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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.

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 Investor's 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.

Ownership is limited to 30 years, after which it is reviewed by the Government. It is generally renewable at a nominal cost. It seems very doubtful that the government will change the PMA structure. Positive changes have been occurring in the past few years for foreign investment and policy direction seems to be increasingly more favourable for foreigners.

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 is between 30 to 40 million Indonesian Rupiah 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), which then has to be renewed after 20 or 30 years.


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