Securing Your Business Location in Indonesia

In order to secure land for investment purposes in Indonesia, a location permit is required. Such is needed to avoid risks of being approached by third parties claiming for the same plot of land and to ensure that the intended business activity is in accordance with the local spatial planning so as to avoid potential exposure to government actions.

The procedure to obtain this Location Permit was recently revamped with the issuance of Minister of Agrarian and Spatial Affairs/Head of National Land Agency Regulation No. 5 of 2015[1] regarding Location Permits (“New Regulation”), which came into force on 28 April 2015, replacing a previous framework under Minister of Agrarian Affairs/Head of National Land Agency Regulation No. 2 of 1999 regarding Procedures in Granting Location Permits for Foreign and Domestic Investments (“Old Regulation”).

Only For Investment Companies?

Before further elaboration regarding Location Permits, it is first important to note that the New Regulation defines a company under Article 1 (2) as “an individual or legal entity that has obtained a license to perform an investment in Indonesia in accordance with provisions under laws and regulations.”

This infers that only those that have secured a license from the Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”) can obtain a Location Permit. Such is further affirmed under Article 2 of the New Regulation, which states that “every Company that has obtained an investment approval must have a Location Permit to acquisition the land required to carry out the investment plan in question.”

Exceptions

A Location Permit is not required in the following cases:[2]

  1. Land provided by any shareholder of the company (note that companies are not allowed to own land in Indonesia);
  2. Intended location is already owned or under the control of the company;
  3. Locations within an industrial zone (kawasan industri);
  4. For business expansion purposes, provided that the expansion area is directly connected with the original business location (not a separate area); and
  5. Land required is no more than 25 hectares for agricultural businesses or 10,000 m2 for other types of businesses.

Purpose and Area Limitations

Location Permits for certain businesses are subject to an area limitation. The following table elaborates these area limitations for a company or a group of company.[3][4]

Type of Business

Specific Business Line Total Area
In One Province

Throughout Indonesia

Developers Residences 400 4,000 (previously 2,000 under the Old Regulation)
Resorts and hotels 200
Industrial area businesses 400 4,000
Plantation businesses Sugar cane 60,000 150,000
Other food commodities[5] 20,000 100,000
Fishpond businesses Inside the Java island 100 1,000
Outside the Java Island 200 2,000

Note that the total land area that can be granted in the Papua and West Papua province is twice the said stipulated area limitation.[6]

These area limitations do not apply to public utility companies (perusahaan umum), state-owned and regional-owned enterprises, and other businesses owned by the government, as well as publicly traded companies with 50 percent of shares traded on a stock exchange.[7]

Licensing Procedure

The New Regulation does not specify the procedure for securing a location permit as such is under the authority of local governments (provincial, regency and city governments) in accordance with Law No. 23 of 2014 regarding Regional Governance, as lastly amended by Law No. 9 of 2015 (“Regional Governance Law”), which is further affirmed by Article 15 of the New Regulation.

Pursuant to the Appendix to the Regional Governance Law and Article 9 (4) and (5) of the New Regulation:

  1. Regents and mayors have authority to issue Location Permits for those in their respective jurisdiction;
  2. Governors have authority to issue Location Permits that overlap over multiple regencies and cities within their jurisdiction; and
  3. Minister of Agrarian Affairs/Head of National Land Agency (“Minister”) for those that cross over multiple provinces.

Validity Period and Extensions

All Location Permits are given a validity period of 3 years, and the Location Permit holder must complete its land acquisition within this period. Location Permits can be extended by 1 year, provided that 50 percent or more of the Location Permit has been acquisitioned.[8]

If the land acquisition is not completed up to 50 percent within the validity period of the Location Permit, all land plots that have been acquisitioned will be given to other companies.[9]

Rights and Obligations of Location Permit Holders

The rights of Location Permit holders generally revolve around the relinquishment of the land area stipulated in their respective Location Permit. Location Permit holders can relinquish the rights to land of other parties through a sale and purchase transaction, providing compensation, land consolidation, or other lawful measures. Subsequently, the Location Permit holder can register a land right and utilize the relinquished land in accordance with their investment plan.[10]

Location Permit holders are subject to an array of obligations as follow:[11]

  1. Hold reverence to parties that have yet to transfer their rights to the Location Permit holder;
  2. Register all acquisitioned land with the local land office;
  3. Utilize the land for its permitted purposes as set out in their investment plans; and
  4. Report to the head of the local land office every 3 months regarding the land acquisition’s progress and the use of the acquisitioned land.

 


FOOTNOTES

[1] The National Land Agency is chaired by the Minister of Agrarian and Spatial Affairs. See: Article 5 of Presidential Regulation No. 20 of 2015 regarding National Land Agency

[2] New Regulation, Art. 2 (3)

[3] A group of company is defined as two or more business entities whose shares are partially owned by an individual or by the same legal entity directly or through another legal entity, and through that ownership can determine the implementation or operation of a business entity directly or indirectly. See: Article 1 (3) of the New Regulation

[4] New Regulation, Art. 4 (1)

[5] Other food commodities are defined as agricultural, horticultural, plantation, forestry, or fishery produces, whether processed or not, that are intended as food or beverage for human consumption, which includes food additives, raw food materials, and other materials used in the process of preparing, processing or making food or beverage. See: Article 1 (5) of the New Regulation

[6] New Regulation, Art. 4 (2)

[7] New Regulation, Art. 4 (4)

[8] New Regulation, Art. 5 (1), (2) and (3)

[9] New Regulation, Art. 5 (7)

[10] New Regulation, Art. 12 (1) and (4)

[11] New Regulation, Arts. 7, 12 (3) and (4), and 13


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