Is “Management Company” Workarounds Resolve Regulatory Conflicts on Real Estates Business?

Is “Management Company” Workarounds Do Not Resolve Regulatory Conflicts

Foreign villa owners are often told that appointing a local manager—either an Indonesian operator or a PT PMA—can “bridge” the gap between personal villa ownership and the daily rental market. Under Indonesia’s current regulatory architecture, this interpretation is inaccurate. The underlying issue is structural, not operational.

A short analytical frame clarifies the limits:

Control and economic benefit remain central

Where a villa is privately owned or leased by a foreign individual, and revenue from short‑term stays flows back to that individual—regardless of the presence of a third‑party manager—the arrangement still places foreign benefit within an activity class that policy reserves for Indonesian UMKM.

The involvement of a manager does not alter:

• who owns the asset,
• who receives the economic value, or
• how the property is used.

Regulators review these elements, not just the paperwork.

Management KBLIs create a service scope—not a legal basis for foreign short‑stay activity

A management company may lawfully hold KBLIs for property management, marketing support, or hospitality services. These codes govern what the manager is allowed to do, not what the villa owner is allowed to operate.

The existence of a compliant management company does not transform the villa into a licensed short‑term accommodation unit.

Licensing depends on:

• zoning,
• PBG and SLF for commercial accommodation,
• tourism operational licensing, and
• the business scale rules that separate UMKM accommodation from foreign participation.

If the villa itself is not approved for short‑term use, a management contract cannot make it so.

Compliance checks look at real conditions, not only contract language

When concerns are raised—by neighbours, community leaders, local operators, or authorities—the review focuses on actual control and use:

• Who receives rental proceeds?
• How is the property marketed?
• Is the building approved as accommodation?
• Does the operation sit in a protected UMKM segment?

Where inconsistencies appear, regularisation is rarely a matter of adjusting documents.

It often requires structural change, including business restructuring or discontinuation of activity.

Risk extends across all parties involved

Arrangements that rely on management companies to mask the true nature of daily rental activity create exposure for:

• the foreign villa owner,
• the management company, and
• any Indonesian counterpart whose name appears on the operation.

Risks include:

• warnings or administrative sanctions,
• refusal or non‑renewal of licenses,
• conflicts with zoning enforcement,
• reputational impact within the local community, and
• in serious cases, enforcement action.

These risks often become visible only when an issue is raised, at which point remediation becomes costly.

The need for advice based on policy, not custom

The common thread is that management arrangements do not override UMKM protection, the Positive Investment List, or sectoral accommodation rules.

Advisory input must begin with the actual regulatory categories and the operational framework in the relevant region. This allows foreign investors to pursue compliant channels—larger, licensed developments—rather than structures that conflict with the protected short‑stay segment.

Risks When Investors Do Not Track KBLI Restrictions

KBLI definitions, interpretations, and compatibility rules evolve. When PT PMA structures or operating practices do not adjust accordingly, several friction points appear. These issues surface across compliance, tax, manpower, and community relations.

Licensing processes may be delayed or rejected

OSS submissions must match KBLI descriptions.

If the PT PMA performs activities outside its registered scope or uses outdated KBLI combinations, authorities may halt:

• permit applications,
• amendments,
• expansions,
• location‑specific licensing, or
• operational renewals.

Resolving these inconsistencies often requires resubmission or structural revision.

Tax assessments may tighten

If declared KBLIs diverge from the company’s operational reality, tax authorities may:

• question reported income categories,
• reassess VAT or withholding obligations,
• reclassify parts of the business, or
• request supporting records to justify revenue streams.

Reviews of this nature are time‑consuming and may result in adjustments or penalties.

Immigration and manpower processes may face additional scrutiny

Work permits and stay permits are assessed against the company’s registered activities.

When:

• the PT PMA holds outdated KBLIs, or
• performs activities outside its listed scope,

authorities may question the justification for foreign directors or foreign skilled staff. This can complicate KITAS renewals or applications for expanded expatriate roles.

Community‑level concerns may escalate

UMKM protection and sectoral boundaries are highly visible in sectors such as small‑scale hospitality, retail, and local services.

If a PT PMA appears to operate in areas that policy reserves for Indonesian enterprises, community stakeholders may file objections. These can trigger broader reviews involving:

• licensing,
• zoning,
• real-estate use, and
• tax reporting.

Community pressure often accelerates official attention.

Proactive alignment is more efficient than corrective action

Updating KBLI selections, verifying zoning alignment, and checking compliance with the Positive Investment List on a periodic basis is a practical risk‑management step. Preventive action reduces the need for major restructuring later and supports compliance that is consistent with Indonesia’s investment policy and UMKM protection framework.