Saturday, 2 May 2009

Bali Villas : Owners = Illegal Foreigners?

Bali Villas : Owners = Illegal Foreigners?
By Bali BS News
Aug 30, 2005, 08:58

Recently, the much maligned yet deserved target of several of our articles, Mr. John Millard Daniels (see our report: Bali Discovery Tours) published an article about calls by the Indonesian Employers’ Association to crack down on businesses in Bali operated illegally by foreigners; which is kind of interesting and also worrying in several ways. Not least from an interest point of view as it appears Mr. Daniels himself worked illegally in Bali for some time and then asked people to report illegal workers and villas to the police after he actually became legal. But the worrying aspect of this call to action is that this is not just about illegal workers, oh no, it is according to Mr. Daniels’ report about illegal foreign “workers” and illegal foreign owned businesses. And when they say foreign businesses, they mean majoratively western owned businesses.

“What foreign owned businesses?” you ask. “OK, there are a few bar owners / operators, and a few small restaurant or hotel owners, but aren’t most of those married to Indonesians anyway?” OK, there must be a few western dive instructors taking liberties as there are around the world. But where else in a country where the average wage would not even tempt a western paper boy are these illegal foreign businesses and workers? After all, the figure mentioned of 4,500 illegal workers / businesses relates solely to Bali, not the whole of Indonesia. Where are all these 4,500 people? That is a good question and we are sure we know the answer. We are sure the Indonesian Employers’ Association under feign that these “businesses and foreign workers” somehow displace Balinese workers (and cheat on taxes) are none other then all those lovely foreign owned villas and their owners. Watch out, watch out foreign villa owners, the Indonesian bogey men may soon be about!

You see, many of the so called villas on Bali that were built, or rather paid for by foreigners, perhaps with more money then sense, were often built as private holiday homes but are also run as hotels, or rather accommodations for rent AKA villa rentals; this legally requires a license which many, perhaps even most clearly do not have. We have exchanged emails with one New Zealand villa owner who rents his Balinese property out and claims to be legal and paying taxes, but when pushed we were not surprised to find out that he was talking about paying NZ taxes. Then he claimed immunity as Indonesia and New Zealand have a tax balancing agreement. But, as we pointed out to him, tax balancing agreements cover individuals who earn income from legitimate sources in various countries. Unless his villa has a melati accommodations license (covers hotels / accommodations with 10 bedrooms or less), it is operating illegally. Also, if he is collecting income in respect of a business in Indonesia without having a work permit, he is working illegally. The fact he channels guest payments through a NZ bank account is also a likely violation of his banking and credit card facility in New Zealand.

The problem then comes from the fact any foreigner who owns a villa in Bali and wants to legally offer it out for holiday rentals have to get one of these melati licenses. To apply for a melati license, you need to have a legal company (sole trader, partnership, small company, public company). That is a major problem for foreigners, as they can not be sole traders, partners or directors of small Indonesian companies as they are not Indonesian citizens. So the only way they can be a part of a company to operate their holiday home to apply for a hotel / melati license is to form a public company! That is quite an expensive business and perhaps tad overkill!

Worse still, even if a villa has or gets the proper “melati hotel” license, pays taxes, has their vehicle(s) licensed for tourism (taking guests around), the foreign owner of that villa is still not likely to get a KITAS work permit, as this would likely require they have hotel management experience. Just being an investor / owner of a villa which is rented out to tourists is not enough to be granted the right to come and “work” for that villa; and the definition of “work” can be a worrying one! Even so much as lifting a heavy bin for a female member of staff could be and we hear has been classified as “work”. Funny that someone just visiting Bali on a villa holiday can help a member of the villa staff and that is just being courteous, but the owner of the villa doing the same thing is somehow working illegally and could be deported! Don’t quaff villa owners, it has happened. Even the villa owner telling a member of staff that they left a tap running could be legally construed as performing managerial duties, while an unconnected guest would simply be deemed as being helpful!

Smart foreigners building villas in Bali had their Indonesian partners and staff set up companies to run / manage the villas, apply for all licenses, etc. and secured their interest and right to access that villa by way of a loan agreement. This would allow them also to stay at the property without fear of being interpreted as working there, as they would not own the villa or company. If they were also very, very smart, they would have additionally made an International marketing agreement with the Indonesian company which could allow money to be legally taken overseas. If they were bordering on genius, they would have certain elements of their agreements made under their home country's jurisdiction, both for tax advantages at home and to put key elements of their investment out of Indonesia's notoriously corrupt judiciary. Do we hear a rush of less then savy villa owners to now go down this road? The trouble is, what is done is done. Although a foreign owned house being rented out could legitimize itself now, it still has been trading illegally, and likely the foreign owner working illegally.

Anyway, it is clear that Mr. Daniels' article on the Indonesian Employers’ Association’s intentions, by token of the words he so very carefully used as per normal, shows yet again his conniving, duplicitous nature and we suspect hatred of foreign villa owners in Bali. You see, Daniels surely knew who those 4,500 foreign owned illegal businesses and workers allegedly displacing Balinese workers and not paying tax are. Mr. Peter Rieger of Bali Villas Dot Com certainly did (see further down), so self professed astute news supremo of Bali Jack must have known also. Although Indonesians can be very cowardly when and how they attack others, is it possible the Indonesian Employer's Association did not actually identify these illegal businesses? No, we really don't think so. We believe this union for Indonesian owned hoteliers would be quite candid about who their target was. The only thing they can be accused of is calling the kettle black when they said these foreign businesses are avoiding paying tax. After all, the term "twin book" system (one set of accounts for the tax man, the truthful set is for the hotel management) is Indonesian born and bred. So it clearly seems like Jack held back the full truth yet published the story on his web site anyway the way he did for a number of quite obvious reasons.

You see, we believe the reasons Jack Daniels did not identify that the intended target is foreign villa owners who are trading illegally and therefore also working illegally in Bali are; a) If Jack published an article about illegal villa operations (villas without licenses) and foreign workers (rental villa owners on tourism visas), he would be publicly admitting that he knew about the large number of illegal villas and workers in Bali, b) Jack's company would then be legally liable for any promotion and / or payments his company makes in respect of any such illegal villas and to illegal workers through PT Bali Discovery Tours, c) Jack also likely wants to milk the villas market for as much as he can get commission wise, so publishing the impending doom is hardly in his company's best interest. Which brings us onto why he had to publish the article he did in the first place; d) there is quite significant speculation and evidence that Jack is immensely jealous of foreign villa owners, so we believe publishing the story made him feel good. We think it is a good jigsaw fit, anyone got a better one?

Seems like foreign owners of Bali villas for rent who are not married to a local and have not set their operation up legally are heading for a fall one way or another! But we are sure the good old law enforcement officers of Bali will overlook such detail for a “few” dollars. The trouble for Bali's villa owners is that they have been left alone up to now. Maybe not for much longer and maybe we will at last see Bali’s deserving police each driving around in spanking new Mercedes! Deserving? Sure, don't you read everything on these foreign owned Bali villa web sites; around half of them hail Bali's police as being so wonderful for making Bali so safe [sic]! Maybe they will have something else to publish about Made Pastika's finest on their web sites soon!

Perhaps right now is the time for many rental villa owners to take their properties off the tourism market and simply use them as personal holiday homes until and if they can set up a legal rental business that also protects their interests.

And isn’t it ironic that the original purveyor of this story, Mr. Jack Daniels of PT Bali Discovery Tours both piously, under a public duty facade, published this story about illegal workers when it seems clear he was once one himself! You see it was not that long ago that Mr. Daniels was an operations director for the ill fated Spice Island Cruises. You may remember they went out of business after the Indonesian customs / tax man deemed they needed to pay tax. Why? Because they were an Australian company yet operated solely within Indonesian waters! So Jack was officially working in Indonesia yet surely could not have had a KITAS work permit as this would require his Indonesian employer to sponsor him. As his employer was not Indonesian, he could not have had a KITAS. And he would not qualify from the “bring tourists in” visa waiver unless he physically went and collected the guests on their boat from overseas. So it seems Jack himself worked both illegally and defrauded the Indonesian tax man!

But now Jack Daniels has his Bali Discovery Tours travel agency, which it looks like he only started once he knew he was going to lose his apparently tax free number with Spice Island Cruises, so he almost certainly is legal himself now (in this respect anyway). As to what evidence exists that Jack Daniels secretly hates foreign villa owners while courting them to join his reservations site, it is fairly easy to find. It was not that long ago that Jack falsely defamed some villas whose only ‘crime’ was they wanted nothing to do with him or his company (see our report: Bali Villas Land for Sale). And before that there was the case of a “mysterious” email from Jack Daniels, sent to many people, suggesting they report unlicensed villas and foreigners without work permits to the police. Hmmm, what a coincidence!

Bali Discovery Tours CEO Jack denied sending the email out, claiming it was sent out by a hacker and inferring it was a competitor of his. But the trouble we have with Jack’s denial is that the email text seems to fit his views, by token of what else we know about him. Also, emails contain electronic data, such as details of which email server it came from, and which ISP was used by the sender to connect to that mail server. We have seen one of these “Report Illegal Villas and Foreigners” emails from Jack. The electronic data it contains states that the email went through Bali Discovery’s mail server, so presumably the sender must have known the password for that email account. Plus the ISP used shows it was none other than Telkom in Indonesia, and even identified the account user “Jack”. We have seen emails from Jack Daniels which he has not disclaimed, which show that his user account is, or was with Telkom and his account name is / was “Jack”. So we are to believe that someone from outside Indonesia somehow managed to access Jack’s password protected Telkom ISP account in Indonesia and then accessed Bali Discovery Tours’ password protected email server? We really do not think so. It seems quite clear that Jack Daniels sent out that email. Foreign villa owners beware!

So how about it Mr. Daniels, do you or are you going to require all villas on your web site to provide evidence of a melati or other hotel license as you legally should? And how about making a declaration while you are at it about any villa reservation monies your company has taken which then have been paid to foreigners personally?

Perhaps this then begs the question "How does anyone know whether a villa is licensed and operating legally or not without requiring them to declare their licenses or without physically visiting the villa to see if they display their licenses as they are meant to?", as most legal villas do not normally publish details of their licenses anyway. The easiest way of determining in many cases whether someone’s house is actually illegally masquerading and operating as a villa rental which should have a melati / hotel license and / or is illegally avoiding taxes, is to check their direct web site; that is the villas own web site, and see how they take guests' money. If they require 100% payment in advance by bank wire, check to see if this will be to a foreign or even private bank account in Bali, or a company bank account in Bali as it should be. If they require 100% payment by credit card online, check where the credit card is to be charged and by whom.

You see if rental villas are reasonably established and trading legally, they will almost certainly be able to process credit cards at their villas. Although it is true most licensed villas are unlikely to be able to process online credit card transactions, because Indonesian banks are very careful. Most legal villas with in house credit card facilities can only process such payments if the card holder is present and physically signs a traditional credit card slip and where the staff member attaches a copy of the guest’s passport to that slip. So they may be legal yet have to find alternatives regarding any deposit they require guests to pay, and they almost all certainly will require this. But the trick is to see if they are trying to process or receive full / all payments through a 3rd party account. Of course villas can and do use travel agents like Bali Discovery Tours who do require full payment and can use their own travel agent’s credit card processing facility, as many travel agents have been granted limited online credit card facilities (requires customer to send a copy of their passport to the travel agent). So there is no way of telling if you are paying an agent, you need to see how the villa takes guest’s money from their own direct reservations.

Another good indication of whether villas are legally trading or not is by investigating their direct web site domain on a “whois” Internet tool such as at Simply enter the domain name without the http or www part (e.g. “”) and see what comes back. If it is anything but a registered Indonesian company that is shown as the “registrant”, especially if the registrant is shown as being outside Bali (NB some legal villas’ domain details might show their web company), the chances are it is an illegal villa operation.

Another issue comes when villa owners exclusively contract to a sole agent and management company like Limited (AKA Amazingly, when asked the question about whether all of their villas had melati / operational licenses because of details that the Indonesian government were soon going to crack down on illegal villas and their owners, Ltd’s chief executive Peter Rieger stated “We are aware of the situation, and most of our villas have a license for some time, the others have a license under processing.” Don't worry Peter, we will not provide your email to the police for operating illegal villas on Bali, and hopefully yours will all become legal soon.

So, if you have any doubt of the fact that it is likely foreign villa owners are going to be facing a crackdown shortly, dwell on the admission “We are aware of the situation” from the Mr. Big of Bali Villas himself, and the fact his company is endeavoring to make sure all the villas they offer are fully legal in the future. Although we did not contact Mr. Rieger as BaliBS, we were none the less amazed he basically would admit to anyone he was acting unlawfully. But maybe Mr. Rieger does not think his company has anything to fear.

Of course, with Bali probably having the dumbest and most inept police in the world (see our Bali WiFi report about Candi Internet where police officers with Bali’s so called cyber crime division thought they had to go to Candi Internet’s premises to see Candi's web pages on that company's own computers – that is how much Bali’s cyber police know about the Net). It is not likely just yet, that foreign owned unlicensed villa rental operations will get caught. But it seems where there’s an extortion buck there’s a way when it comes to Bali’s fine police officers and upstanding judiciary. It surely won’t be long before they cotton on to this new money making opportunity by token of a simple search on the Internet and then a visit to any likely villa to see if they have licenses on display! What is even better for extortion minded police is this opportunity will potentially give them a double bite of the cherry; the poor illegal foreign villa owner and any Indonesian travel agent who supports them breaking the law! But if anyone thinks there is time on their hands, let us not forget it is within the nature of the Indonesian dog eat dog (actually, we think it is more “rat eat rat”) business world for people to go and make trouble for others with the police. So maybe foreign villa owners need to start worrying about the neighbours they upset or other villa owners they berated in the past. Because those charming, smiling boys in brown might be knocking sooner then they expect.

No comments: