3 THINGS YOU NEED TO KNOW ON FOREIGN INVESTMENT IN THE HOSPITALITY BUSINESS IN INDONESIA

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Running a Hotel in Indonesia is one of its most lucrative business, especially with the country’s many tourist destinations. Learn more regarding the requirements of foreign investment in the Indonesian hotel business.


We’re not selling (Indonesian) islands, but they (foreign investors) can name them. (They) name it Yokohama, it’s up to them. The most important thing is that those islands are still Indonesian islands. Not Japanese islands.”

Luhut Binsar Pandjaitan, Coordinating Minister for Maritime Affairs, 9 January 2017

With the intention to attract more tourists, the Coordinating Minister for Maritime Affairs of Indonesia created some headlines in regards to his statement in early January, stating that the Government is planning to allow island management by foreigners. Despite the controversial statement, foreign investment in the hospitality business in Indonesia, especially in hotel and resort operation, is one of the most lucrative investments in the country, with its sprawling islands full of natural resources attracting thousands of tourists every year.

There are 3 (three) things you need to know regarding foreign investment in hotel business in Indonesia, which are as follows:

  1. REGULATED BY NEGATIVE INVESTMENT LIST

The foreign shareholding ownership for the hospitality business is regulated within the Negative Investment List / Daftar Negatif Investasi (“DNI”) latest issued on October 2017.

DNI generally divides the allowed investment based on your required funds:

No.

Type of Hotel

Maximum Foreign Ownership  Percentage

01

Homestays

Not Allowed

02

2-Stars Hotel

Maximum 67%

03

1-Star Hotel

Maximum 67%

04

Non-Star Hotel

Maximum 67%

05

Motel

Maximum 67%

 ASEAN 70%

06

3-Stars Hotel and above

Open for 100%

  1. EACH SITE HAS ITS OWN LOCAL LICENSES AND ITS OWN REGIONAL TAXES

Even though the Hotel Operators or Management is allowed to have its head office in a separate province (e.g. Head Office for marketing purpose located in DKI Jakarta, while the Hotel itself is located in Bali), the local laws and regulations apply actively to the hotel.

The most important local laws and regulations which are applicable to the hotel which the Operator must know includes the prevailing Regional Taxes, especially concerning Hotel Services, and also the local regulations concerning the Hotel Site, Employment Matters, and even Nuisance regulations.

Therefore, investors must ensure that the operators in charge of their Hotel are fully aware on the local laws and regulations applying to the Hotel, and comply with such.

  1. LAND ACQUISITION PURSUANT TO THE AGRARIAN AND ENVIRONMENTAL LAW

When talking about acquiring the land in which the Hotel will be situated, foreign investors must be aware of what kind of laws and regulations apply to the Hotel Site. This includes awareness of the land ownership status- which allows PMA Companies to own either the rights to build on the land or to rent the land, but not the land title itself. Such arrangement must be secured as required, especially concerning the agreement with the local owners of the land.

Construction of the Hotel must also comply with the prevailing laws and regulations, such as to obtain Location and Building Permit and ensuring that the area in which the Hotel is built does not violate any laws and regulations regarding environmental preservation, which are common in Indonesia’s remote locations.

HOW CAN SMART CONSULTING HELP YOU?

 

To ensure a smooth investment and business operation from the legal perspective, but also still focus on establishing your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with investment regulation.

SMART Consulting is an Indonesian Corporate Legal Services firm.  SMART has worked and assisted with foreign investors in establishing PMA Companies in Indonesia with 100% success rate, including assisting them in preparing for BKPM Presentations, and we also assist in providing advisory services for the investors in regards to their business sectors from a legal perspective.

Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.

E:  info@smartcolaw.com

H: +62821-1234-1235

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