One of the most secure ways to purchase property in Indonesia is through a Penaman Model Asing (PMA) Company, which can be 100% controlled by foreigners. This is essentially foreign direct investment, where the PMA Company can operate for 30 years after its formation. A PMA can be granted an additional 30 years to operate if it expands its project with additional investment.
The Company is also given the Right to Build (Hak Guna Bangunan) on property for the 30 years that the PMA Company is in operation (and can be extended further if the PMA has its right to operate extended).
To establish a PMA company a minimum of two shareholders is required, and a minimum investment amount of at least US$100,000 is required. The company will become the legal owner of any land purchased and will be granted Building Rights Title over the land. Whilst this is not freehold ownership, it has the same strength as freehold title provided that the company continues to operate and utilise the land. Indonesian land laws are designed to prevent speculation by absentee landlords who leave land idle for years at a time, so as long as the land is being used then the title to it will remain secure.
To set up a PMA Company, you will need to obtain permission from the Indonesian Investment Co-ordinating Board (BKPM), which is the body that handles foreign direct investment in Indonesia. The BKPM will be looking at your business to ensure that it is a legitimate investment, so providing them details of what you are planning is important.
You will need to fulful the following requirements to set up the PMA Company:
– Submit a detailed business plan;
– Demonstrate that your business operated in an environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit;
– Make an appropriate cash deposit in an Indonesian based bank (the amount of the investment varies depending upon of the capital to be employed by the business, but usually the minimum investment required for a business is US$100,000);
– Show the property purchased as an asset of the company
The process to set up the company takes approximately 4 months to complete. Once the company is established it can apply for work permits for foreign directors, with 3 permits allowed in the first year of operation.
A PMA Company can be established for approximately US$5,000.
Advantages of Purchasing Through a PMA Company
This is a more secure way to purchase property in Indonesia than through a nominee, as you can have 100% ownership rights as a foreigner.
Disadvantages of Purchasing Through a PMA Company
If you do not plan to utlise the land purchased for some time, or for other reasons it lays dormant, the company can lose title over the land. Approvals to establish a PMA Company are based on the company operating a business, so you will need to demonstrate a true business purpose, and a failure to do so may mean that your company is not approved.