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Andi Refandi
Andi serves as a Senior Account Executive on Emerhub’s global team.
Foreigners commonly undertake villa rental as a business activity in Bali, due to the island’s popularity as a tourist destination. However, misinformation and a lack of experience often lead to unnecessary problems for foreign entrepreneurs. This article will guide you through legally operating your business in villa rental in Bali.
Overview of the villa rental industry in Bali
How to buy property in Bali as a foreigner
Bali allows foreigners to enter into property transactions once they own either a freehold property or leasehold property. Freehold refers to full ownership of a property through purchasing its rights; however, you must first register a PT PMA in Bali before you can own the Right to Use or Right to Build titles
Alternatively, leasehold properties involve entering into a long-term lease with the property or land owner, which generally spans periods of 15 to 30 years. Leasehold contracts automatically give you rights to the property, but we recommend that you work with a real estate service to ensure that your contract allows you to rent your villa as a foreign investor.
Whether you are looking at buying a villa in Bali or entering into a leasehold agreement, Emerhub’s property management team can assist you throughout the process. Our team can also help secure building permits and perform due diligence checks. To learn more, be sure to read our related post on how to buy property in Bali as a foreigner.
Common Bali villa rental businesses for foreigners
People have different motives for renting or leasing out villas in Bali. Most foreign investors are drawn by the lifestyle in Bali, and not just the financial benefits of running a property business. Below you will find an overview of the most popular Bali villa rental business models for foreign entrepreneurs and investors:
- Establishing a PT PMA and buying and renting multiple villas for holiday getaways or retreats
- Buying a villa for personal use and renting it out occasionally during high seasons or while traveling
- Combination – setting up a company and building a villa complex that has units for renting out and others for personal use
Most villa rental business models in Bali require that you set up a company first. Emerhub’s local experts can help you establish an Indonesian legal entity that is specifically set up to meet the requirements for entering the villa rental industry.
How to set up a villa rental company in Bali?
Selecting the right business classification for your villa rental in Bali
In 2021, the Indonesian government established changes to the country’s negative investment list, thereby preventing foreigners from owning a business classified for villa rental. This type of company is now exclusively available for Indonesians through small and medium enterprises. Despite this, foreigners can still rent out a villa in Bali, through the following business structures:
- Short-term rentals (daily or weekly)
- Long-term rentals (monthly)
Per local laws, only Indonesian Citizens can own freehold land. Remember that using individual nominees to purchase property as a foreigner is illegal and a high-risk investment due to a lack of control over your investment. If you want to build a villa, Emerhub can help you with legally securing land and applying for the necessary certificates.
How to set up a short-term rental business in Bali?
You can set up a Hospitality Management Consulting PT PMA with 100% foreign ownership which allows you to rent out a villa on a daily or weekly basis. Since the negative investment list does not allow a PT PMA to run a short-term rental, you will need to appoint a local and obtain a Pondok Wisata license.
This business structure allows you to purchase land in tourist zones of Bali manage the buildings on that land and provide short and long-term rentals. Owning a Hospitality management business in Indonesia also allows you to manage multiple accommodations in different locations.
Setting up a business for long-term villa rental in Bali
You can set up 100% foreign-owned real estate businesses in Indonesia. However, only long-term (monthly) rentals are legal under this classification. This business model works well if you plan on living in your villa for part of the year. You can lease it out to tourists for the rest of the year, but you cannot rent out your villa to tourists for daily stays.
It is possible to register a real estate company using our virtual office service. This means that your company will not have an actual physical office. Instead, it will use a registered address that we can provide where your mail can be delivered. Having a virtual office also allows you to register the company before buying a property.
Key requirements for legally renting out a villa in Bali
As mentioned previously, buildings that are classified as villas or homestays can only be owned by Indonesian nationals. If you have registered a foreign owned real estate or hospitality business, you can still lease the land on which these properties sit on and set up a binding agreement with the local owner of the building.
In this agreement, you can establisht the terms of how you want to manage the building including the provision of short and long term rentals. Once you’ve decided on the kind of property (or properties) you wish to acquire, you must ensure that each building has the correct building permit as this will define its legal use:
- Perizinan Bangunan Gedung (PBG): This is also known as the building approval certificate, as it confirms that the construction project is up to local safety standards.
- Sertifikat Laik Fungsi (SLF): The building function certificate registers a building for its intended use and ensures compliance with space, zoning, and the issued PBG.
Your property’s building permits will dictate the extent of your planned construction and will determine if your property can operate as a homestay or villa. If the property you’re planning to acquire doesn’t have the right permits, Emerhub can help you apply for these before you begin construction.
Ready to start renting out a villa in Bali? Get in touch with Emerhub via the form below to book a free consultation one of our local legal experts!
