Best Island Projects
Insights · Legal & Tax

Legal & Tax Insights

Indonesian property law is not intuitive for foreign buyers, and Sumba adds another layer — customary (adat) land, mixed certificate types, and district-level zoning that isn't always where the national database says it is. This hub explains the legal and tax fundamentals in plain English, with links to the deeper articles for each topic.

Summary — the six things every foreign buyer must understand

Before you evaluate any specific plot, be clear on these:

  • Foreigners cannot personally hold freehold (SHM) land in Indonesia
  • The main legal routes are PT PMA + HGB, or a long-lease with build rights
  • Certificate type (SHM, HGB, Girik, adat) determines what you're actually buying
  • Zoning (RTRW / RDTR) determines what you can build — verify before, not after
  • Purchase tax (BPHTB, 5%) and annual land tax (PBB) are the two recurring costs
  • Notaris (PPAT) selection is not optional — it defines your legal protection

Ownership structures for foreigners

PT PMA + HGB (Hak Guna Bangunan)

The most common structure for foreign investors and developers. A PT PMA (foreign-owned Indonesian company) holds the land under HGB title, granting up to 30 years extendable to 80. Suitable for villas, resorts and rental portfolios. See our full explainer on ownership structures.

Long-lease (Hak Sewa)

A leasehold agreement between the foreign buyer (personal or corporate) and the SHM freeholder, typically 25–30 years with extension mechanics. Simpler and faster than PT PMA, but requires careful drafting to protect build rights and extension terms.

Hak Pakai (right to use)

Available to foreign individuals holding an Indonesian residence permit (KITAS/KITAP). Suitable for personal-use villas, not for commercial development. Limited duration, non-transferable to non-residents.

Certificate types you'll encounter in Sumba

Sumba has a mix of certificate types — the certificate you buy defines what you own:

  • SHM (Sertifikat Hak Milik) — full freehold, held by Indonesian citizens only
  • HGB (Hak Guna Bangunan) — right to build, held by PT / PT PMA, up to 30 years extendable
  • Girik / Petok / Letter C — pre-certificate customary titles, common in rural Sumba
  • Adat land — customary community land, requires village authority consent to convert

Taxes and recurring costs

BPHTB (transfer tax)

5% of the transfer value, paid by the buyer at signing. Assessed against the higher of the transaction price or the NJOP (government-assessed land value).

PPh (income tax on seller)

2.5% of the transaction value, paid by the seller. Sometimes negotiated into the deal structure — clarify upfront.

PBB (annual land & building tax)

Modest annual tax based on NJOP. In Sumba, typically a few million rupiah per year for a villa plot — negligible relative to purchase price, but must be paid to avoid title complications.

Notaris (PPAT) fees

Typically 1% of transaction value, sometimes higher for complex files. Covers deed drafting, title registration and BPHTB filing.

Legal process — from offer to signed deed

The typical sequence: signed LOI or preliminary agreement (PPJB) with escrow deposit, due diligence window (title, zoning, boundaries, environmental), final AJB (deed of sale) at the notaris, and title registration at the district land office (BPN). Each step has protective mechanics — deposits, break clauses, indemnities — that a competent notaris will include and an amateur one will skip.

Read the full legal process

Where buyers get hurt

The recurring mistakes we see in files that come to us for a second opinion:

  • Signing on Girik land without a plan to upgrade to SHM before the PT PMA/HGB step
  • Assuming the NJOP is the market price — it's usually much lower than actual value
  • Skipping the zoning check because the seller says "you can build a villa here"
  • Using the seller's recommended notaris instead of independent counsel
  • Wiring funds before the notaris confirms clean title at the district land office
Why Best Island Projects

We are not a law firm — we are the coordinator.

Best Island Projects works alongside vetted Indonesian notarises, tax advisors and, where relevant, international counsel. We don't replace legal advice — we make sure you get the right advice at the right moment, in language you can act on. Every file is reviewed by a second senior advisor before you sign.

Frequently Asked

Questions from international buyers

For specific questions about a plot, area or process, request a private consultation.

  • Can a foreigner ever hold SHM (freehold) in Indonesia?
    No. SHM is reserved for Indonesian citizens. Any structure marketed as "foreigner SHM" — nominee arrangements, informal trusts — is legally void and exposes you to total loss. The legitimate routes are PT PMA + HGB, long-lease, or Hak Pakai for residents.
  • Is a PT PMA worth the setup cost for a single villa?
    Sometimes. Setup and annual maintenance costs run into the tens of millions of rupiah. For a single villa held long-term, a well-drafted 25–30 year lease is often more efficient. For multiple plots, rental operations or development, PT PMA typically wins. We model both for you before you decide.
  • What is BPHTB and who pays it?
    BPHTB (Bea Perolehan Hak atas Tanah dan Bangunan) is the 5% land transfer tax, paid by the buyer at signing. It's calculated on the higher of the transaction price or NJOP (government-assessed value). Budget it as a hard cost on top of the purchase price.
  • Do I need to file Indonesian taxes if I only own land, not a business?
    You pay annual PBB (land tax), which is administered locally. If you hold via PT PMA you have full corporate tax obligations (annual filings, monthly PPh, etc.) regardless of whether the company generates revenue. A long-lease structure has lower ongoing tax admin.
  • Can I use my own notaris from Jakarta or Bali?
    For Sumba land, the AJB (deed of sale) must be executed by a PPAT authorised for the relevant Sumba district. You can absolutely have Jakarta or Bali counsel review documents in parallel — many of our clients do — but the final signing happens locally.
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