Everything you need to know about PT PMA

  • Bali Villa Realty by Bali Villa Realty
  • 2 months ago
  • Blog
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Are you thinking about growing your business or making an investment in Indonesia? 

If you’re especially interested in Bali and the idea of “owning” land there, PT PMA (Penanaman Modal Asing) could be the perfect solution. 

This system fits right into Indonesia’s rules for foreign investment, making it a smart pick for anyone looking to buy a property or start a new business in Indonesia. 

In this guide, we’ll show you everything you need to know about PT PMA, from what it is to the specific rules about buying property with it.

What is PT PMA?

PT PMA (Penanaman Modal Asing) is an Indonesian legal entity that allows foreign investors to conduct business in Indonesia. 

In other words, it’s a foreign-owned company designed to comply with the country’s regulations on foreign investment. 

Establishing a PT PMA is often a strategic step for foreign investors looking to acquire property or engage in other business ventures within Indonesia, including Bali.

There are 7 things you need to know about PT PMA.

Foreign investors looking to buy property in Bali through a PT PMA should be aware of several key points to navigate the process effectively:

  1. Legal Entity Setup: 

Establishing a PT PMA is the first step for foreign investors aiming to engage in the Indonesian property market. 

This involves complying with the investment regulations set by the Indonesian government, including minimum capital requirements and business fields allowed for foreign investment.

For example, An investor from Australia wants to enter the Indonesian market by setting up a PT PMA to develop a resort in Bali. 

They must register the PT PMA with the Indonesian Investment Coordinating Board (BKPM), ensuring they meet the minimum capital requirement, which could be around IDR 10 billion (approximately USD 700,000), depending on the business sector.

  1. Understanding HGB (Hak Guna Bangunan): 

Foreign investors should know that a PT PMA allows them to acquire property through the Right to Build (HGB) title. 

This is the closest ownership of a freehold agreement. You can use the land as you like but within a certain time. 

According to Business Indonesia, It has a 50-year initial grant that can be renewed for an extra 30 years. 

For example, A European investor establishes a PT PMA to buy land in Canggu to build a villa complex. 

They should acquire HGB over the land, which allows them to construct and operate the villas for up to 80 years, providing a long-term investment opportunity.

  1. Compliance with Indonesian Law: 

Investors must ensure their PT PMA and subsequent property acquisition through HGB comply with all relevant Indonesian laws and regulations. 

This includes being mindful of foreign ownership and investment laws, zoning regulations, and building codes.

For example, before buying land in Bali, you need to understand different land zoning in Bali. Most investors who own PT PMA can build a property in the pink zones (Tourism area). It gives you more freedom to build your property for business purposes compared to residential areas (yellow zones)

Also read: The Ultimate Guide: Can Foreigners Buy Property in Bali?

  1. Engagement with Legal and Real Estate Professionals: 

Establishing a PT PMA and acquiring HGB requires expertise in Indonesian law and real estate practices. 

Acquiring a PT PMA can be a complex process. For example, there must be at least two shareholders, individuals, or legal entities.

One of the individuals should be an Indonesian citizen who lives in Indonesia. 

Working with reputable legal advisors, notaries, and real estate professionals is a great idea to ensure all processes are conducted legally and smoothly.

  1. Strategic Investment Planning: 

Investors should approach property acquisition in Bali with a clear strategy, considering the location, type of development, target market, and long-term investment goals. 

Bali’s property market offers opportunities in both commercial and residential sectors, but success requires careful planning and market analysis.

For example, if you plan to build a boutique hotel in Jimbaran and conduct a market analysis to understand the area’s tourism trends, competitors, and target market preferences. 

And they found that these areas are focusing more on the environment… Then, you can focus on eco-friendly construction and unique cultural experiences to attract a niche market.

  1. Financial Planning: 

Understanding the financial implications, including initial investment, ongoing operational costs, taxes, and potential return on investment, is crucial.

 Foreign investors should prepare for the financial commitment to establish a PT PMA and undertake property development projects in Bali.

Keep in mind that to be able to build a PT PMA in Indonesia, you need to obtain a Taxpayer Registration Number (NPWP), then the company must apply for a Company Registration Certificate (TDP) and a Business Identification Number (NIB), which serves as a company’s official registration and allows for operational activities to commence.

There’s also a minimum capital requirement. 

While the specific amount can vary depending on the business sector, the general guideline is that the paid-up capital should be at least IDR 2.5 billion (approximately USD 175,000), and the total investment plan should be more than IDR 10 billion (approximately USD 700,000).

  1. Renewal and Extension of HGB: 

Being aware of the renewal and extension processes for HGB is important for long-term planning. 

Investors should mark critical dates and requirements to ensure continuous legal rights to the developed property.

For example, ten years before the HGB expires, you begin applying for an extension with the local land office, ensuring they have all the necessary documentation and meet any new requirements to extend their right to use the land for another 30 years.

What’s the difference between HGB and Freehold?

There is a lot of information out there saying you can own land in Bali…

But that’s not the case. 

In fact, Law No. 5 of 1960, the Indonesian Agrarian Law, establishes the rules governing land ownership in Indonesia. 

Foreigners are only allowed to buy houses or land under the “Right to Use” (Hak Pakai) title and the “Right to Build” (HGB) as specified by this law. Given that freehold property ownership is prohibited for foreigners in Indonesia.

In Indonesian property law, understanding the distinction between HGB (Hak Guna Bangunan – Right to Build) and Hak Milik (Freehold) is crucial, especially for foreign investors and buyers. 

HGB (Hak Guna Bangunan – Right to Build)

  • Definition: HGB is a land title that grants the holder the right to construct buildings on the land for a certain period. It does not provide land ownership but rather the right to use it for building purposes.
  • Duration: The HGB title is typically granted for an initial period of up to 30 years. It can be extended for another 20 years and renewed for another 30 years, subject to government approval.
  • Eligibility: HGB can be held by Indonesian citizens, Indonesian legal entities, and foreign-owned companies (PT PMA). This makes it a popular option for foreign investors looking to develop property in Indonesia.
  • Usage: Primarily used for commercial purposes, including offices, factories, and residential developments. It allows for the development and utilization of the land in accordance with zoning regulations.
  • Transferability: The HGB title can be sold, transferred, or inherited, provided the transactions comply with Indonesian law.

Hak Milik (Freehold)

  • Definition: Hak Milik is Indonesia’s strongest and most complete form of land ownership. It grants the owner full rights over the land, including the right to build, cultivate, use, sell, or transfer the land as they see fit.
  • Duration: There is no time limit on Hak Milik ownership. It remains with the owner until they sell or transfer the property.
  • Eligibility: Only Indonesian citizens are eligible to hold Hak Milik titles. Foreigners are not allowed to own land under Hak Milik due to restrictions placed by Indonesian law.
  • Usage: Owners can use the land for any legal purpose, including residential, commercial, or agricultural activities, without renewing the title.
  • Transferability: Hak Milik land can be freely sold, transferred, or inherited without any time constraints, making it a highly flexible and secure form of land ownership for eligible individuals.

Key Differences

  • Ownership vs. Use: HGB grants the right to build on and use the land for a specified period, while Hak Milik signifies full ownership of the land indefinitely.
  • Eligibility: HGB can be held by both Indonesians and foreign-owned companies, whereas Hak Milik is exclusively available to Indonesian citizens.
  • Duration: HGB is time-limited, with possibilities for extension and renewal, whereas Hak Milik is permanent.
  • Purpose: While both can be used for various purposes, HGB is often associated with commercial or development projects due to its nature and eligibility criteria.

For foreign investors, HGB often represents the most viable route to engage in property development within Indonesia, given the restrictions on Hak Milik ownership. 

Understanding these differences is essential for making informed decisions.

Conclusion 

Diving into the Indonesian market through a PT PMA offers opportunities, especially in places as promising as Bali. 

But it’s not just about the chance to invest; it’s about doing it the right way. 

Knowing the ins and outs of PT PMA, like legal requirements, understanding the Right to Build (HGB) title, and complying with Indonesian laws, is crucial. 

It ensures that your journey into the Indonesian market is successful, smooth, and hassle-free. 

And remember, you don’t have to do this alone. 

Teaming up with a legal and real estate expert, like Bali Villa Realty, can make all the difference. 

So, are you ready to take your business dreams to Indonesia? Let me know in the comments below!

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