Villa Subletting in Bali

As you are moving to Bali – or already living here – you may already came upon this question.

’Is it worth opening a holiday rental accommodation by renting a villa for a year?’

Starting your own business in Bali is quite a common thing among expats. The island gives you lots of opportunities to bring your ideas into life. Renting a villa for a year and turn it into a nice holiday accommodation seems an attractive, exciting and easy concept for many. Wide villa selection, cheap prices, mass of tourists all year long. Even if you buy a personal villa and rent it out while being away or if you just establish a getaway for tourists is a really common idea.

However it is very complicated to start a villa rental activity with yearly rentals legally in Bali. Changing governmental laws and impenetrable legal processes can be a headache for foreigners and one has to be careful not to forget about important factors. Before you spend thousands of dollars on renting the perfect villa, there are some “Good to know’s” which you should consider if you think about starting a rental business on the island of gods.

Almost impossible to find a yearly rental villa with IMB Pondok Wisata (Business Rental Licence)

To understand that issue, first of all you have to understand about IMBs in Indonesia. Read this article to get more insight on that.

Basically the IMB permit – based on the zoning of the land plot the property is built on – tells you the purpose of the property. The IMB is the responsibility of the owner – if you rent it, it is your landlord’s responsibility. It specifies the purpose of it which can be residential and commercial. Unfortunately most of the yearly listings are only for residential purpose (IMB Rumah Tinggal) and have no governmental allowance to use them for commercial purpose.

For renting out your villa you will need a IMB Pondok Wisata or IMB Rumah Kos.

Owner’s willingness for subletting

Once you luckily have found a suitable property and you still want to go on, taking the risk with a residential villa,  there is a possibility to ask the owner’s ok about subletting without an IMB or a commercial license – but be prepared that 95% of the owner’s will definetly say no and even if they agree, this is not a good choice as it is illegal practice to do so.

Additional costs to consider

You found a bargain and you are sure this will bring you a high ROI through rentals without any further costs? Think again

General costs like paying for the staff and for the villa management, electricity, renovations and maintenance are your responsibility. Considering the big competition and the huge supply you have to calculate with marketing and advertisement budget as well.

If you do not have a commercial permit although the owner allows you to rent out his property, be aware that there are frequent controls about the IMB. If you are caught by the government you have to pay all the penalties, go through painful legal processes and you might face a possible closure of your villa.

Risk of open advertising

If you are subletting a villa illegally, another thing to pay attention is your restricted advertising opportunity. Airbnb or Facebook ads are risky as government officers can easily find you and control it.

Legality regarding working permit

Subletting your villa is considered as working in Indonesia as a foreigner. Therefore you are required to hold a temporary stay permit (KITAS) and a work permit (IMTA) and take care about their yearly renewal. This is the same case if you set up a PMA (Foreign investment company structure). It costs time and a lot of money but you definitely should not skip this step.

Taxation

If you rent a property with Pondok Wisata, you have to obtain a tax identification number (NPWPD) relevant to your property so you can declare your income and pay taxes. Taxes should be paid monthly (after your income) and annually (after the land). There are also additional taxes for example construction tax after the completed building constructions. It is important to find a good notary who can give you professional advice and can manage your taxation responsibilities.

In case you operate your villa rental without a license it is not possible for you to pay your income tax. Note if you will be caught through a governmental control, you can end up in prison as well.

Possibility of making a good ROI

Renting a property yearly is very expensive compared to long term leasing. It is more likely to generate good returns on the original investment when you invest in a long term lease than with a yearly rental.

Is there a recommended legal way?

If you are planning to sublet your yearly rental, it is better to rent it out monthly than daily. This option is possible to arrange with IMB Rumah Tinggal and there is no need to obtain a Pondok Wisata.

Another option is to buy a leasehold villa which has a IMB Pondok Wisata or Rumah Kos. A leasehold agreement entitles the holder the right to use the building on someone else’s land for a fixed period of time under the title of Hak Pakai. The villa remains under the ownership of the original owner but you will have a legal contract about the long term usage. The period of lease is generally around 25-30 years and usually it can be extended. Under a leasehold contract the villa or property is able to be rented out daily as well and basically you are the ‘owner’. After the lease ends, the building goes back to the landowner.

No matter which solution would suit your preferences, it is always recommended to go after all the laws and regulations, find an accurate notary and get more information about the circumstances. If you take deliberate steps and make good decisions, you can have a long, happy and profitable life in Bali.

The above article is provided as a guide only. Before you take any actions you should consider to ask for legal advice from a lawyer or a reliable agent.

Bali Treasure Properties is a Real Estate Agency based in Bali. Our mission is to provide a new form of personalized, consistent, transparent and honest service for renters, buyers and owners.

Whether you are searching for a villa long term rental or want buy property and looking for villas for sale & land for sale in Bali – we are happy to help. Contact us by mail info@balitreasureproperties.com and follow us on Facebook.