The Badung Regency in Bali is implementing stricter measures to regulate the real estate market and combat the use of local nominees in property transactions and business setups. The primary focus of this crackdown is to address issues related to tax evasion and illicit ownership, significantly altering the landscape of property deals in one of Indonesia’s most popular destinations.
Implications for foreign investors
Indonesia’s legal framework, including the Capital Investment Law and the Limited Liability Companies Law, explicitly prohibits nominee arrangements. These laws require that shares in a company be held under the name of the actual owner, rendering any agreement contrary to this provision null and void. As a result, foreign investors who have traditionally relied on local nominees to bypass restrictions on foreign property ownership face significant legal risks.
The Badung Regency Government aims to enhance transparency and ensure tax compliance by focusing on Foreign Direct Investment (FDI) through PT PMAs (foreign-owned investment companies) to uncover cases where Indonesian names are used as a disguise for actual foreign ownership.
Concerns regarding tax evasion and illegal ownership
The use of nominee structures, especially by foreign nationals acquiring property through marriage or unregistered agreements with Indonesian citizens, has raised serious concerns about tax evasion and unauthorized ownership. This practice, once prevalent in Bali, is now being closely examined by the government, which is taking steps to ensure that property ownership and business setups adhere to Indonesian law.
Alternative approaches to property investment in Bali
Given this new legal landscape, foreigners interested in investing in Bali’s property market must reassess traditional methods. While direct purchase of freehold properties by foreigners remains restricted, there are legitimate alternatives available. One option is investing in a PT PMA; a type of foreign-owned company that allows for property ownership under specific conditions. Another route is long-term leaseholds, offering stability and security for several decades.
Government initiatives and community engagement
To address these concerns, the government is establishing a task force that includes various stakeholders, including village-level officials. This comprehensive approach aims to prevent adverse economic effects and preserve Bali’s financial system’s integrity. For foreign investors, this means navigating a more transparent and regulated property market.
