Indonesia Is Cleaning Up Illegal Villas and Hotels: Foreign Investors Must Fix Their PMA Structures Before It Is Too Late

Foreign investors often enter Indonesia's accommodation sector through several models. Some establish a PT PMA. Some acquire or cooperate with an existing Indonesian company. Others use lease-and-operate structures, management agreements, joint ventures, or partnerships with local landowners. Each model carries different legal consequences. However, under the new compliance climate, one principle is becoming unavoidable: the legal structure must match the actual business activity.

A villa marketed to tourists cannot safely rely on the legal status of a private residence. A serviced apartment operated as tourist accommodation cannot hide behind an unrelated business classification. A foreign-controlled hospitality business should not depend on informal nominee arrangements. A property listed under one name on an OTA but licensed under another entity may also create legal exposure. The upcoming integration between OSS and OTA platforms will make these inconsistencies easier to detect.

Many investors mistakenly believe that having an NIB is enough. It is not. The NIB is only the entry point into Indonesia's business licensing system. Under the risk-based licensing framework, businesses must also comply with the required standards, permits, certificates, and sectoral obligations depending on the risk level and business field.

In tourism accommodation, this means investors must look beyond company establishment. They must examine whether the selected KBLI is correct, whether the business activity is permitted at the project location, whether the building function supports commercial accommodation, whether local tax obligations are fulfilled, and whether the business meets applicable tourism standards. This is where many accommodation investments become legally vulnerable. The problem is often not one single missing document — it is the mismatch between the company, the land, the building, the license, the tax profile, and the way the asset is actually sold to the market.

Several risks frequently appear in foreign-linked accommodation businesses in Indonesia. First, a villa is marketed as tourist accommodation while the underlying property is still legally treated as a private residence. This creates exposure in licensing, zoning, building function, taxation, and consumer protection.

Second, foreign investors may use nominee structures to control assets or operations. These structures can be highly vulnerable, especially when disputes arise with local partners, heirs, creditors, or authorities. Third, some businesses use incorrect KBLI classifications. The OSS system may show an active company, but the classification does not reflect the actual accommodation activity.

Fourth, investors often separate legal ownership, operational control, OTA listing, bank account, and tax reporting across different parties without a clear legal architecture. Such fragmentation may look commercially convenient, but it can be legally dangerous. Fifth, older properties may have incomplete building approvals, zoning inconsistencies, or outdated permits. These issues may not disturb daily operations at first, but they can become critical during inspection, refinancing, sale, acquisition, or dispute.

Indonesia remains open to foreign investment in many commercial sectors. The country needs serious investment to develop high-quality tourism destinations, professional hospitality assets, and sustainable accommodation businesses. However, openness to investment does not mean freedom from compliance.

A PT PMA must still comply with investment rules, OSS licensing, sectoral tourism standards, land and building regulations, manpower laws, tax obligations, and local government supervision. For accommodation businesses, the challenge is not merely how to enter Indonesia — the challenge is how to enter correctly. A properly structured PT PMA should not be treated as a decorative legal shell. It must be supported by correct capital planning, appropriate KBLI, accurate OSS data, proper operational authority, clean contracts, and a clear relationship with the underlying property.

The solution is not to avoid Indonesia. The solution is to build a legally sustainable investment structure before enforcement becomes stricter. Foreign investors and PMA companies should begin with a full legal audit of their accommodation assets. This audit should cover the company deed, shareholder structure, OSS profile, NIB, KBLI, business permits, land title, lease or management agreement, zoning, building approvals, tax registration, local tax obligations, employment structure, insurance, and OTA listing data.

Second, investors must align the legal identity of the business. The company name, NIB, KBLI, tax registration, operating agreement, bank account, and OTA account should support one coherent legal story. Any mismatch should be corrected before digital verification becomes more rigorous. Third, investors should avoid nominee-based control. Where foreign investment exists, the safer route is to use a proper PT PMA structure or another lawful contractual arrangement.

Fourth, investors should prepare a compliance file for every property. This file should include the NIB, KBLI, OSS licensing status, company documents, tax documents, land and building documents, operational permits, and evidence of authority to manage or operate the property. Fifth, legacy arrangements should be restructured. Many profitable villas and boutique accommodations in Indonesia were created before the current licensing system became more integrated. These businesses should not wait for delisting, inspection, or investor conflict before regularizing their position.

This policy will likely divide the market into two groups: businesses that are legally prepared and businesses that are merely commercially active. For foreign investors, this creates opportunity. Properly licensed accommodation assets will become more valuable. They will be easier to finance, easier to sell, easier to insure, and easier to partner with reputable platforms, operators, banks, and institutional investors.

The clean-up of illegal accommodation may also create fairer competition. Licensed hotels, villas, and homestays have long faced competition from informal operators that avoid licensing costs, local taxes, employment obligations, and safety standards. A stronger verification system may help restore a more level playing field. In the long term, Indonesia's tourism industry will benefit from this transition — and investors who choose to comply early will be better positioned to benefit from it.