Legal Myths Expats Still Believe in Bali

Spend enough time among Bali’s expat community, and you’ll probably hear a lot of well-meaning but potentially inaccurate advice on what you can legally do here. While some of it may have been true in days gone by, Indonesia’s enforcement of regulations is ramping up. That means that certain things which previously would have flown under the radar could now cause major problems. So if you're living, working or running a business in Bali, let’s separate fact from fiction once and for all by exploring the most commonly held legal myths.

In Bali’s expat community, legal advice often spreads informally, but not all of it is accurate. With stricter enforcement in Indonesia, what once went unnoticed can now create real risks.

1. "My agent said this structure is legal."

The truth is: your agent isn’t legally liable if something goes wrong - you are. 

It’s a story as old as time: expats saying their Investor KITAS or “Freelance KITAS” is fully legal despite them not being part of any operational business, or there being no such thing as a ‘Freelance KITAS.’ 

To legally work in Indonesia, you need a Working KITAS sponsored by a company. Even an Artist or Entertainment KITAS must be sponsored by a registered company in Indonesia, so it’s not truly freelance in a sense that you can work for whoever you want without restrictions. 

However, that doesn’t mean that if you’re a DJ or a performer with an Entertainment KITAS from one venue, you can’t legally work in another venue, but you should have proper company-to-company agreements in place and only work in the role specified on your work permit. Most people skip this step entirely, operating on cash payments or informal arrangements, which could potentially cause issues if found out by immigration. 

Similarly, an Investor KITAS must be tied to a legitimate PT PMA in which you genuinely hold shares and intend to contribute substantial capital investment - not just a paper structure set up by an agent. While these arrangements have been promoted as legitimate avenues in the past, if they were ever to come under scrutiny, you could be questioned by Immigration about your genuine investment intentions.

Your agent might have charged you a fortune, but that doesn't mean it's legitimate. When setting up any legal structure, choose your visa agent carefully and always do your own research. 

2. "I have Investor KITAS, so I can work."

The truth is: an Investor KITAS doesn’t allow you to work hands-on.

If you hold an Investor KITAS, you may be listed as a Director, Commissioner, or simply a shareholder, however, you are not permitted to be involved in the company’s daily operational activities.

An Investor KITAS for Directors permits involvement in strategic and supervisory roles only, rather than day-to-day operational activities. Engaging in hands-on work, directly managing staff, or serving customers may be considered a violation of the visa conditions.

In these roles, you can only do strategic jobs, such as signing paperwork or ensuring compliance. You should make sure that you hire others, ideally Indonesians, for daily operations as this is a violation of your visa. This includes personally marketing content online for products or services, managing staff on the ground or doing physical work (like cutting hair if you run a hair salon). 

3. "Everyone does it, so it must be allowed."

The truth is: just because others are doing it, it doesn’t make it legal.

In the past, enforcement of certain laws hasn’t always been that strict in Bali. That’s because Indonesia is a developing country with constantly changing regulations. As this development continues, systems improve - especially those being used by tax authorities and immigration. Enforcement can happen retroactively, so it’s important to be mindful of regulations and make sure you’re following them now. 

The "everyone does it" mentality is quite pervasive but it creates a false sense of security. Just because you see other expats working on tourist visas, running businesses without proper permits or skipping tax obligations doesn't mean that nobody faces consequences. Whilst it’s not possible for the government to keep track of everyone, enforcement is done selectively and you never know if you’ll be the next person the authorities choose to crack down on. If this happens, saying "someone else did it" is not a legal defence, and claiming ignorance won't protect you either. Educate yourself about which taxes you need to pay, what your visa allows you to do and how to run your business legally before making decisions that could affect your ability to stay in Indonesia.

4. "I don't need to report anything if my company isn't financially active."

The truth is: even if you make zero rupiah, you still have reporting obligations.

Even if you haven’t made a rupiah in revenue, you must still file LKPM reports (Investment Coordinating Board reports) quarterly, as well as accounting and tax reports annually. Furthermore, you need to register your staff with BPJS (social security) and make payments on their behalf every month. 

Many believe that if their company isn’t trading, they can ignore it. However, this is not true and ignoring your responsibilities can result in difficulties when you want to activate the company or close it properly. If you don’t want these obligations hanging over you, it’s generally recommended to dissolve your company or simply try to routinely stay on top of them. 

5. "Using a nominee arrangement protects me."

The truth is: nominee arrangements won’t give you full legal protection.

Nominee arrangements do not provide legal protection. The name listed on official documents is the legal owner. Private agreements are risky and may not be enforceable if disputes arise.

Nominee structures are where an Indonesian citizen has shares or acts as a Director on paper, while a foreigner has actual control through a private arrangement. People have relied on these types of agreements because certain business sectors were closed to foreign investment, some businesses aren’t cost-effective without such arrangements, and because foreigners cannot own freehold property or land (Hak Milik) in Indonesia.

In actual fact, you could face huge losses by relying on nominee agreements, even if you’ve signed a private contract with your nominee. It’s a risky move because the nominee legally owns whatever is in their name, including bank accounts, property and business assets. This means that if your relationship with them goes south, you have no legal possibilities to claim the money you invested back. Unfortunately, many of these arrangements have resulted in disputes and major losses as they are actually not recognised under Indonesian law. 

6. "Leasehold property is safe because it's common."

The truth is: Leasehold is only as safe as your zoning compliance, tax payment and contract structure.

Leasehold agreements are common, but it doesn’t mean they are risk free. There are plenty of regulations that still need to be followed for them to be safe. 

Zoning: Generally, construction is not permitted in green zones (agricultural or protected land). If this rule is violated, it can lead to serious consequences, and in the most severe cases, authorities may order the demolition of the building. Yellow zones are for residential use, which means that you shouldn’t operate a commercial property on them, such as an Airbnb rental, yoga studio or cafe, but personal residence is permitted. If you want to run a business on your leasehold property, make sure that you rent somewhere in a pink zone. In Indonesia, pink zone refers to a tourism-designated zoning area where commercial accommodation activities are allowed, including hotels, villas, restaurants, and other tourism businesses. 

Your business may be shut down or face significant fines if it is not located in the correct zoning area, so it is essential to conduct proper property due diligence before signing any lease or purchase agreements.

If you need assistance with property due diligence in the Bali region, please feel free to contact our team for support.

Taxes: Each time a leasehold changes hands, a 10% final income tax (PPh Final) must be paid to the government based on the transaction value. Ensure that the seller has an Indonesian tax ID (NPWP). Otherwise, the final income tax rate can be doubled to 20%.

If the buyer is a PT PMA, it is the PT PMA’s responsibility to withhold this tax. The tax is still borne by the seller, but the PT PMA deducts it from the payment and remits it to the tax office on the seller’s behalf. For example: If a 30-year leasehold is sold for IDR 2,000,000,000, the PT PMA should transfer IDR 1,800,000,000 to the seller and withhold IDR 200,000,000 to settle the final income tax.

It is very important to clearly state the tax withholding mechanism in the lease agreement, as notaries may not always be aware that a PT PMA must handle the withholding and payment process.

Leasehold is only safe if zoning, tax, and contracts are correct. Business activity must match zoning regulations. Lease transfers are subject to 10% final tax (20% without NPWP). A proper notarial agreement is essential.

Contract issues: When you lease a property, it’s very important that your contract is specific and doesn’t leave areas for dispute. Some ways this can happen is through ambiguity about what happens if the landowner dies, the property is damaged, infested or if things go missing from the property. Remember to set down everything clearly to avoid issues later.

It is also crucial to sign a notarial leasehold agreement, rather than relying on a private contract drafted solely by the parties themselves (more commonly known as “an underhand” agreement). For the leasehold to be properly registered with the Indonesian Government, the agreement must be drafted by and executed before a licensed notary in Indonesian language so it can be formally recorded and recognized.

7. "Airbnb income doesn't need to be reported."

The truth is: rental income is taxable and traceable. 

Airbnb and accommodation rental income is subject to taxation in Indonesia. The applicable taxes generally include corporate tax payable to the central government, as well as local 10% accommodation tax payable to the local Bali municipal government. To legally operate and pay taxes, the property must be owned by a PT PMA, and not be simply under a personal name. If you are renting your house out as a rental property under a personal name as a foreigner, it’s illegal. The property must have an appropriate NIB with the correct KBLI/business license for accommodation activities. For foreigners, obtaining an NIB is generally only possible through establishing a company in Indonesia.

If you also route your payments to Paypal or through a foreign bank account and never declare that to the Indonesian tax office, this technically counts as tax evasion. Whilst it may seem that nobody is watching, platforms like Airbnb and Booking are now sharing data with tax authorities. If you’re discovered doing this, it can result in serious consequences. 

8. "No one's chasing me for taxes, so I don't need to pay."

The truth is: if you stay in Indonesia longer than 183 days in any 12 month period, you should legally get a tax ID (NPWP) and pay taxes. 

As tax IDs aren’t automatically issued, many people believe that they can get away with not paying them. However, it’s a legal obligation to do so for anyone who earns money in Indonesia. 

Although historically enforcement has been quite lax when it comes to foreign residents paying tax, Indonesia is rapidly improving their systems. That means if authorities ever decide to pursue back taxes, the defence of ‘not knowing you needed to register,’ will likely not be a viable excuse. It’s your responsibility to register and take care of it, especially if you plan to stay long term or ever need to show clean tax records for visa renewals or other applications. 

If you stay more than 183 days in 12 months, you may be a tax resident and must register for NPWP. Tax IDs are not automatic, it is your responsibility.

Final Thoughts

Living in Bali is incredible, but it comes with some legal responsibilities. The ‘it's Bali, things are different here’ mentality might have worked in the past, but authorities are ramping up enforcement in more recent times. If you want to thrive long-term, the best way to go is investing in proper legal structures, working with trusted professionals and making sure you stay informed. If you need help or assistance, don’t hesitate to reach out to us via Whatsapp or by dropping by to the Bali Solve office in Pererenan. We can help you understand your tax obligations, set up your PT PMA and make sure you have the right visa for your stay, so that you have complete peace of mind to enjoy Bali without any doubts hanging over you. 


Written by Bali Solve Team 
20th February 2026