PT PMA or personal leasehold: What is the best leasehold method in Indonesia?

Leaseholding is one of the most popular strategies for foreigners to buy a property in Indonesia. Foreigners can choose between leasehold through PT PMA or personal leasehold. Choosing which one can be challenging, mainly due to the complex real estate regulations in Indonesia. We’ll break down the pros and cons of PT PMA and personal ownership of property in Indonesia and guide you in choosing the right leasehold method in Indonesia.

Reasons to lease a property through a PTP MA

PT PMA is a foreign-owned company in Indonesia that can hold freehold and leasehold real estate. Many foreigners opt to buy real estate in Indonesia through a PT PMA, as this option has many benefits. These are the most common reasons to buy a leasehold property in Indonesia through a PT PMA:

1. Generating income with property rentals: The main reason foreigners buy leasehold property in Indonesia through a PT PMA is to generate income with property rentals. Foreigners can only legally rent out their villa or apartment with a legal business entity, such as the PT PMA.
2. Starting a business inside the property: Foreigners can buy leasehold property through a PT PMA if they want to start a business inside the building, such as a restaurant, bar, hotel, or other business. The PT PMA can be a strategic choice for entrepreneurs or investors.
3. Buying a property with freehold: Legal entities such as PT PMAs enable foreigners to buy freehold property in Indonesia, as they cannot buy freehold in their personal name.
4. Asset protection: Owning leasehold property through a company can sometimes provide a shield against personal liabilities.
5. Tax advantages: There may be tax benefits or efficiencies when owning leasehold property through a PT PMA. These benefits depend on the circumstances.
6. Obtain KITAS visa: Foreigners can use the PT PMA to obtain KITAS. This visa in Indonesia enables foreigners to stay in Indonesia for two years. Once expired, one can apply for another KITAS on the same PT PMA.

Any foreigner can establish a PT PMA in Bali, Jakarta, or other parts of Indonesia. Most foreigners establish their PT PMA to invest in Bali property or want to start a business on the tropical island.

Reasons to lease a property in your personal name

Foreigners cannot buy Indonesian freehold in their own name but can buy leasehold property instead. In most cases, a leasehold agreement is valid for 25 years and can be extended for another 25- and 30-year period. There are several reasons to lease property in Indonesia in your personal name, rather than buying through a PT PMA:

• Buying the property for personal use: Do you intend to use the property as a holiday home or to live there? A personal leasehold is a perfect choice if the property is personally used rather than as an investment or for business.
• Easier to buy property in Indonesia: It’s easier and quicker to set up a leasehold in your personal name compared to establishing a PT PMA in Indonesia, which involves various legal and administrative procedures.
• Lower costs: A leasehold in your personal name doesn’t have ongoing expenses, while establishing and maintaining a PT PMA involves costs, such as capital requirements, annual reports, and more.
• Easier to manage: Personal ownership in Indonesia is easier to manage, as you don’t need to maintain corporate records, conduct annual audits, and other PT PMA requirements.
• Clearer exit strategy: Selling a personal leasehold can be more straightforward than selling or dissolving a PT PMA, especially if the company has assets or liabilities.

A leasehold in your own name is a perfect way to buy property in Bali or any other part of Indonesia for those who intend to personally use the property as a holiday home or for residence.

How to buy PT PMA or personal leasehold property in Indonesia?

You can buy PT PMA or personal leasehold property in Indonesia by following these steps:

1. Use a professional and reliable real estate agent: Navigating the Indonesian property real estate market can be complicated, especially regarding property ownership. It’s recommended to work with a professional legal or real estate agent who can guide you through the process.
2. Find the right property: To lease land or property in Indonesia, explore real estate sources and ensure the chosen property meets your needs before negotiating terms.
3. Check the property licenses: Always verify the property’s certificate and building license (PBG), and avoid transactions if the owner cannot provide them.
4. Conduct due diligence: Conducting due diligence ensures the legitimacy of a lease, involving checks by legal professionals on property ownership, paperwork, and potential problems.
5. Draft a leasehold agreement and make the downpayment: Drafting a clear leasehold agreement, which outlines terms, responsibilities, and duration, is vital when leasing land in Indonesia.
6. Final payment and sign the lease agreement: After agreeing on lease terms, sign and notarize the agreement through a public notary to ensure its legal validity and register it with the land office.

A real estate agent in Indonesia helps find the right buyers or tenants, handles paperwork, negotiates deals, and conducts due diligence. Working with a real estate agent saves you time and avoids headaches. It’s recommended to work with a real estate agent when leasing property in Indonesia, whether you choose to lease through a PT PMA or personally.

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