Why an illegal villa can appear more profitable

The apparent margin comes from omitted costs

A cheaper parcel may be cheaper because the intended use is restricted. Construction may appear less expensive because the plan excludes the spatial check, professional design, building approval or wastewater system. Operating profit may look higher because local tax, staff registration, licence costs and maintenance reserves are absent.

None of those savings proves that the property performs better. They show that the comparison uses two different cost bases.

The seven lines to put back into the model

Land that supports the intended use. The parcel must be checked against the official spatial plan and the Kesesuaian Kegiatan Pemanfaatan Ruang (KKPR), the spatial-use compatibility process.
A lawful building path. The Persetujuan Bangunan Gedung (PBG) is the building approval. The Sertifikat Laik Fungsi (SLF) is the certificate of proper function used at completion where required.
Environmental compliance. Drainage, wastewater, water supply and the required environmental document must match the project's scale and impact.
The correct business activity and licence. The operator must use the current activity classification and complete the route shown in the Online Single Submission licensing system, known as OSS.
Tourism standards. The property must satisfy the standard that applies to the activity and risk result, not a cheaper label selected for convenience.
Tax. Income reporting and local accommodation tax belong in the operating model.
Registered staff. Employers must budget lawful wages, employment documents and the required social-security registration.

If a projected yield depends on removing one or more of these lines, the yield is not comparable with a compliant operation.

One property can engage several rulebooks

The word illegal is too broad to explain the problem. A project may have one breach or several, and each has its own legal basis.

Spatial use

Government Regulation 21/2021 governs spatial planning and the control of spatial use. A parcel used contrary to the applicable plan raises a different issue from a tourism licence that has not been completed.

Building approval and use

Government Regulation 16/2021 governs buildings, including the PBG and SLF framework. A missing or mismatched building approval belongs in that building record rather than being treated as a mere OSS account problem.

Environment

Government Regulation 22/2021 covers environmental approval, water and wastewater quality, supervision and administrative sanctions. The required document depends on the activity and environmental impact.

Business and tourism licensing

Government Regulation 28/2025 is the national risk-based business-licensing framework. It requires a business licence to start and conduct an activity. Tourism Minister Regulation 6/2025 then sets tourism-business standards, supervision procedures and administrative sanctions.

The applicable tourism standard and risk route must come from the current OSS result for the declared activity. Do not assume that every villa has one universal risk tier or one identical document list.

Local tax

Accommodation services fall within the local tax framework for specified goods and services, Pajak Barang dan Jasa Tertentu (PBJT). Law 1/2022 sets a maximum general PBJT rate of 10 percent. The rate and administration applied to a property come from the current regulation of the relevant regency or city.

This is separate from the operator's national income-tax position. A claim that hotel services are outside one central tax does not remove local PBJT or income-reporting obligations.

BPJS Ketenagakerjaan is Indonesia's employment social-security body. Its official employer guidance requires an employer to register the business and its workers under the applicable programmes. Cash wages do not replace that obligation.

Sanctions must be tied to the breach

The regulations above provide supervision and administrative measures within their respective fields. The possible response depends on the breach, authority, procedural stage and facts. It may involve a warning, an order to correct, suspension, a fine, closure, licence revocation or, in a building or spatial case, removal of an unlawful structure where the relevant law permits it.

It is inaccurate to say that every unlicensed villa will be demolished. It is equally unsafe to assume that every problem can be regularised. Some projects can correct a missing step; others conflict with the land use, building or environmental rules in a way that changes the project's viability.

Published enforcement cases in Bali, including closures, sealing and demolitions, are specific cases. They show that enforcement occurs, but they do not create one sanction for all villas, shops, beach structures or other buildings.

Compare the same cash flows

Cost or risk	Compliant model	Incomplete model often shown to buyers
Land	Price reflects permitted use	Restricted land priced as if conversion were certain
Design and build	Spatial, technical and environmental requirements included	Approvals and corrective work omitted
Operation	Correct licence and tourism standard budgeted	Cheapest or unfinished classification assumed
Tax	Local PBJT and national reporting included	Gross receipts treated as distributable cash
Staff	Employment and BPJS costs included	Informal cash payroll
Downtime	Normal maintenance and vacancy	Enforcement interruption ignored
Exit	Complete file supports review	Missing documents reduce the buyer pool

Run the comparison again after adding the omitted costs and a realistic allowance for delay or remedial work. If the deal no longer works, the original return was supported by non-compliance rather than by stronger operations.

Questions before buying or operating

What official zone and sub-zone cover the parcel?
What activity was used for the KKPR result?
Do the PBG drawings match the building on site?
Is the required SLF or completion record available?
Which environmental document applies, and does the wastewater system match it?
Which activity classification and risk result appear in OSS today?
Which tourism standard and supporting licence are complete?
Which entity receives guest payments and reports the income?
Which local PBJT registration and rate apply?
Are all employees registered correctly?
Has any authority issued a warning, seal, correction order or tax assessment?

Answers should be supported by current documents, not screenshots without a reference number or a promise that regularisation will happen after completion.

Questions owners ask

Is every villa without a complete tourism licence illegal in the same way? No. The missing document must be identified, and the land, building, environmental, tax and operating positions must be reviewed separately.

Is a villa the same activity as a homestay? Not automatically. The activity must match the way the property is built, controlled, marketed and operated. Use the current official classification and OSS result.

Is local accommodation tax optional if the platform collects guest money? No. The contract and payment flow may affect administration, but the responsible taxpayer and local PBJT position still need to be established.

Can a non-compliant property be regularised? Sometimes, but not by assumption. A missing filing may be correctable; a prohibited land use or building conflict may not be.

Last reviewed: 17 July 2026.

Sources checked 16 July 2026: Government Regulation 21/2021 on spatial planning; Government Regulation 16/2021 on buildings; Government Regulation 22/2021 on environmental management; Government Regulation 28/2025 on risk-based business licensing; Tourism Minister Regulation 6/2025; Law 1/2022 on central and local financial relations; BPJS Ketenagakerjaan employer guidance. This note is general information, not a compliance opinion, legal advice or investment advice. Verify the live records and the competent authority for the specific property.