Renting out villa in Bali is one of the most common business activities conducted by foreigners on the island. However, due to lack of experience or wrong information it is easy to lose money with villas.

Did you know that in Badung regency in Bali it is possible to register a 100% foreign owned company under business classification “villa”? Or about the alternative classifications in addition to just listing your property as “villa”?

In this article we highlight a number of must do’s to simplify the entrance to Bali villa renting market.

Why to start renting out villa in Bali?
People have different motivation for renting out villa in Bali. Most common are the following:

• Buying and renting multiple villas for luxurious getaways
• Buying a personal villa, renting it out occasionally during high seasons or while travelling
• Both – building a villa complex parts of which are rented for third parties, others for personal use

Bali’s reputation of a paradise island also describes the specific accommodation market. Many look for paradise and the feeling of getting lost in it during a cozy private getaway. Something they will not find in a big hotel rather than in a well-maintained villa. Choosing a villa, travelers will not feel the burden of high occupancy – no one’s mood is ruined by waiting in line for check-in or breakfast.

#1 Does the villa have a building permit?
Once you have found an excellent area to conduct business (either buy buying a property or start building), note that your villa needs a building permit (IMB). The IMB must be obtained before the beginning of the building construction in Indonesia.

However, it often happens in Bali that villa owners realize too late that their properties do not have proper building documentations. As this is actually the document that defines the rightful use of the building you must ask about this from the very beginning of the purchase.

If you find out that your villa IMB is different than what you need, don’t worry. It is still possible to make necessary changes. Let’s say you are buying a villa for renting purposes but IMB classifies the property as a private house. Change the building permit to keep your documentation legally correct and avoid extra expenses at a later stage.

#2 Exception in Badung regency business classifications
According to the general regulation, business classification “villa” does not allow any foreign ownership. However, in Badung regency in Bali, there is an exception, and licenses for 100% foreign owned companies under business classification “villa” are issued. In order to get this qualification, amongst others the villa must have an IMB with the function villa, there are requirements to minimum land size etc.

#3 Alternative business classifications for your villa
There are alternative business classification options in case your property currently does not have the IMB with the function  “villa”.

Hospitality Management

• 100% foreign ownership
• Allows management of tourism accommodation all over Indonesia

Real Estate

• 100% foreign ownership
• Long-term rentals are allowed but not rentals to tourists on daily basis

* The real estate classification is suitable for example people living in their villa for half a year and planning to lease it out for the rest of the year.

For the above business classifications it is possible to register the company in a virtual office. This is in case the building itself has no respective building documents.

#4 Set up a company to build a villa
In case you decide to start from the very beginning and build a villa, do research on land acquisition. Foreigners can currently obtain only three land certificates. 

The wisest and safest way to start legally renting out a villa in Bali is to set up a 100% foreign-owned company (PT PMA). By the time you start receiving rental payments, you should either have already registered a company or have KITAS. By doing so, you will be able to pay necessary taxes as requested by law.

When comparing the two, setting up a company in Bali takes approximately 5-6 months while you will also need additional 3 months after incorporation to process KITAS. 

This blog was first published on emerhub.com

Similar to this:

Essential Tips for Renting Out Villa in Bali

Real Estate in Bali - Overbuilding

Making your Villa pay