Fundamental Legal Principles

1. Fundamental Legal Principles

Under Law No. 5 of 1960 on Basic Agrarian Principles (UUPA) and Government Regulation no. 18 of 2021 , the Right to Build (Hak Guna Bangunan – HGB) is a transferable land right .

As a Foreign Investment Company (Perseroan Modal Asing Limited – PMA) is legally classified as an Indonesian legal entity, it follows that:

1. A PMA is a legal subject of HGB ; and
2. A PMA is legally entitled to transfer (sell) its HGB to another eligible party.

The object of the transaction is the HGB together with the buildings constructed thereon , not absolute ownership of the land .

2. Legal Form of “Sale” of HGB by a PMA

From a legal perspective, the “sale” of land held under HGB is conducted in the form of:

Transfer of the Right to Build (HGB)

Such transfer must be executed through a Deed of Sale and Purchase of HGB (Akta Jual Beli – AJB HGB) before a Land Deed Official (Pejabat Pembuat Akta Tanah – PPAT) .

Objects of Transfer

The transfer shall include:

• The Right to Build (HGB) ;
• The remaining term of the HGB; and
• Any buildings and/or facilities erected on the land, if any.

3. Eligible Purchasers of HGB Held by a PMA

An HGB registered in the name of a PMA may only be transferred to parties who qualify as legal HGB subjects , namely:

1. Indonesian citizens (WNI) ;
2. Indonesian legal entities , including:
   • Local limited liability companies (PT);
   • Other PMA companies;
   • State-owned or regional-owned enterprises ( BUMN/BUMD ).

❌ Foreign individuals (WNA) are not eligible subjects of HGB and therefore may not directly purchase HGB .

4. Key Legal Conditions for the Sale of HGB by a PMA

The sale and transfer of HGB may only be carried out provided that the following conditions are satisfied:

A. Validity of the HGB

• The HGB remains valid and effective ;
• The HGB is not subject to dispute ;
• The HGB is not blocked or restricted in the land registry.

B. Absence of Transfer Restrictions

A review must be conducted of:

• The HGB certificate (including annotations or encumbrances);
• Underlying agreements, such as:
  • Agreements with the holder of Management Rights (HPL) ;
  • Joint venture agreements;
  • Financing or credit agreements.

C. Encumbrance with Mortgage Right

If the HGB is encumbered with a Mortgage Right , the transfer requires:

• Prior written consent from the bank or secured creditor; or
• Full release of the mortgage ( Roya ) prior to transfer.

5. Summary of the Sale Mechanism

The standard procedure for the sale and transfer of HGB includes:

1. Examination of the HGB certificate at the Land Office (BPN) ;
2. Obtaining approvals from relevant parties (if subject to HPL or Mortgage Rights);
3. Execution of the Deed of Sale and Purchase (AJB HGB) before a PPAT;
4. Payment of applicable taxes:
   • Income Tax (PPh) borne by the seller;
   • Land and Building Acquisition Duty (BPHTB) borne by the buyer;
5. Registration of the transfer and change of name at the Land Office ( BPN ).

6. Common Alternative Transaction Structures Used by PMAs

In practice, for tax efficiency and investment structuring purposes, PMAs often utilize alternative transaction structures, including:

• Share Deal → sale of shares in the PMA (not the HGB itself);
• Asset Deal → direct sale of the HGB.

Both structures are legally permissible under Indonesian law, but each carries distinct legal, tax, and commercial implications .

7. Legal Conclusion

1. An HGB registered in the name of a PMA may be legally sold and transferred under Indonesian law;
2. The transaction involves the transfer of land rights (HGB) , not absolute ownership of land;
3. The purchaser must be a qualified subject of HGB ;
4. Foreign individuals are not permitted to acquire HGB directly;
5. The transfer must be executed before a PPAT and duly registered at the Land Office (BPN) .