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1. Leasehold Investment |
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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.
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| 2. Indonesian
Nominee Power of Attorney Agreement |
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| 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. |
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| 3. PMA Foreign
Investment Company Structure |
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| 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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