by: fatah_fh98@yahoo.com
original source without comment from http://bali-villas-real-estate-fraud.blogspot.com/2007/08/indonesian-property-land-ownership-use.html
The following laws are those bantered around and misquoted by so called real estate companies in Bali with regard to foreign ownership / control over villas on the island. However, the following English interpretations below come not from a villa sales site but from people like a recognized leader in insolvency issues (Insolvency Asia); that is, people who know and report the true law.
Hak Milik (ownership)
This title is the most complete form of ownership of land in Indonesia. The holder can use the land for any purpose whatsoever, including housing. The title may only be held by individuals of Indonesian nationality and special legal bodies stipulated in Govt. Reg No. 38 of 1963 Regarding the Appointment of Indonesian Legal Entities Which May Obtain Land with a Right of Ownership (June 9, 1963). These legal entities are govt banks, cooperatives, religious and social bodies. Consequently, Indonesian legal entities, foreigners and foreign legal entities cannot obtain land with a Hak Milik title
COMMENT: this is actually misleading. Hak Milik is the highest right to own the land. Hak Milik is the similar species with Hak Pakai and Hak Guna Bangunan. The Different lies on the more privilege have by the Hak Milik. It was like you have a car with complete utilities and you don’t have to extend your car ownership document as long as your live. Hak Pakai and Hak Guna Bangunan (HGB) require you to extend your ownership document at certain period.
Hak Pakai (right to use)
This right gives the holder the right to use a plot of land and obtain the produce from such land. Land on which a Hak Pakai can be bestowed includes state land, land under a Hak Pengelolaan title and land under an Hak Milik title. This right can be held by Indonesian citizens, Indonesian legal entities (including Foreign Capital Investment Companies or “PMA’s”), and by both resident foreigners and foreign companies with representatives in Indonesia. The duration of a Hak Pakai is for 25 years* and may be extended for a further 20 years* or for an unlimited time, depending on the project concerned.
Hak Guna Bangunan (right to build)
The holder of this title is entitled to erect buildings on the land. The title is granted for an initial period of 30 years*, which may be extended for a further 20 years* and thereafter can be renewed, as long as the use of the land is in accordance with applicable zoning regulations. Indonesian individuals and Indonesian legal entities, including “PMA’s”, may hold this title. NB: Duration* times may now vary
Monday, March 30, 2009
COMMENT ON: Balinese holiday homes fraudulently "sold" to foreigners, normally by expat crooks.
By: fatah_fh98@yahoo.com
Warning: Do Not Buy Villas in Bali
There are many Bali villas real estate sites all showing dream vacation homes available for "freehold" with "significant investment return" and / or "rental potential"; do not believe a word of it, they are all liars, fraudsters and I will explain why. The only legal method for foreigners to control the all important aspects of a villa in Bali is not currently used by villa sales agents, you can read about this method here: ABN Method.
COMMENT: Please see my comment on http://balilawyers.blogspot.com/2009/03/comments-on-yes-there-is-one-viable.html
I will take you through the various cons (there are three main ones) each of these sales agents employ at least one of. I will show you that foreigners can not own land and can not own property and can not legally operate holiday villas for rent in Bali (unless you use the above method), citing the Indonesian civil code (law) and what it means. The only foreigners that can have the right of use of a residential property in Bali and for that matter the whole of Indonesia are those with legitimate work permits who are resident there and only then on rent as their main residence. So many villa agents promise customers they will get them a work permit / residency and generally they will, through corruption; but that makes the visa unlawful. But even if you could get a work or residency permit lawfully, I will explain why you do not want one; because you will need to pay personal income tax to the Indonesian tax man on your worldwide earnings. See: Bali Villas Laws
COMMENT: Foreigner could not owned Hak Milik but you as Foreigner could own Hak Pakai issuing by the Land Office (not based on the agreement). Hak Pakai is one of the forms of Ownership in the Indonesia Land Law. If you would like to operate legally, it is not prohibited by Law which you have to comply with Indonesian Rules and Regulation for this matter.
Related to pay tax in Indonesia for your worldwide earnings, it seems too exaggerated. You should ask Indonesian Tax Lawyer or Indonesia Accountant to get further information.
I will explain what these fraudsters and the corrupt officials they "work with" get up to under feign of professional real estate sales. I will show you that even the squeaky clean estate agents in Bali with International head offices and / or operations are actually squeaking rats who are out to defraud you and make a fast, very dishonest buck. I will give you examples of what will likely to happen to you and your dream Balinese vacation home after you part with your hard earned money that will show you it is all a paradise island nightmare.
The desire by foreigners to own a little slice of what they think is paradise with their own luxury beachfront villa has created a plethora of devious real estate agents, mostly foreigners with some very dubious and often criminal backgrounds ready to defraud you of your money in a country where theft and corruption is the norm; read my warnings!
COMMENT: In order to avoid this kind of thing, you should have comprehensive information and the latest condition and regulation to avoid any unwanted risk in the future.
I will help anyone who is determined to buy into a luxury Balinese holiday villa dream by detailing the safest and totally legal way of making the most of a bad deal for foreigners wanting to get into the vacation home rental market under, or rather outside Indonesian law. My help is free and I neither want nor expect anything in return for it; see ABN Method. My sole aim is to stop foreigners being ripped off as much as I can; I still do not think, even with my advice, investing in Bali's villa industry is worth the risk and heartache. My best advise therefore is do not buy into Bali villas, period; it is all a dangerous nasty con.
COMMENT: In any part of the world, there always scam activity. Even USA have David Madoff which we have to acknowldge him as Con Man in the globalization era. So i assume there is no such things as free scam area.
Warning: Do Not Buy Villas in Bali
There are many Bali villas real estate sites all showing dream vacation homes available for "freehold" with "significant investment return" and / or "rental potential"; do not believe a word of it, they are all liars, fraudsters and I will explain why. The only legal method for foreigners to control the all important aspects of a villa in Bali is not currently used by villa sales agents, you can read about this method here: ABN Method.
COMMENT: Please see my comment on http://balilawyers.blogspot.com/2009/03/comments-on-yes-there-is-one-viable.html
I will take you through the various cons (there are three main ones) each of these sales agents employ at least one of. I will show you that foreigners can not own land and can not own property and can not legally operate holiday villas for rent in Bali (unless you use the above method), citing the Indonesian civil code (law) and what it means. The only foreigners that can have the right of use of a residential property in Bali and for that matter the whole of Indonesia are those with legitimate work permits who are resident there and only then on rent as their main residence. So many villa agents promise customers they will get them a work permit / residency and generally they will, through corruption; but that makes the visa unlawful. But even if you could get a work or residency permit lawfully, I will explain why you do not want one; because you will need to pay personal income tax to the Indonesian tax man on your worldwide earnings. See: Bali Villas Laws
COMMENT: Foreigner could not owned Hak Milik but you as Foreigner could own Hak Pakai issuing by the Land Office (not based on the agreement). Hak Pakai is one of the forms of Ownership in the Indonesia Land Law. If you would like to operate legally, it is not prohibited by Law which you have to comply with Indonesian Rules and Regulation for this matter.
Related to pay tax in Indonesia for your worldwide earnings, it seems too exaggerated. You should ask Indonesian Tax Lawyer or Indonesia Accountant to get further information.
I will explain what these fraudsters and the corrupt officials they "work with" get up to under feign of professional real estate sales. I will show you that even the squeaky clean estate agents in Bali with International head offices and / or operations are actually squeaking rats who are out to defraud you and make a fast, very dishonest buck. I will give you examples of what will likely to happen to you and your dream Balinese vacation home after you part with your hard earned money that will show you it is all a paradise island nightmare.
The desire by foreigners to own a little slice of what they think is paradise with their own luxury beachfront villa has created a plethora of devious real estate agents, mostly foreigners with some very dubious and often criminal backgrounds ready to defraud you of your money in a country where theft and corruption is the norm; read my warnings!
COMMENT: In order to avoid this kind of thing, you should have comprehensive information and the latest condition and regulation to avoid any unwanted risk in the future.
I will help anyone who is determined to buy into a luxury Balinese holiday villa dream by detailing the safest and totally legal way of making the most of a bad deal for foreigners wanting to get into the vacation home rental market under, or rather outside Indonesian law. My help is free and I neither want nor expect anything in return for it; see ABN Method. My sole aim is to stop foreigners being ripped off as much as I can; I still do not think, even with my advice, investing in Bali's villa industry is worth the risk and heartache. My best advise therefore is do not buy into Bali villas, period; it is all a dangerous nasty con.
COMMENT: In any part of the world, there always scam activity. Even USA have David Madoff which we have to acknowldge him as Con Man in the globalization era. So i assume there is no such things as free scam area.
COMMENTS ON : YES, there is one viable Legal Balinese villa option for foreigners, the ABN method
by: fatah_fh98@yahoo.com
(original source without comment from: http://bali-villas-real-estate-fraud.blogspot.com/2007/08/legal-balinese-villa-option-for.html)
How to set up a legal villa operation in Bali as a foreigner without putting yourself at risk with the corrupt or otherwise Indonesian authorities and / or having to register for tax / residency in Indonesia. Please note, this is personal opinion and you need to verify its accuracy for yourself / your circumstances / your country with an appropriate legal advisor there and in Bali. My only objective in sharing this method with you is to put you as much as possible out of the reach of Bali's very nasty and notoriously corrupt police and immigration. This is the same method I basically once used when I was unfortunate and stupid enough to invest in my own Bali villas; never again! If you use this method or variation of it, all I require is that wherever you have your villa(s) advertised for rentals, you state you are using this method by name (see end for details).
Legal Bali Villa “Ownership” / Investment and Rental Income Return for foreigners.
1) Form a company in your home country whose operational mandate extends to;
a) Lending money overseas
b) Providing villa design, construction, operation and marketing services
c) Providing reservation services
It would be better to give your company an appropriate name such as “International villa management, Ltd.”
COMMENT : well, the company will be illegal to operate dirrectly in Indonesia. If the Company provided Consultation Services, it will be a kind of hit and run company. You could run any time any second when you felt something smell. It will be very different when you have immovable asset which could not sell it let say in one
day, or you already have a husband or wife (mistress??)or girlfriend or boyfriend that would not leaving Bali the paradise Island. So actually this scheme is already too old considering the rapid changing of Indonesian Law and Regulation (Bali is one of Province from Indonesia). So you have to get as much input as possible before decide something that you will regret in the future.
2) Whenever you want to go to Bali which will involve any business relating to your intended villa project, apply for a business visa from the nearest Indonesian Embassy. Some visa agents can get you a multi-entry visa if you intend making a number of visits over a short time, but make sure the visa submission is 100% accurate, not made using any falsehoods. This will give you the right to discuss all aspects of your foreign company’s operations with your intended business partners in Bali and protect you against retrospective extortion / legal action by the Balinese police and immigration.
COMMENT : for starter, this will be useful, in case you are in the level of looking or survey to find suitable location to acquire. If you already acquire/buy land with or without villa, it could be a problem. This is because Foreign Company is prohibited by Law to directly operate without establish local company or representative office in Indonesia. So just watch your step before you enter.
3) You will need a truly trustworthy Indonesian friend to own the land in Bali (Hak Milik ownership). You will also need at least one other Indonesian to set up a company in Bali, a “PT”, which can be used to contract the land legally (Hak Pakai right of use) from the intended land owner (you friend). It makes sense for the friend to also be the CEO of the PT company which needs to be formed ASAP / before you do anything else.
COMMENT: One piece of advice, in this life (especially for the Lawyers), you could not even trust your own mother, are you sure you want to trust a friend? You can establish "PT", but it's very expensive to trust another person known as "friend" especially when your asset involved. You could only trust yourself. A friend only for a help but you should never ever put your trust on him/her not even a single second. In this way you could maintain your friendship and your asset. Never ever mixed up friendship with money and asset, unless you could 100% accurate to predict what will happen in the future.
4) Decide on what you want to buy and where; buying land to build a new villa on or buying land with a villa already on it. Make 110% sure that building permits for new villa projects are available if you intend building a new villa design and that your will would qualify within the local building regulations at that location (which cover all sorts of things from environmental to religious). If you are buying an existing villa make sure it had a building permit prior to construction commencing (many villas did not and are therefore unlawful) and that all building regulation were met. In both cases make sure there are no land title disputes for the plot of land. This is called “due diligence” and should be carried out by a recognized specialist. Determine the current maximum initial and extension periods in law for a Hak Pakai agreement.
COMMENT: It will be much safer Hak Pakai issued by Land Office. It will be harder to nullified Hak Pakai issued by Land Office than based on agreement.
5) When you know the land / villa you wish to buy / invest in, get your friend back to your own country and have them enter into agreements with you there under your own country’s jurisdiction. Do not be tempted to simply have your friend sign an agreement in Indonesia which says jurisdiction will be in your own country. You should physically have them sign everything in your country and get copies of their passport and immigration stamps to show they were there at the date of signing. You should also get a letter (signed by all directors) from the Indonesian PT you / they have set up to acknowledge the purpose of their trip is to secure funding and set up International marketing and reservation agreements with your foreign company, and also giving them authority to sign such agreements while they are there on behalf of the PT. The agreements you need them to sign are;
COMMENT: This will be the biggest mistake. In case the disputes arise, where your friend will be? In your Country or in Indonesia or in another country? Even you could finally get court decision from your country, those decision should not apply in Indonesia, because Indonesia is not acknowledged court decision from another country. If you have a problem in Indonesia, you have to utilize every tool available in Indonesia to get it done.
a) A loan agreement between your company and the Indonesian PT, guaranteed by the Indonesian friend personally for all the money required for the project. Use a standard but higher end fixed rate of interest. Include in the agreement exactly what the money is to be used for, and nothing else, unless agreed by you first in writing. Set the term of the agreement to be the maximum initial term of a Balinese Hak Pakai agreement. Put into the agreement provisions for non-payment of any or the full amount by the end of the term. Typically this provision would include a renewal clause if the total amount plus due interest is not paid back to your company within the initial term; this should be specified as the then current maximum renewal / extension option for Balinese Hak Pakai agreements; so that if you get paid back the capital plus good interest within the initial term, then the loan is repaid, but if you / they are so much as a dollar short, it then gets renewed.
Your loan agreement with the PT should include provision and definition for the agreements they will need to legally enter into with your Indonesian friend personally in Bali. Irrespective of whether you are going to build a new villa or are buying one that already exists, only the land should end up in your friend’s personal name; this may well mean he has to buy the land and an existing villa in his name and then sell the villa to the PT for a nominal amount.
Include in your agreement the right for your friend to pay off the loan at (not by) the end of the initial loan agreement term (to correspond with the Hak Pakai term) as is right and fair. Include in the agreement that if they do not so repay the loan amount plus agreed interest back on the exact very last day of the initial term, everything will renew for another period equal to then maximum allowed for Indonesian Hak Pakai agreements at that time.
b) An agreement (for as long as you like / are legally able to) between your company and the Indonesian PT giving your company the full marketing and reservation coordinating rights to the PT and the villa(s). That is, your company has the sole marketing and reservation rights; so you decide who (which agents) offers the villa for rent and which people stay at your villas. Include a commission agreement and, if you like, marketing fee agreement. For example, your company gets 30% commission on every guest booking which you have to handle and are entitled to take in advance from the guests as a deposit for their stay; so you take their deposits and keep it. Be aware the villas will need to pay tax locally (currently 10%), so you will need to set the rates, as per your marketing agreement to include this but the deposit your company takes will not be able to take a commission of this. So the commission / deposit you take will need to be on the gross amount. For example, you decide you wish to charge US$100 a night plus tax (plus service charges if you wish). If your agreement is for 30% commission and someone wants to stay 10 nights (total US$1000 plus tax and service charge), you would take just US$300 deposit / commission. The guest would pay the remaining US$700 PLUS 10% tax (plus any service charge you ask for) on the whole US$1000 at the villas.
COMMENT: You have to aware, when you take all the profit and PT only get losses, the Tax Officer could consider the PT have conduct transfer pricing activities when they find out that the PT not operate in arm length basis. It will be not so hard to find comparable price provided by another villa. If your PT did not pay taxes, it will be much bigger risk for the asset, Bali Tax Office is very aggressive and strict to watch their homeland.
Include in your marketing and reservation agreements the right for 2 months (minimum) complimentary accommodation for designated directors (you) and family of your company. Why 2 months? Because if you stay in Bali any more than that, the Indonesian authorities can and will deem you to be an unlawful resident; this could mean either being deported or being required to become legally resident and pay personal taxation in Indonesia on your worldwide income (not good). That is right; currently you should only spend a maximum 2 months in any 12 month period in Bali / Indonesia as a non-registered / resident foreigner. If you intend to allow friends and family without you being present to use the villa(s), you can make the complimentary accommodation period longer of course just as long as no one person stays in Indonesia longer than the current minimum used to determine whether they are legally are resident or not.
COMMENT : This is not valid any more. You always have to check for the latest regulation at the time you read this. By the time i comment on this (30 March 2009),
you have to stay more than 183 (one hundred eighty three days) or one tax year to be subject to Indonesia Income Tax as Inland Tax Payer. The main principle in Indonesia, you have to always up date on the Law.
c) You need your friend to sign a personal agreement. Include in this agreement the fact your Indonesian friend contracts to work for the Indonesian PT company for the same (Hak Pakai) initial term as the operations director for which they will receive a salary (specified with provision to rise perhaps according to percentage rises in the Indonesian minimum basic wage) plus bonuses for performance / profit share. Make it a condition that if they terminate their contract prematurely they agree to hand over title to the villa(s) / land to a new (Indonesian) owner of your designation for a nominal amount. Specify that the friend is going to receive funding from the Indonesian PT you have set up to buy the land and villa (if appropriate) in their name for the same term and interest rate as between your foreign company and the PT. Specify that if they repay the full amount plus interest by the end of the term, the land is theirs without lien, claim or charge but that they acknowledge they will not own the villa(s) / anything on the land at such a time / event. Include in the agreement that if your friend repays the loan to them from the PT within the initial term, they agree to allow the PT and villas to operate for the minimum extension period allowed by Hak Pakai at the end of the initial term for a nominal (specified amount). Also include that of your friend does not make full repayment during the initial term, they are able to do this in any subsequent extension / renewal term if they wish to on the basis they will allow the PT use of the land for the same nominal amount for the next / following extension / renewal period.
Have your agreements signed and notarized in your home country.
COMMENT : Once again, This will be useless to get your asset back. This is because the asset located in Indonesia not in your country. In International Private Law, for Immovable asset, the Law that applied to such asset is where the object located, not the location where you did sign the agreement. He could be in Bahama or BVI by the time you try to chase him and showing him that he had agreement with you. Please kindly consult with your own Lawyer and your Indonesian Lawyer for this kind of thing.
6) Under business visa go to Bali and also have the papers translated into Indonesian (by a qualified and registered English to Indonesian translator, not anyone else), signed, notarized and recorded as charges / liens against the land, friend and Indonesian company. Also draw up the agreements between your friend and the PT you have formed specifically regarding the employment, loan and actual Hak Pakai agreement between them to reflect what you already have agreed outside Indonesia. Transfer the money to the Indonesian company. The Indonesian company then transfers what it needs to your Indonesian friend in return for the “Hak Pakai” agreement. Make sure the PT registers for tax and obtains all necessary permits, including operational permit for accommodations before you accept your first paying guest.
COMMENT: never ever use Hak Pakai Agreement, it's like a time bomb. Even your friend is very honest with you, what do you think when suddenly he got accident and suddenly die and his family never knew about his commitment with you or they think you just a kind of foreigner who would like to make a profit from them? The Basic principle is always use Hak Pakai issued by the Land Office. It called as "Hak Kebendaan" a kind of right that you could defend your ownership based on that right against any other people. It will be very different when you have based on the agreement. In Indonesian Law it called as "Hak perorangan", which means this right could only useful as your defense tool only with the person that also signed the agreement. In case he die, it will create problem for you because his family have Hak Kebendaan and you have only Hak perorangan.
7) Your foreign company controls the marketing (so any rental agents you appoint have to pay you the deposit overseas) and reservations allowing you to legally take the deposit as commission whenever someone books with you. All you have to do is obtain Indonesian business visas if you want to be involved in the villas operation (stress: indirectly through the PT) while you are in Bali; this will cover you for even taking reservations while you are there because you are doing this for your foreign company. You get the maximum time allowed by Indonesian immigration law to be able to stay in Bali without becoming a resident. If the villas make a profit, the PT can legally pay you this money as loan repayments. If you make a lot of money and your bonus scheme for your Indonesian friend was generous enough, they will be able top afford to pay off their personal loan one day and own the land outright without any lien or charge (you will still be entitled to, at the very least / minimum, the next Hak Pakai renewal period and are of course free to negotiate what happens at the end of that with your friend.
This method is called the "ABN method". The date of it being published has been recorded / documented. Anyone is free to use this method (or variation thereof) as long as they place / ensure are placed on any and all web pages offering accommodation rentals for villas the expression / link "ABN Method", such as "These villas have been legally set up using the ABN Method". Villa sales agents may likewise use this method to help their customers again as long as they make a prominent link (not robots limited in any way) / reference on their main page and any appropriate villa sales page that they are offering the villa for sale / investment using the "ABN Method". The link syntax for this is ABN Method. You may use the ABN method or variation thereof without displaying the reference / expression / link for US$1,000,000.
COMMENT: the conclusion, in case you already done this and already get stuck in problem, you may contact me, may be it's not too late. If you are consider to use this, you should consult further with your Indonesian lawyer and ask them to provide you with the latest regulation.
(original source without comment from: http://bali-villas-real-estate-fraud.blogspot.com/2007/08/legal-balinese-villa-option-for.html)
How to set up a legal villa operation in Bali as a foreigner without putting yourself at risk with the corrupt or otherwise Indonesian authorities and / or having to register for tax / residency in Indonesia. Please note, this is personal opinion and you need to verify its accuracy for yourself / your circumstances / your country with an appropriate legal advisor there and in Bali. My only objective in sharing this method with you is to put you as much as possible out of the reach of Bali's very nasty and notoriously corrupt police and immigration. This is the same method I basically once used when I was unfortunate and stupid enough to invest in my own Bali villas; never again! If you use this method or variation of it, all I require is that wherever you have your villa(s) advertised for rentals, you state you are using this method by name (see end for details).
Legal Bali Villa “Ownership” / Investment and Rental Income Return for foreigners.
1) Form a company in your home country whose operational mandate extends to;
a) Lending money overseas
b) Providing villa design, construction, operation and marketing services
c) Providing reservation services
It would be better to give your company an appropriate name such as “International villa management, Ltd.”
COMMENT : well, the company will be illegal to operate dirrectly in Indonesia. If the Company provided Consultation Services, it will be a kind of hit and run company. You could run any time any second when you felt something smell. It will be very different when you have immovable asset which could not sell it let say in one
day, or you already have a husband or wife (mistress??)or girlfriend or boyfriend that would not leaving Bali the paradise Island. So actually this scheme is already too old considering the rapid changing of Indonesian Law and Regulation (Bali is one of Province from Indonesia). So you have to get as much input as possible before decide something that you will regret in the future.
2) Whenever you want to go to Bali which will involve any business relating to your intended villa project, apply for a business visa from the nearest Indonesian Embassy. Some visa agents can get you a multi-entry visa if you intend making a number of visits over a short time, but make sure the visa submission is 100% accurate, not made using any falsehoods. This will give you the right to discuss all aspects of your foreign company’s operations with your intended business partners in Bali and protect you against retrospective extortion / legal action by the Balinese police and immigration.
COMMENT : for starter, this will be useful, in case you are in the level of looking or survey to find suitable location to acquire. If you already acquire/buy land with or without villa, it could be a problem. This is because Foreign Company is prohibited by Law to directly operate without establish local company or representative office in Indonesia. So just watch your step before you enter.
3) You will need a truly trustworthy Indonesian friend to own the land in Bali (Hak Milik ownership). You will also need at least one other Indonesian to set up a company in Bali, a “PT”, which can be used to contract the land legally (Hak Pakai right of use) from the intended land owner (you friend). It makes sense for the friend to also be the CEO of the PT company which needs to be formed ASAP / before you do anything else.
COMMENT: One piece of advice, in this life (especially for the Lawyers), you could not even trust your own mother, are you sure you want to trust a friend? You can establish "PT", but it's very expensive to trust another person known as "friend" especially when your asset involved. You could only trust yourself. A friend only for a help but you should never ever put your trust on him/her not even a single second. In this way you could maintain your friendship and your asset. Never ever mixed up friendship with money and asset, unless you could 100% accurate to predict what will happen in the future.
4) Decide on what you want to buy and where; buying land to build a new villa on or buying land with a villa already on it. Make 110% sure that building permits for new villa projects are available if you intend building a new villa design and that your will would qualify within the local building regulations at that location (which cover all sorts of things from environmental to religious). If you are buying an existing villa make sure it had a building permit prior to construction commencing (many villas did not and are therefore unlawful) and that all building regulation were met. In both cases make sure there are no land title disputes for the plot of land. This is called “due diligence” and should be carried out by a recognized specialist. Determine the current maximum initial and extension periods in law for a Hak Pakai agreement.
COMMENT: It will be much safer Hak Pakai issued by Land Office. It will be harder to nullified Hak Pakai issued by Land Office than based on agreement.
5) When you know the land / villa you wish to buy / invest in, get your friend back to your own country and have them enter into agreements with you there under your own country’s jurisdiction. Do not be tempted to simply have your friend sign an agreement in Indonesia which says jurisdiction will be in your own country. You should physically have them sign everything in your country and get copies of their passport and immigration stamps to show they were there at the date of signing. You should also get a letter (signed by all directors) from the Indonesian PT you / they have set up to acknowledge the purpose of their trip is to secure funding and set up International marketing and reservation agreements with your foreign company, and also giving them authority to sign such agreements while they are there on behalf of the PT. The agreements you need them to sign are;
COMMENT: This will be the biggest mistake. In case the disputes arise, where your friend will be? In your Country or in Indonesia or in another country? Even you could finally get court decision from your country, those decision should not apply in Indonesia, because Indonesia is not acknowledged court decision from another country. If you have a problem in Indonesia, you have to utilize every tool available in Indonesia to get it done.
a) A loan agreement between your company and the Indonesian PT, guaranteed by the Indonesian friend personally for all the money required for the project. Use a standard but higher end fixed rate of interest. Include in the agreement exactly what the money is to be used for, and nothing else, unless agreed by you first in writing. Set the term of the agreement to be the maximum initial term of a Balinese Hak Pakai agreement. Put into the agreement provisions for non-payment of any or the full amount by the end of the term. Typically this provision would include a renewal clause if the total amount plus due interest is not paid back to your company within the initial term; this should be specified as the then current maximum renewal / extension option for Balinese Hak Pakai agreements; so that if you get paid back the capital plus good interest within the initial term, then the loan is repaid, but if you / they are so much as a dollar short, it then gets renewed.
Your loan agreement with the PT should include provision and definition for the agreements they will need to legally enter into with your Indonesian friend personally in Bali. Irrespective of whether you are going to build a new villa or are buying one that already exists, only the land should end up in your friend’s personal name; this may well mean he has to buy the land and an existing villa in his name and then sell the villa to the PT for a nominal amount.
Include in your agreement the right for your friend to pay off the loan at (not by) the end of the initial loan agreement term (to correspond with the Hak Pakai term) as is right and fair. Include in the agreement that if they do not so repay the loan amount plus agreed interest back on the exact very last day of the initial term, everything will renew for another period equal to then maximum allowed for Indonesian Hak Pakai agreements at that time.
b) An agreement (for as long as you like / are legally able to) between your company and the Indonesian PT giving your company the full marketing and reservation coordinating rights to the PT and the villa(s). That is, your company has the sole marketing and reservation rights; so you decide who (which agents) offers the villa for rent and which people stay at your villas. Include a commission agreement and, if you like, marketing fee agreement. For example, your company gets 30% commission on every guest booking which you have to handle and are entitled to take in advance from the guests as a deposit for their stay; so you take their deposits and keep it. Be aware the villas will need to pay tax locally (currently 10%), so you will need to set the rates, as per your marketing agreement to include this but the deposit your company takes will not be able to take a commission of this. So the commission / deposit you take will need to be on the gross amount. For example, you decide you wish to charge US$100 a night plus tax (plus service charges if you wish). If your agreement is for 30% commission and someone wants to stay 10 nights (total US$1000 plus tax and service charge), you would take just US$300 deposit / commission. The guest would pay the remaining US$700 PLUS 10% tax (plus any service charge you ask for) on the whole US$1000 at the villas.
COMMENT: You have to aware, when you take all the profit and PT only get losses, the Tax Officer could consider the PT have conduct transfer pricing activities when they find out that the PT not operate in arm length basis. It will be not so hard to find comparable price provided by another villa. If your PT did not pay taxes, it will be much bigger risk for the asset, Bali Tax Office is very aggressive and strict to watch their homeland.
Include in your marketing and reservation agreements the right for 2 months (minimum) complimentary accommodation for designated directors (you) and family of your company. Why 2 months? Because if you stay in Bali any more than that, the Indonesian authorities can and will deem you to be an unlawful resident; this could mean either being deported or being required to become legally resident and pay personal taxation in Indonesia on your worldwide income (not good). That is right; currently you should only spend a maximum 2 months in any 12 month period in Bali / Indonesia as a non-registered / resident foreigner. If you intend to allow friends and family without you being present to use the villa(s), you can make the complimentary accommodation period longer of course just as long as no one person stays in Indonesia longer than the current minimum used to determine whether they are legally are resident or not.
COMMENT : This is not valid any more. You always have to check for the latest regulation at the time you read this. By the time i comment on this (30 March 2009),
you have to stay more than 183 (one hundred eighty three days) or one tax year to be subject to Indonesia Income Tax as Inland Tax Payer. The main principle in Indonesia, you have to always up date on the Law.
c) You need your friend to sign a personal agreement. Include in this agreement the fact your Indonesian friend contracts to work for the Indonesian PT company for the same (Hak Pakai) initial term as the operations director for which they will receive a salary (specified with provision to rise perhaps according to percentage rises in the Indonesian minimum basic wage) plus bonuses for performance / profit share. Make it a condition that if they terminate their contract prematurely they agree to hand over title to the villa(s) / land to a new (Indonesian) owner of your designation for a nominal amount. Specify that the friend is going to receive funding from the Indonesian PT you have set up to buy the land and villa (if appropriate) in their name for the same term and interest rate as between your foreign company and the PT. Specify that if they repay the full amount plus interest by the end of the term, the land is theirs without lien, claim or charge but that they acknowledge they will not own the villa(s) / anything on the land at such a time / event. Include in the agreement that if your friend repays the loan to them from the PT within the initial term, they agree to allow the PT and villas to operate for the minimum extension period allowed by Hak Pakai at the end of the initial term for a nominal (specified amount). Also include that of your friend does not make full repayment during the initial term, they are able to do this in any subsequent extension / renewal term if they wish to on the basis they will allow the PT use of the land for the same nominal amount for the next / following extension / renewal period.
Have your agreements signed and notarized in your home country.
COMMENT : Once again, This will be useless to get your asset back. This is because the asset located in Indonesia not in your country. In International Private Law, for Immovable asset, the Law that applied to such asset is where the object located, not the location where you did sign the agreement. He could be in Bahama or BVI by the time you try to chase him and showing him that he had agreement with you. Please kindly consult with your own Lawyer and your Indonesian Lawyer for this kind of thing.
6) Under business visa go to Bali and also have the papers translated into Indonesian (by a qualified and registered English to Indonesian translator, not anyone else), signed, notarized and recorded as charges / liens against the land, friend and Indonesian company. Also draw up the agreements between your friend and the PT you have formed specifically regarding the employment, loan and actual Hak Pakai agreement between them to reflect what you already have agreed outside Indonesia. Transfer the money to the Indonesian company. The Indonesian company then transfers what it needs to your Indonesian friend in return for the “Hak Pakai” agreement. Make sure the PT registers for tax and obtains all necessary permits, including operational permit for accommodations before you accept your first paying guest.
COMMENT: never ever use Hak Pakai Agreement, it's like a time bomb. Even your friend is very honest with you, what do you think when suddenly he got accident and suddenly die and his family never knew about his commitment with you or they think you just a kind of foreigner who would like to make a profit from them? The Basic principle is always use Hak Pakai issued by the Land Office. It called as "Hak Kebendaan" a kind of right that you could defend your ownership based on that right against any other people. It will be very different when you have based on the agreement. In Indonesian Law it called as "Hak perorangan", which means this right could only useful as your defense tool only with the person that also signed the agreement. In case he die, it will create problem for you because his family have Hak Kebendaan and you have only Hak perorangan.
7) Your foreign company controls the marketing (so any rental agents you appoint have to pay you the deposit overseas) and reservations allowing you to legally take the deposit as commission whenever someone books with you. All you have to do is obtain Indonesian business visas if you want to be involved in the villas operation (stress: indirectly through the PT) while you are in Bali; this will cover you for even taking reservations while you are there because you are doing this for your foreign company. You get the maximum time allowed by Indonesian immigration law to be able to stay in Bali without becoming a resident. If the villas make a profit, the PT can legally pay you this money as loan repayments. If you make a lot of money and your bonus scheme for your Indonesian friend was generous enough, they will be able top afford to pay off their personal loan one day and own the land outright without any lien or charge (you will still be entitled to, at the very least / minimum, the next Hak Pakai renewal period and are of course free to negotiate what happens at the end of that with your friend.
This method is called the "ABN method". The date of it being published has been recorded / documented. Anyone is free to use this method (or variation thereof) as long as they place / ensure are placed on any and all web pages offering accommodation rentals for villas the expression / link "ABN Method", such as "These villas have been legally set up using the ABN Method". Villa sales agents may likewise use this method to help their customers again as long as they make a prominent link (not robots limited in any way) / reference on their main page and any appropriate villa sales page that they are offering the villa for sale / investment using the "ABN Method". The link syntax for this is ABN Method. You may use the ABN method or variation thereof without displaying the reference / expression / link for US$1,000,000.
COMMENT: the conclusion, in case you already done this and already get stuck in problem, you may contact me, may be it's not too late. If you are consider to use this, you should consult further with your Indonesian lawyer and ask them to provide you with the latest regulation.
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