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The Key Question for Foreign Investors
An important question for foreign investors planning to operate in Indonesia is: what land rights can a PT PMA hold in Indonesia?
The answer depends on the type of right concerned.
A PT PMA is a limited liability company established under Indonesian law and domiciled in Indonesia. It may therefore hold several types of land rights. However, a PT PMA is not eligible to hold Hak Milik, commonly described as freehold title.
This distinction matters because each right has different objects, permitted uses, terms, requirements, and legal consequences. The appropriate right must be assessed against the company’s actual business activities, the legal status of the land, spatial planning, licensing, and the intended investment period.
Why a PT PMA Cannot Hold Hak Milik
Hak Milik is the hereditary, strongest, and fullest land right recognised under Indonesian agrarian law. Nevertheless, it is not available to every individual or legal entity.
Article 21 of Law Number 5 of 1960 on Basic Agrarian Principles (UUPA) generally reserves Hak Milik for Indonesian citizens. The Government may designate certain legal entities as eligible holders.
Under Government Regulation Number 38 of 1963, the designated legal entities, subject to limitations relating to their purposes, include:
- state-established banks;
- agricultural cooperatives;
- designated religious bodies; and
- designated social bodies.
A PT PMA is not included among the legal entities designated as eligible holders of Hak Milik under Government Regulation 38/1963. Consequently, a PT PMA is not legally qualified to hold Hak Milik over land.
Nominee Risks
A structure intended to place Hak Milik directly or indirectly for the benefit of a foreign person or an ineligible legal entity may face invalidity under Article 26(2) of the UUPA.
This issue must be distinguished from nominee shareholding. Article 33 of Law Number 25 of 2007 on Investment specifically prohibits agreements or statements confirming that shares in a limited liability company are held for and on behalf of another party. Such agreements or statements are declared null and void.
Nominee structures should therefore not be used as a shortcut to circumvent land ownership or shareholding requirements.
Land Right Instruments Available to a PT PMA
The exclusion from Hak Milik does not prevent a PT PMA from securing legally recognised control of land for its business operations. Subject to the applicable requirements, a PT PMA may use the following instruments.
1. Hak Guna Usaha, Right to Cultivate
Hak Guna Usaha (HGU) is a right to cultivate land for agricultural, fisheries, or livestock activities. Plantation activities generally fall within the agricultural category, subject to the relevant sectoral regulations.
As a legal entity established under Indonesian law and domiciled in Indonesia, a PT PMA may qualify as an HGU holder. HGU may be granted over State Land or Land under a Right of Management, known as Hak Pengelolaan or HPL.
Under Government Regulation Number 18 of 2021, HGU may be granted for:
- an initial term of up to 35 years;
- an extension of up to 25 years; and
- a renewal of up to 35 years.
The potential overall HGU cycle may therefore reach 95 years. Extensions and renewals are not automatic. The holder must continue to satisfy the applicable land use, utilisation, compliance, and other legal requirements.
The UUPA establishes a minimum HGU area of 5 hectares. For an area of 25 hectares or more, the holder must apply appropriate capital investment and sound business techniques in line with prevailing developments.
HGU is not automatically suitable merely because a project requires a large land area. Its suitability must be determined by the actual business activity, sectoral licensing, spatial planning, and the purpose for which the right is granted.
2. Hak Guna Bangunan, Right to Build
Hak Guna Bangunan (HGB) is the right to construct and own buildings on land that is not owned under Hak Milik by the HGB holder. It is commonly used for offices, factories, warehouses, commercial developments, and other operational facilities, provided that the use complies with spatial planning and the purpose of the right.
HGB may be granted over State Land, HPL land, or land held under Hak Milik.
For HGB over State Land or HPL land, the applicable terms are:
- an initial term of up to 30 years;
- an extension of up to 20 years; and
- a renewal of up to 30 years.
The potential overall HGB cycle may therefore reach 80 years. Extensions and renewals depend on compliance with the applicable legal requirements and are not automatically guaranteed.
HGB over Hak Milik land follows a different regime. It may be granted for up to 30 years and may be renewed through a new deed granting HGB over Hak Milik. Where HGB is granted over HPL land, the consent of and legal arrangements with the HPL holder must also be considered.
3. Hak Pakai, Right of Use
Hak Pakai authorises its holder to use and/or collect produce from land in accordance with the decision granting the right or an agreement with the relevant landholder. It may be granted over State Land, HPL land, or Hak Milik land.
A term-based Hak Pakai over State Land or HPL land may be granted for an initial term of up to 30 years, extended for up to 20 years, and renewed for up to 30 years.
Hak Pakai over Hak Milik land may be granted for up to 30 years and may be renewed through a deed granting a new Hak Pakai over the Hak Milik land.
Hak Pakai is not always contractual. Hak Pakai over State Land or HPL land arises through a formal decision granting the right. Hak Pakai over Hak Milik land is based on an agreement with the Hak Milik holder documented in a deed executed before a Land Deed Official.
4. Right of Lease for Buildings
A Right of Lease for Buildings allows an individual or legal entity to use another party’s Hak Milik land for building purposes in return for rental payments.
Unlike HGU, HGB, and Hak Pakai, which are granted or registered within the land rights regime, a Right of Lease is fundamentally a contractual relationship between the landowner and the tenant.
A lease may be appropriate where operations do not require a registered long-term land right. However, the tenant’s protection depends heavily on the agreement, the lessor’s authority, the legal status of the land, the term and extension mechanism, and the provisions governing buildings and termination.
Key Matters to Review Before Selecting a Right
The appropriate land right cannot be determined solely by comparing the available terms. Foreign investors and PT PMA companies should also consider the following matters.
Land status and history. The certificate, registered holder, chain of title, boundaries, physical possession, disputes, attachment orders, security rights, and other encumbrances should be examined through legal due diligence.
Spatial planning and land use. The proposed use must comply with spatial plans, the applicable Confirmation of Spatial Utilisation Activity, the purpose of the land right, and environmental and building requirements.
Business activities and licensing. The right should be consistent with the company’s actual business activities, KBLI classification, risk-based business licensing, sectoral licences, and investment commitments.
Project term and continuity. An extension or renewal should not be treated as automatic. Investment planning should consider the expiry date, extension conditions, land utilisation obligations, and the risk that an application may not be approved.
Relationship with an HPL or Hak Milik holder. Where a right is granted over HPL or Hak Milik land, the cooperation documents and the consent of the underlying rights holder require careful review.
Transaction structure. Land may be acquired through a grant of rights, a lawful transfer, a relinquishment followed by an application for a new right, or a contractual arrangement. The appropriate structure depends on the land’s existing status and the parties involved.
Conclusion
A PT PMA cannot hold Hak Milik over land in Indonesia. However, as an Indonesian legal entity, it may use HGU, HGB, Hak Pakai, or a Right of Lease to support its business operations, subject to the applicable requirements.
No single right is appropriate for every investment. The selection should reflect the company’s business activities, land status and history, spatial planning, licensing, investment period, and transaction structure.
This assessment should be conducted at the planning stage and before the company signs an agreement or makes any payment relating to the land.
Legal References
- Law Number 5 of 1960 on Basic Agrarian Principles;
- Government Regulation Number 38 of 1963 on the Designation of Legal Entities Eligible to Hold Hak Milik over Land;
- Law Number 25 of 2007 on Investment;
- Law Number 6 of 2023 on the Enactment of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation into Law;
- Government Regulation Number 18 of 2021 on Rights of Management, Land Rights, Apartment Units, and Land Registration; and
- Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency Regulation Number 18 of 2021 on Procedures for the Determination of Rights of Management and Land Rights.
Prasetyo Law Office advises investors and companies on foreign investment, PT PMA structures, land due diligence, property transactions, and business compliance in Indonesia.
For further information, please contact:
Prasetyo Law Office
Indonesia Stock Exchange Building, Tower 1, Level 3, Suite 304
Sudirman Central Business District
Jl. Jenderal Sudirman Kav. 52-53, South Jakarta 12190
Email: info@prasetyolawoffice.com
Disclaimer: This article is provided for general information and educational purposes only. It does not constitute a formal legal opinion and is not a substitute for advice based on specific facts and circumstances. The application of Indonesian land law may differ depending on the land status, location, business activity, transaction structure, and applicable licensing requirements.
