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Can foreigners own land in Indonesia?

Friday, January 19, 2007

This is a quite common question being asked to lawyers. The answer is "no". Under the 1945 Constitution Article 33 land and water, and the natural resources found therein, shall be controlled by the state and shall be exploited for the maximum benefit of the people. Thus, foreigners are barred from having Right of Ownership/Hak Milik (somewhat equal to the common law's freehold title) to land.

But, of course there is always a way to get around it.

The first way is to purchase and indirectly 'own' land through nominee agreement. This way the foreigner gives an amount of money to an Indonesian citizen (the "nominee") to buy a land, through a power of attorney (PoA). The PoA must clearly and specifically elaborates that the money belongs to the foreigner and that the nominee is a mere executor. It must also specify that the foreigner has the rights to enjoy and execute all rights commonly attached to the land -- including but not limited to -- lease, sale, rent, etc without the consent with the nominee. The nominee must waives all of its rights normally accorded by land titles.

The second way is by establishing an Indonesian company, and the company owns the land through the right to build title/HGB. Foreigners can own up to 100 per cent of shares in a company provided that the initial share distribution has to be 95:5 (5% to be owned by the Indonesian Partner). Owning through a company is relatively safer as all liabilities are protected by a shield of legal entity. Through this scheme the company can own the land for an initial 30 years and it is extendable up to 20 years.

All transactions above must be conducted by notarial deeds and to be executed before a land deed official. Right to use land, right to build and right to exploit land is regulated through Government Regulation No. 40 Year 1999, available here (in Bahasa).