With the emergence of foreign investment and business in Indonesia, many foreign investors need buildings or land for their companies. A foreign investor who wants to run their business in Indonesia can obtain building/office or land under Law No. 5/1960 regarding Basic Agrarian Principles. It is important to understand, there are separate provisions for foreigners who want to have rights to the land compared to Indonesian citizens. This article will provide rights over land regulated under the Agrarian Law that are open for foreign investors.
Governing law and regulation
- Law No. 5/1960 on Basic Agrarian Principles
- Government Regulation (PP) No. 18/2021 on the Management Rights, Land Rights, Flat Units and Land Registration
- Government Regulation (PP) No. 24/1997 on Land Registration as amended by Government Regulation (PP) No. 18/2021 on the Management Rights, Land Rights, Flat Units and Land Registration
- Head of National Land Agency Regulation (BPN) No. 2/2013 on Delegation of Authority to Grant the Land Right and Act of Land Registration.
- Regulation of The Minister of Agrarian Affairs and Spatial Planning/Head of National Land Agency of The Republic of Indonesia (Permen Agraria/Kepala BPN) No. 17/2019 on Location Permits.
Category of rights over land based on Agrarian Law
Listed below are types of rights over land in Indonesia:
- Right of Ownership “Hak Milik” (“HM”)
- Right to Build “Hak Guna Bangunan” (“HGB”)
- Right to Cultivate “Hak Guna Usaha” (“HGU”)
- Right to Use “Hak Pakai” (“HP”)
- Right to Manage “Hak Pengelolaan” (“HPL”)
- Strata Title “Hak Milik atas Satuan Rumah Susun“ (“HMSRS”)
- Right to Use Strata Title “Hak Pakai atas Satuan Rumah Susun“ (“HPSRS”)
- Right to Lease “Hak Sewa” (“HS“)
Foreign investors position
Before understanding the rights of foreign investors, we must know what category that foreign investors are in Law No. 5/1960. Law No. 5/1960 mentioned two legal entities which are corporations which have been established according to Indonesian Law and have their seat in Indonesia and foreign corporations having representation in Indonesia.
Foreign investors are individual foreign citizens, foreign business entities, and/or foreign governments that make investments in the territory of the Republic of Indonesia. The investment that foreign investors do in Indonesia in this matter is in the form of a Foreign-Owned Company or PT PMA. PT PMA is an investment activity to conduct business in the territory of the Republic of Indonesia carried out by foreign investors, both those who use fully foreign capital and those in joint ventures with domestic investors. PT PMA must be in the form of a limited liability company based on Indonesian law and domiciled within the territory of the Republic of Indonesia unless otherwise stipulated by law. Therefore, even though PMA company consists of foreign investors, the company is still an Indonesian legal entity and categorized as a corporation which has been established according to Indonesian Law.
Rights available for foreign investors
- The Right to Build (“HGB“)
Foreign investors who desire to establish their business in Indonesia can have their building/office under an HGB deed for a stipulated period. An HGB is the right to build and to own buildings on the land, which is not one’s property. This right can be transferred to other persons by inheriting or selling or can be secured for a loan, as a Hypothec Right. An HGB is granted over state-controlled lands, the right to manage (“HPL”), or freehold title (“HM”).
PT PMA who is a property developer may buy land in Indonesia to develop the property. The status of the land is HGB which will be split into small lots accordingly. Later on, the buyer of the property could apply to change the status of the land lots to HM which is allowed only for Indonesian citizens.
The period granted for HGB:
- The period granted for an HGB over state-controlled land and HPL is a maximum of 30 years and can be extended for 20 years. After the period and the extension period ends, renewals are permitted for a maximum period of 30 (thirty) years.
- The period of HGB over HM is for a maximum of 30 years and can be renewed with a deed of granting right to build on right of ownership.
The approval of HGB:
- The HGB on State Land is granted with a decision on granting rights by the Minister of Agrarian Affairs and Spatial Planning/National Land Agency (“ATR/BPN”).
- HGB on HPL rights are granted by a decree granting rights by the Minister based on the approval of the holder of HPL.
- HGB on HM occurs through the granting of rights by the holder of the property rights with a deed signed by the Land Deed Making Officer.
Rights for HGB:
- Use and utilize the Land in accordance with its designation and requirements as stipulated in the decision and the granting agreement
- Constructing and owning a building on the land granted with the right to use the building as long as it is for personal use and/or to support the business in accordance with the provisions of the legislation
- Carry out legal actions with the intention of releasing, transferring, and changing their use and encumbering them with mortgage rights in accordance with the provisions of laws and regulations.
- The Right of Cultivate (“HGU“)
PT PMA can hold an HGU. An HGU is the right to work on state-control. Companies can use HGU for agriculture, fisheries, or animal husbandry. An HGU is granted only over state-controlled lands. For a condominium or apartment and office space, PT. PMA can own it as long as it isn’t a part of government-subsidized housing development and the land status of the building is strata title status under the Right of Use. The period granted for HGU is a maximum of 35 years and can be extended for 25 more years. After the period and the extension period ends, renewals are permitted for a maximum period of 35 (thirty-five) years.
The Approval of HGU:
- HGU on state-controlled lands are granted with a decision on granting rights by the Minister ATR/BPN.
- HGU over HPL granted by decision granting rights by the Minister based on the approval of the HPL holder.
Rights for HGU:
- use and utilize the given Land in accordance with its designation and requirements as stipulated in the decision and the grant agreement
- utilize water sources and other natural resources on land that is granted with the right to cultivate as long as it supports the use and utilization of the land as referred to in letter a in accordance with the provisions of laws and regulations
- take legal actions with the intention of releasing, transferring, and changing their use and encumbering them with mortgage rights in accordance with the provisions of the laws and regulations.
- The Right to Use (“HP“)
An HP is the right to use a plot of land, collect produce derived from such land, or both. An HP consists of HP with a period of time and HP during use. HP with a period of time can be granted not only to PT PMA but also foreign legal entities that have representatives in Indonesia, religious and social bodies, and foreign citizens residing in Indonesia. An HP during use is only granted to government agencies, regional administrations, village administration and representatives of foreign countries and representatives of international agencies. An HP for PT PMA can be granted over state-controlled land, HPL and HM. An HP can be transferred to another party with the approval of a relevant government official. An HP of land belonging to individuals can also change hands.
The period granted for HP:
- The period of HP over state-controlled land or an HPL is for a maximum of 30 years and can be extended for another 20 years. Renewals are permitted for a period of a maximum of 30 (thirty) years.
- The period of an HP over HM is for 25 years. Upon the agreement with the landowner holding the HM, an HP can be renewed.
The approval For HP:
- HP on state-controlled land is granted with the decision on granting rights by the Minister ATR/BPN.
- HP on HPL is granted with a decision on granting rights by the Minister ATR/BPN based on the approval of the HPL holder.
- HPL on HM occurs through giving by the owner of the property with a deed made by the Land Deed Making Officer.
Rights for HP:
- use and utilize the given Land in accordance with its designation and requirements as stipulated in the decision and the grant agreement
- utilize water sources and other natural resources on land that is granted with the right to cultivate as long as it supports the use and utilization of the land as referred to in letter a in accordance with the provisions of laws and regulations
- take legal actions with the intention of releasing, transferring, and changing their use and encumbering them with mortgage rights in accordance with the provisions of the laws and regulations.
- Rights of Lease of Building (“HS”)
An HS can be granted not only to PT PMA but also a foreigner domiciled in Indonesia and foreign legal entities that have representatives in Indonesia. PT PMA has the right to lease land and use other people’s land for building purposes, by paying the owner a certain amount of money as rent. The rent payment can be made once/at any given time or before/after the land is used. The land lease agreement may not be accompanied by conditions containing elements of extortion. The period of the lease right for the building is for a maximum period of 25 years and can be extended for another 25 years.
Authority to Grant Land Rights
Land rights in Indonesia are under the jurisdiction of the National Land Agency “Badan Pertanahan Nasional” (“BPN”), which is a non-ministerial government agency managed by Minister ATR/BPN. However, please note that there is a division of authority in BPN to grant rights over land.
The following has the authority to grant rights over land:
- Head of the Land Office (a vertical institution BPN in district/city area);
- Head of Regional Office of National Land Agency (a vertical institution of BPN in the province area);
- Head of BPN of the Republic of Indonesia.
Head of the Land Office, head of Regional Land Office, and head of the National Land Agency of the Republic of Indonesia have their respective authorities to grant rights over land. The division of control will generally differ depending on the type of land right and the size of the land concerned.
Administrative Procedure to Obtain Rights Over Land
- Right to Build (“HGB”)
- Obtaining HGB over state-controlled land is through a decree on granting of right issued by the Minister ATR/BPN or appointed officer.
- Obtaining HGB over HPL land is through the decree on granting of right issued by Minister ATR/BPN or appointed officer, based on the proposal of the HPL holder.
- The granting of HGB over state-controlled and HPL land is registered in the book of land at the Land Office “Kantor Pertahanan.” Issuance of a land certificate to the respective HGB holder is mandatory to legitimize the granting of HGB.
- The holder of HM performs the granting of HGB over HM land through a deed made by the Land Conveyancing Officer “Pejabat Pembuat Akta Tanah” (“PPAT”). Granting of HGB is made by agreement between the holder of HM and the prospective holder of HGB, stated in the deed made by PPAT. The granting of HGB over HM must be registered at the Land Office.
- Right to Cultivate (“HGU”)
Obtaining an HGU is through a decree on granting of right issued by the Minister ATR/BPN or appointed officer. The granting of HGU must be registered in the book of land at the Land Office. Issuance of a land certificate to the respective HGU holder should be mandatory to legitimize the granting of HGU.
- Right to Use (“HP”)
- Obtaining HP over state-controlled land is through a decree of granting of right issued by the Minister ATR/BPN or appointed officer.
- Obtaining HP over HPL land is through the decree of granting of right issued by Minister ATR/BPN or appointed officer, based on the proposal of the HPL holder.
- The granting of HP over state-controlled and HPL land is registered in the book of land at the Land Office. There will be an issuance of a land certificate to the respective HP holder to legitimize the granting of HP.
- The holder of HM performs the granting of HP over HM Land through a deed made by the PPAT. Granting of HP is made through an agreement between the holder of HM and the prospective holder of HP, stated in the deed made by PPAT. The granting of HP over HM must be registered at the Land Office.
Nowadays the land registration can be done by an electronic system, in line with the Government’s efforts to digitize land administration throughout Indonesia. To provide certainty, the Regulation confirms that electronic data and information, or printouts thereof, are admissible as evidence in court, provided that they are validated by an authorized official. It further provides that deeds produced by a land PPAT may be created electronically. The Regulation reduces the requisite period for the announcement of land registration (to allow for objections) from 30-60 days to 14-30 days. The Minister of Agrarian Affairs and Spatial Planning/Head of National Land Agency website also provides the publication of land registration data on its website so all information and documentation related to lands, such as scale diagrams, land parcel maps, spatial maps and electronic land certificates can be processed and stored electronically.
Additional Permit for Investments
A Location Permit “Izin Lokasi” is a permit granted to businesses to obtain the land needed for its business or activities and also applies as a permit to transfer rights and to use the land for its business or activities. The object of Location Permit must be land, which according to the Regional Spatial Plan (“RTRW”), is intended to be used according to the business plan prepared by the business actor.
The application to obtain a Location Permit must be submitted through Online Single Submission Management and Organizing Agency (“OSS Agency”) electronically. Location Permit is issued electronically through OSS System in the form of a decision to grant Location Permit.
