Legal Aspects of Real Estate Transactions in Indonesia

1) What legal documents are required for a real estate transaction?

The key legal documents include the land certificate (Sertifikat Tanah), Sale and Purchase Agreement (Akta Jual Beli - AJB), proof of tax payments (SPPT PBB), and Land and Building Acquisition Fee (BPHTB) proof. A real estate transaction in Indonesia must comply with Law No. 5 of 1960 on Basic Agrarian Law and Government Regulation No. 24 of 1997 on Land Registration.

2) Which official institutions are authorized to make real estate transactions?

Real estate transactions must involve a certified Land Deed Official (Pejabat Pembuat Akta Tanah - PPAT) who is exclusively authorized to draft and authenticate the Sale and Purchase Agreement (AJB). The National Land Agency (Badan Pertanahan Nasional - BPN) oversees the registration and transfer of land rights to ensure the transaction complies with legal requirements. These authorities are regulated by Government Regulation No. 24 of 1997 on Land Registration. It is crucial to liaise with these institutions to ensure the legality of the transaction and avoid potential disputes or fraudulent activities.

3) What are the tax implications of buying and selling real estate?

For buyers, the main tax obligation is the Land and Building Acquisition Fee (BPHTB), which amounts to 5% of the property’s value exceeding the non-taxable threshold set by local regulations. Sellers are required to pay income tax (PPh) at a rate of 2.5% of the agreed transaction value. These taxes are mandatory and must be paid before the property transfer is registered. The regulations are detailed in Law No. 28 of 2009 on Regional Taxes and Retributions, ensuring clarity and consistency in tax obligations for property transactions.

4) Are there any differences to consider if the purchaser of the real estate is a foreigner?

Foreigners are only permitted to own property under the right of use (Hak Pakai) and cannot acquire full ownership (Hak Milik). This restriction is based on Law No. 5 of 1960 on Basic Agrarian Law and Government Regulation No. 18 of 2021, which aims to protect national interests in the land ownership. Additionally, foreigners must meet specific criteria, such as residing in Indonesia and purchasing property above a certain minimum value as determined by the government. These regulations are designed to balance foreign investment opportunities with the protection of local land rights.

5) What are the responsibilities of the seller in a real estate transaction?

The seller has to ensure that the property in a real estate transaction is free of disputes, liens, or other legal encumbrances before completing the transaction, by providing all relevant documents, such as, the land certificate and proof of tax payments. Not to forget that the seller should settle any outstanding property taxes or fees. Failure to meet these obligations may result in transaction annulment or other legal consequences under Government Regulation No. 24 of 1997 on Land Registration. The seller's commitment to regulatory compliance is paramount to ensure that the buyer can acquire the property without future legal or financial complications.

6) What are the implications of property liens and encumbrances?

Properties with liens or encumbrances cannot be legally transferred until these issues are resolved. Liens, often arising from unpaid debts, can block the proposed registration of the property transfer at the National Land Agency (BPN). Buyers must perform due diligence to check the property’s legal status to avoid inheriting liabilities. These provisions are governed by Law No. 4 of 1996 on Mortgage Rights and Government Regulation No. 24 of 1997 on Land Registration, emphasizing the importance of clear property ownership before finalizing a transaction.

Author: Chandra Kusuma