Renting out a villa in Bali is one of the most common business activities among foreigners on the island. However, due to lack of experience or wrong information, it is easy to lose money instead of making profits when renting out villas in Bali.
While Bali does not allow foreign ownership in the villa rental classification, immigration has been actively tracking down foreigners who engage in accommodation business in Bali without having proper licenses and visas.
This article will explain how you as a foreigner can rent out a villa in Bali legally without jeopardizing your investment.
Why start villa rental business in Bali?
According to the Bali Statistics Agency, about 5.7 million international tourists visited Bali in 2017 which is nearly a million more than in 2016. In 2019, the island aims to attract 8 million foreign visitors.
Adding the numerous entrepreneurs and nomads who have chosen to relocate to Bali permanently, the demand for housing in Bali is on a constant rise.
Bali’s reputation of a paradise island also describes its accommodation market. Many people look for a paradise and the feeling of getting lost in it during a cozy getaway – something they will not find in a big hotel but rather in a private villa.
People have different motives for renting out a villa in Bali, the most popular ones being:
- Buying and renting multiple villas for luxurious getaways
- Buying a villa for personal use, renting it out occasionally during high seasons or while traveling
- Both – building a villa complex that has units for renting out and others for personal use
Can foreigners rent out villas in Bali?
The villa rental classification is not in the Negative Investment List (DNI) in Indonesia. However, due to local regulations in Bali, it’s impossible to get the local operational licenses which you will need to operate legally.
In other words, as a foreigner, you cannot rent out your villa in Bali using a foreign-owned company.
However, the solution to the foreign ownership restriction is to set up a local nominee company in Bali under the “villa” business classification.
What is a nominee company?
A nominee company is a company which registered owner (nominee) is not the same as the actual owner (beneficiary). As the nominee company will be locally-owned, there is no foreign ownership restriction, and you don’t have to comply with the minimum capital requirement in Indonesia either.
The relations between the nominee shareholder and beneficiaries are commercially governed through a loan agreement where the nominee (Emerhub) is purchasing the shares in the company by using a loan provided by the recipient (you).
Why you shouldn’t use individual nominees in Bali
When facing foreign ownership restrictions, many foreigners in Bali put their investment at risk by getting into unsafe nominee agreements with friends or family members.
These types of agreements are often based on blind trust and give the foreigner no protection over the investment. Even if the nominee has the best intentions, the problems usually start when other family members are involved.
Death, marriage, and divorce can all bring in third parties who may have different plans with your investment. There are plenty of foreigners who have gotten into trouble with their property investments in Bali for the same reason.
The safe way would be to use a nominee company service that uses corporate shareholders. It also allows you to legally become the director of the company and therefore, fully control its finances.
Want to know more about renting out a villa in Bali using a nominee company with corporate shareholders? Reach out to us for a free consultation via [email protected].
The importance of the building permit
Make sure the villa you are purchasing has the correct building permit (IMB) or obtain it before the beginning of the construction as this is the document that defines the legal use of the building.
However, it often happens that villa owners realize too late that their properties do not have the necessary building documentation.
If you find out that your villa IMB is different than what you need, don’t worry. It is still possible to make the necessary changes.
Also, whether you can operate a homestay, villa, or a hotel depends on the IMB of the building or the plan of how it is going to look like.
If you decide to build a villa, conduct thorough research on land acquisition and the types of land certificates. For an in-depth overview, read our previous article on land acquisition in Bali.
Requirements for villas in Bali
If you decide to invest in a villa in Bali, keep in mind that the minimum land size for a villa is ten are (1,000m2). While there are no restrictions on the room size, your villa can only have up to 25 rooms.
The building must consist of several units and 1 unit of several rooms, not to confuse with a hotel where one building comprises many rooms, not units.
Alternative business classifications for villa rental in Bali
There are also alternative business classifications if your property does not have the IMB with the function “villa.”
Hospitality management consultation
You can use the hospitality management consultation classification for managing accommodation businesses. It allows 100% foreign ownership and includes activities of tourism consultants, such as:
- Provision of views
- Preparation of feasibility studies
- Research in the field of tourism
One of the main benefits of this classification is that it allows the administration of different accommodations in different locations. Whereas, for example, to operate a villa, the company must be registered where the villa is located.
Real estate classification
Foreign investors can also set up fully foreign-owned real estate businesses in Indonesia. However, if you are planning to rent out your villa under the real estate classification, you are only allowed to offer long-term rentals, but not to rent out your villa to tourists on a daily basis.
The real estate classification is suitable for you is you plan on living in your villa for half a year and lease it out for the rest of the year.
For the above business classifications, it is possible to register the company using a virtual office, meaning that your company does not have an actual office but just a registered address where the post can be delivered.
Having a virtual office also means that you can register the company before buying the property. Consequently, you can acquire the property under the name of the company.
Other types of accommodation businesses in Bali
#1 Running a homestay (Pondok Wisata)
It is also possible for a foreign investor to run a homestay (Pondok Wisata) in Bali. You can set up a wholly foreign-owned company in Indonesia (PT PMA) for acquiring land in Bali and manage the Pondok Wisata with a PMA or a PT under the hospitality management consultation classification.
However, as Pondok Wisata can only be under the name of an Indonesian individual, the licenses of a Pondok Wisata are processed in the name of an Indonesian, usually the (former) landowner.
The person subject to the accommodation tax is the owner of the Pondok Wisata. It is common practice that the owner of the homestay and the PMA make a management agreement. In the agreement, they state that the PMA pays the accommodation tax on behalf of the Pondok Wisata’s owner.
The general requirements for a homestay in Bali are:
- Up to 5 rooms (suitable for small buildings)
- Maximum room size 32m2
- Maximum 2 floors
- Building coverage ratio 50%
- Possible facilities: pool, kitchen, living room, family room, up to 5 bedrooms
#2 Setting up a hotel in Bali
The registration of hotels in Bali is quite complex. This business classification is mainly suitable for big hotels located in large tourist areas.
While there are no restrictions on the dimensions of the building and the number of rooms, the maximum allowed room size is 32m2, and the minimum land areas must be:
- 75 are (7,500m2) in North Kuta
- 50 are (5,000m2) in Kuta
If the land area of your hotel exceeds 1 ha, you will also need a classification from the Indonesia Hotels and Restaurants Association (PHRI).
Keep in mind that all accommodation businesses in Bali must be located only in tourist areas and you cannot operate as an accommodation business if the building is in a residential area.
However, in such case, you can register your business in the real estate classification and provide long-term leases. This company can be both foreign or local.
Ready to start renting out a villa in Bali?
Our consultants are here to assist you. Book a free initial appointment via the form below or send us an email at [email protected].