Long-Term Land Lease as an Investment: Features of Hak Pakai and Tax Considerations

Investing in Long-Term Land Leases in Indonesia: Key Features of Hak Pakai and Tax Considerations

What Is Hak Pakai and Why Is It Important for Foreigners?

Hak Pakai (translated from Indonesian as “Right to Use”) is a form of limited real property right that grants the holder the ability to utilize a land plot in Indonesia for a defined period. Unlike leasehold arrangements (Hak Sewa), Hak Pakai rights are registered with the National Land Agency (BPN) and are protected by law. This legal construct allows foreign nationals to own and utilize property, making it one of the most legitimate ways for foreigners and foreign entities to engage with Indonesia’s real estate market. While it does not confer full ownership, Hak Pakai provides a secure legal framework for long-term residential or commercial use.

Key Characteristics of Hak Pakai

Validity Period: Initially granted for 25 years, with options to extend for an additional 20–25 years. Extensions beyond this are possible through government approval.
Designated Use: The land must be used strictly in accordance with its designated purpose—residential or commercial. Violation of this condition may result in revocation of the rights.
Registration with BPN: Legal registration with the National Land Agency (Badan Pertanahan Nasional) is mandatory.
Available to Foreigners: Eligible applicants must hold a valid stay permit (KITAS or KITAP) or act through a foreign-owned company (PT PMA).
Not Automatically Transferable: Rights transfer requires a notarial deed and must be re-registered with BPN.

Comparison with Other Land Rights

Hak Milik (Freehold Ownership): Reserved exclusively for Indonesian citizens; provides perpetual ownership and full rights to possess and dispose of land.
Hak Sewa (Lease Agreement): A less formal arrangement typically used for short-term needs. Often not registered with BPN, offering less legal protection.
Hak Guna Usaha: Primarily used for agricultural or industrial purposes; not applicable to private residential property investment.

As a result, Hak Pakai remains the only land tenure allowing foreigners legal, long-term use of land with government registration—provided strict conditions are followed.

Taxation of Hak Pakai Ownership: What Investors Need to Know

Although Hak Pakai is not considered a typical lease, acquiring or transferring this right entails several tax obligations governed by national and regional regulations.

Primary Taxes for Hak Pakai Holders

PPh – Capital Gains Tax (Pajak Penghasilan):
When selling land or property rights, the seller must pay a 2.5% capital gains tax, calculated on the sale price or the government-assessed value, whichever is higher.
BPHTB – Land and Building Rights Acquisition Tax (Bea Perolehan Hak atas Tanah dan Bangunan):
The buyer pays 5% of the declared property value, minus a regional non-taxable threshold (typically between IDR 60 million and IDR 80 million).
PBB – Annual Land and Building Tax (Pajak Bumi dan Bangunan):
Assessed at 0.5% of the taxable property value. For properties of average market value, this usually ranges between IDR 100,000 and IDR 500,000 per year.

Additional Fiscal and Administrative Costs

Uang Pemanfaatan: If the land is granted by the state, an annual usage fee—similar to ground rent—may be levied. The amount depends on land classification and region.
Stamp Duty (Bea Materai): A nominal but mandatory tax for document notarization during right transfers.
BPN Registration Fees: Payable upon initial registration and upon any extension of rights.

It’s crucial to understand that missed or improperly filed payments and documentation may result in denial of Hak Pakai extensions or nullification of the transaction.

Hak Pakai for Foreigners: Legal Limitations and Practical Realities

Foreign nationals looking to invest in land or property in Indonesia face stringent limitations. Hak Pakai is essentially the only lawful path for foreigners to obtain long-term usage rights. However, several prerequisites must be fulfilled:
Who Can Apply for Hak Pakai?

Foreign individuals holding valid temporary or permanent stay permits (KITAS/KITAP).
Legal entities with foreign capital investment (PT PMA).

Restrictions and Risks:

Expiration or cancellation of your stay permit can lead to revocation of land rights.
Hak Pakai cannot be freely transferred to another foreigner—a formal property transaction with proper BPN registration is mandatory.
Extensions require approval from land authorities and full compliance with the intended use of the property.
Misuse of land—for instance, operating a business on residential land—can result in rights being revoked.

As such, legal due diligence and professional guidance from licensed agents or notaries are strongly recommended.

Advantages and Risks of Investing Through Hak Pakai

Hak Pakai offers a legitimate path for foreign investors to enter Indonesia’s real estate market. This is particularly relevant in fast-growing regions such as Bali, Lombok, Canggu, and Jakarta.

Advantages:

Legal transparency: Government-registered land rights with legal protection.
Long-term usability: With proper renewal, tenure can extend up to 70 years.
PT PMA access: Enables corporate-level investment and business expansion.
Relatively moderate tax burden compared to other Southeast Asian markets.

Risks and Limitations:

Hak Pakai is still a time-bound right, offering limited control compared to full ownership.
Renewal is at the discretion of the land authority and is not automatic.
Only specific categories of residents or legal entities qualify.
Transfer restrictions—property cannot be passed on through inheritance or sold on the open market without re-registration.

Conclusion

For foreign investors planning long-term residence or business operations in Indonesia, securing Hak Pakai is effectively the only legal route to participate in the property market. Although subject to temporal and procedural limitations, it offers sufficient legal protection and ownership clarity. A properly structured transaction, a sound tax strategy, and ongoing legal oversight can help minimize risks and safeguard investments for years to come. It is essential to remember that Hak Pakai is contingent on valid residency, appropriate land use, and periodic renewal. In the long run, it can form the cornerstone of a successful investment strategy in Indonesia.