign loans should be reported to the Central Bank of Indonesia. Taxes on Possession and Operation of Real Estate Property Tax The property tax (PBB) rate on land and buildings is 0.5% with the actual tax calculated against the taxable sale value (NJKP) of the property. The NJKP is a fixed proportion of the sale value of the property (NJOP), which is determined by the Directorate General of Tax (DGT) on behalf of the Ministry of Finance on average every one to three years. NJKP is currently 20% for NJOP up to IDR 1 billion or 40% for NJOP above IDR 1 billion. As a result, the effective PBB rates are 0.1% of the assessed value for land and building worth up to IDR 1 billion and 0.2% of the assessed value for land and buildings worth more than IDR 1 billion. The non-taxable thresholds of property are stipulated by each regional government. For example, in Jakarta, it is IDR 60 million. A 50% reduction in the property tax rate is given to land and buildings used for non-profit activities, including social and educational activities and health care services. Land and buildings used for religious worship, nature reserves, parks, diplomatic offices, and designated international organizations are exempted. PBB is payable annually following assessment by the DGT. Withholding Tax on Property Income

Income derived from rental payments and service charges are subject to a final tax of 10% of the transaction value. The party from which the payment is due is responsible for the deduction and payment of the withholding tax to the tax authorities. Taxes on Acquisition and Transfer of Real Estate Value Duty Payable Up to IDR 250,000 Nil IDR 250,001 IDR 1,000,000 IDR 3,000 Over IDR 1,000,000 IDR 6,000 Stamp Duty and Legal Costs Stamp duty is levied on various legal documents to which a monetary value is affixed. The rates are fixed as follows: Notary fees for the processing of legal documents are usually charged at about 0.5% to 1.5% of the transacted price. Individuals or companies obtaining rights to land or buildings are required to pay a Land and Building Transfer Duty (BPHTB) of 5%. The 5% duty is computed based on the transaction value or the assessed value, whichever is higher. The non-taxable threshold amount for BPHTB varies by region and the maximum threshold currently is IDR 60 million. For acquisitions by inheritance, the non-taxable property value is stipulated by the regional authorities but may not exceed IDR 300 million. Capital Gains Tax 1. Land and Building Transfers A 5% tax on sales value is levied on companies and individuals for the sale/transfer of land rights and/or buildings. For transfers of simple houses and apartments by taxpayers engaged in property development business, the tax rate is 1%. The 5% tax on sales value is final. The transfer tax deposit slip (Surat Setorn Pajak) must be presented to the National Land Agency office together with the request for land title transfer. 2. Asset Revaluations The net gains from asset revaluations (approved by the tax authority) are subject to a 10% final tax. An additional final income tax of 15% is imposed if the revalued assets are sold or transferred within five years of revaluation. This additional tax does not apply to assets transferred to the government or transferred in the course of a tax-free business merger. (However, such mergers must be for business purposes and not tax driven). Shares Foreign companies and individuals are subject to a 20% withholding tax on dividends from property companies (subject to tax treaty provisions, where relevant). A final tax of 0.1% applies to income from the sale of shares at the Indonesian Stock Exchange (collected automatically by the Stock Exchange). The rate is 0.6% if the seller is a founding shareholder. Value Added Tax/Goods and Services Tax A Value Added Tax (VAT) of 10% applies to the delivery of most goods and services at import, manufacturing, wholesale, and retail levels. The sale of raw land is not subject to VAT, but the sale of land already prepared for development is subject to a VAT of 8%. VAT on rental payments and service charges is 10%. Sales, leasing, and construction services rendered for low-cost housing, modest flats, and student accommodation may be exempted from VAT. VAT can generally be passed on to customers, such as from contractors, architects, engineers, and consultants to developers; from developers to purchasers; and from owners to tenants.

In addition to VAT, there is Sales Tax on Luxury Goods. This is a one-time tax imposed on a wide range of luxury goods at import or manufacturing levels at rates of 10% to 75% (but potentially up to 200%). A 20% Sales Tax on Luxury Goods is applicable to luxury houses. Luxury houses include condominiums with a unit size of more than 150 sqm and landed houses with a building size of above 400 sqm or electricity of above 6,600 watts. Tax Depreciation Assets in the permanent building category with a useful life of 20 years are depreciated at around 5% on a straight-line basis. Assets in the non-permanent building category with a useful life of ten years are depreciated at around 10% on a straight-line basis. Fixtures or equipment forming a part of buildings are depreciated at around 25% on the basis of reducing balance or around 12.5% on a straight-line basis. The cost incurred in relation to the sale/transfer of land is not depreciable. However, the cost of acquiring intangible property (e.g., acquiring rights to land use from the government) can be amortized over 4, 8, 16, or 20 years based on the useful life of the property. Corporate Taxation The income of resident and non-resident corporate entities is taxed at a flat rate of 25%. Small enterprises with a turnover no more than IDR 50 billion are entitled to a 50% discount off the standard rate imposed proportionally on the taxable income of the part of gross turnover up to IDR 4.8 billion. Public companies that have at least 40% of their shares listed are entitled to a tax discount of 5% essentially giving them an effective tax rate of 20%. Resident corporations are taxed on their worldwide income, with an allowable credit for taxes paid to foreign countries. Non-resident corporations are taxed only on income derived in Indonesia as regulated under Article 26 of the Income Tax Law or Tax Treaties (see below). Dividends of a non-resident corporation not covered by tax treaty protection are subject to a 20% withholding tax. Losses may be carried forward for five years. For certain categories of business in certain regions provided with tax incentives allowances, losses may be carried forward up to ten years. No carry back of losses is allowed. Personal Taxation Residents (i.e., staying in Indonesia for at least 183 days per annum) are taxed on their worldwide income, subject to certain allowances and deductions, on a graduated scale ranging from 5% to 30%. Annual Up to IDR 50,000,000 IDR 50,000,001 IDR 250,000,000 IDR 250,000,001 IDR 500,000,000 Over IDR 500,000,000 Income Rate 5% 15% 25% 30%

Non-residents are taxed at 20% of gross income derived in Indonesia. Employing entities are responsible for collecting and paying the tax due on employee remuneration [be it cash or benefits in kind (BIKs)]. Cash income is taxed on a monthly basis. Benefits-in-kind or BIKs, such as cars and housing, provided by the company to the employee are not taxable in the hands of the employee, but the full cost of BIKs is non-deductable to the company (except for employees of companies under final tax regime and representative offices where cost of the benefits in kinds must be taxed in the hands of employees the same as cash remuneration). Tax Treaties: Avoidance of Double Taxation Includes Singapore.

Real Estate Investment Trusts Real Estate Investment Trusts (REITs) have not been established in Indonesia, and there are no REITspecific regulations in the country. Currently, individuals in Indonesia who wish to invest in incomeproducing properties can only do so through the listed property companies.

http://www.joneslanglasallesites.com/appig/Asia-Pacific-Property-Investment-Guide-2012.pdf