Land matters except for mining and forestry are under the jurisdiction
of the National Land Agency (Badan Pertanahan Nasional) formed to administer
all matters relating to the Basic Agrarian Law of 1960 such as the registration
of land rights and the granting of rights and various permits to use the land.
There are currently only two categories of land rights :
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Adat land (customary land) where the land is not registered with the relevant
land office. There are 2 individual rights and 6 community rights in this category.
All rights held under this category will eventually be converted to certified titles.
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Certified land, the title to which is governed by the Basic Agrarian Law of 1960 and
is registered at the local land office. There are five principle types of land rights
held under the Agrarian Law. These are:
Right of Ownership (Hak Milik)
This refers to absolute ownership of land and corresponds to a fee simple or freehold
title in common law jurisdictions. This right can only be held by an Indonesian citizen,
not a corporate entity whether local or foreign. Certain legal entities designated by the
government, such as State Banks, agricultural cooperatives, religious bodies, and social
foundations may hold this right subject to certain restrictions. This right of ownership
is held in perpetuity. It can be sold, transferred, bequeathed, and hypothecated
(mortgaged).
Right to Build (Hak Guna Bangunan - HGB)
This is the right to construct a building on land for a period of 20 or 30 years
(renewable for another term of 20 years). This right can be sold, exchanged, transferred,
and mortgaged, and can be held directly by any corporate entity whether it is a local
company or a government approved PMA company.
Right to Rent (Hak Sewa Bangunan)
This is the right to use land owned by another private party (the lesson) for building
purposes. The right cannot be registered at the land office and therefore does not exist
in certificate form. The law does not stipulate a period for such lease agreements and
whether this can be transferred or not depends on the original agreement between the
parties. This right may be held by a foreigner permanently domiciled in Indonesia or
a foreign legal entity having a representative office in Indonesia.
It cannot be mortgaged.
Right of Use (Hak Pakai)
This is the right to use State-owned or other land by public or private persons or
entities for a specific purpose for a definite period or occasionally for an indefinite
period. This land right cannot be sold, exchanged or transferred unless explicitly
provided in its grant or agreement and normally for a period not exceeding 10 years.
This right may be held by an Indonesian individual or entity or foreigner permanently
domiciled in Indonesia, or a foreign legal entity with a representative office in
Indonesia such as foreign banks, embassies, etc.
Right of Exploitation (Hak Guna Usaha - HGU)
This is the right to exploit State-owned land for agriculture, fishery or
husbandry purposes for a period of up to 35 years with a possible 25 years
extension. This right can be held by Indonesian individuals/entities as well
as government approved PMA companies. The certificate can be mortgaged.
Renewal of Rights
Renewal or extension of rights on expiry of the initial term is via an application
to the National Land Agency and is subject to payment of a fee. An application must
be submitted one year before expiry of the term. Although the law is silent in regard
to the period after the expiry of the extended term/s, the consensus is that a land
right can be extended if there has been no infringement of the conditions attached to
its usage.
Procedures for Property Acquisition
All transactions of land rights must be via deeds executed before a land deed official
at the local office of the Pejabat Pembuat Akta Tanah (PPAT) where the land is located
and must be registered in the regional office of the National Land Agency. The PPAT's
are privately managed offices (usually run by a notary) authorized by the National Land
Agency to handle land acquisition matters.
Although there is no regulation that contracts have to be in Indonesian language,
we recommend having contracts and agreements always drawn up and executed in Bahasa
Indonesia to prevent later arguments that the local partner did not fully understand
the content.
Legal Aspects of Foreign Investment in Indonesia
Foreign Investment Law No. 1/1967
Foreign Direct Investment (FDI), further known as PMA (Penanaman Modal Asing),
controlled by the Foreign Investment Law No. 1/1967, as amended by the Law no.11/1970.
Until today, this law is still considered suitable with Indonesia's actual needs.
As a legal basis, the law is sufficiently accommodative to several deregulatory policies
and measures that have been taken by the Government.
In addition to the PMA Law No. 1/1967, the PMA Company as well as other companies are
still subject to industrial policies that have been applied by the concerned Ministries.
A PMA company is given a 30 year time period in order to operate as from its legal formation.
If within that stated time span it involves additional investments (project expansion).
Consequently, a PMA company can, in effect continue to exist despite continuing or
expand and reinvest.
Share Ownership
A company is generally set up as a joint-venture between foreign and Indonesian partners.
This partnership can involve legal entities (corporations) or individuals.
The joint-venture legal entity will take the form of a limited liability company
which is subjected to Indonesian Corporate Law, designated as PT (Perseroan Terbatas),
There is no minimum investment amount requirement (equity plus loan).
The amount for the parties wishing to determine, based on economy of scale and other
business considerations. The PMA companies in infrastructure projects such as seaports,
generation and transmission as well as electricity distribution for public usage;
Telecommunications; shipping; airlines; potable water; national railway lines, atomic
energy reactors and mass media should be comprise itself by intermediary of
joint-ventures between foreign and Indonesian partners provided that the Indonesian
share is maintained at a minimum of 5%. A PMA company can be set up as direct investment,
the company starts to be divested by selling part of it's shares to Indonesian
individual(s) and/or business entity(s), through direct and/or indirect placement
through the domestic stock markets.
Indonesia offers comparative natural and regulatory advantages to the investor,
with an attractive range and composition, for example:
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A vast, fertile country endowed with nature's bounties.
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A big population around 200 million people who generally live peacefully and are
dynamically adaptive towards progress, constituting the market with a colossal
potential as well as a competitive workforce.
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A strategic location, at the crossroads of two great continents and oceans
that control important sea communication lanes.
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A nation in the process of change/reformation, return to a civil and
democratic society will manifest itself in a stable political environment.
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A government committed to continuously provide a favorable business and
investment climate, especially for the private sector, being constantly
prudent in macro-economic management and maintenance of high international
financial credibility.
