Airbnb-Style Business in Bali: Legal or Not? The Shocking Truth Revealed for 2025 and Beyond

Introduction

Bali has long been a magnet for global travelers, digital nomads, and wellness seekers. With over 5 million tourists visiting the island annually, it’s no surprise that many foreigners and locals have been drawn to the idea of monetizing properties through short-term rentals. The rise of platforms like Airbnb, Booking.com, and Agoda Homes has sparked a surge in what’s commonly referred to as an Airbnb-style business—renting out villas, guesthouses, or private rooms on a nightly or weekly basis for profit.

But here’s the catch: what seems like a straightforward, low-risk side hustle can, in fact, be a legal minefield. Under Indonesian law, an Airbnb-style business is not simply a casual rental arrangement—it is considered a commercial activity and is subject to specific licensing, zoning, and tax obligations. Failing to comply can lead to heavy fines, forced business closure, or even deportation for foreign owners.

This article explores whether you can legally run an Airbnb-style business in Bali, and if so, how to do it the right way—covering essential permits, zoning rules, tax laws, and risk management every property owner should know.

What is an Airbnb-Style Business in the Eyes of the Law?

In the Indonesian legal landscape, the term Airbnb-style business refers to any activity where a property—whether a room, villa, or entire house—is rented out to paying guests on a short-term basis. This model goes beyond the boundaries of a simple private residence. The law differentiates clearly between types of accommodations: a private residence is meant solely for personal living, a homestay allows limited guest rentals typically in rural or traditional areas, while guesthouses and villas fall under the category of commercial accommodation.

Running an Airbnb-style business in a private residence without the proper license may be considered illegal commercial use. This is because such activities involve regular guest turnover, online bookings, and profit-making intent—all of which signal business operations.

Zoning plays a crucial role here. Bali is divided into residential zones and commercial zones. An Airbnb-style business operating in a residential zone without proper permits and zoning adjustments is technically breaking the law. Only in designated commercial zones—or where a residential property is reclassified and licensed appropriately—can such businesses operate legally.

In summary, if you rent out your property frequently and for profit, Indonesian authorities will likely classify your activity as a commercial accommodation, requiring strict compliance.

Legal Licenses Required to Operate an Airbnb-Style Business

To legally run an Airbnb-style business in Bali, securing the correct licenses is non-negotiable. First and foremost, you must obtain a NIB (Nomor Induk Berusaha) — Indonesia’s Business Identification Number. This is your company’s legal identity, required for taxation and operational legitimacy. Along with NIB, if your rental property offers lodging services, you’ll also need a TDUP (Tanda Daftar Usaha Pariwisata) or Tourism Business Registration Certificate.

Depending on the type and scale of your operation, your Airbnb-style business might fall under the Hotel/MICE (Meetings, Incentives, Conferences, and Exhibitions) classification. This could require further permits, especially if you offer amenities like pools, spa services, or organized tours.

Foreign investors typically operate under a PT PMA (Foreign-Owned Company) structure. This setup is fully legal and allows you to acquire the necessary licenses directly. However, many foreigners in Bali still use local nominee arrangements—where an Indonesian citizen "owns" the property on paper while the foreigner manages it. While common, this is legally risky and not recommended, as it doesn’t provide proper ownership or business control under Indonesian law.

The 2020 Omnibus Law and subsequent Online Single Submission (OSS) system simplified licensing for tourism-related businesses, including rental accommodations. However, compliance still depends on proper zoning and documentation.

To avoid hefty fines, business shutdowns, or deportation, it’s essential to ensure your Airbnb-style business is properly structured and licensed through legal channels.

Zoning and Location Restrictions

One of the most overlooked—but critical—factors in setting up an Airbnb-style business in Bali is zoning. Bali’s government divides land into distinct zones: tourism, commercial, residential, agricultural, and green/open space. Each zone has its permitted uses, and operating a commercial rental property like an Airbnb-style business is only allowed in tourism or commercial zones.

Running an Airbnb-style business in a residential area may seem harmless at first, but it’s actually a violation of local regulations. Authorities can shut down your operation, issue fines, or even deport you if you're a foreign national. Furthermore, complaints from neighbors—especially in local Banjar (community councils)—can lead to enforcement actions.

Before purchasing or renting a villa for short-term rental purposes, you must verify the property’s zoning status. This can be done through Bali’s Spatial Planning Agency (Dinas Tata Ruang) or by consulting a reputable legal advisor who can obtain the Zoning Information Letter (Surat Keterangan Rencana Kota - SKRK). Never assume that a luxury villa is legally rentable—many are built in residential zones and marketed as investment properties without proper licenses or zoning clearance.

Understanding zoning laws is essential to operate safely and sustainably in Bali’s competitive short-term rental market.

Taxation and Financial Compliance

Operating an Airbnb-style business in Bali isn’t just about great listings and high occupancy rates—it also comes with taxation responsibilities that must not be ignored. Both foreign and local operators are obligated to report income and pay the appropriate taxes to stay compliant under Indonesian law.

For individual hosts or property owners, short-term rental income is subject to Personal Income Tax (PPh Orang Pribadi). For foreigners operating legally through a PT PMA (foreign-owned company), the income is categorized as business income, and the entity is subject to Corporate Income Tax (PPh Badan) and Value-Added Tax (VAT or PPN) if the business exceeds the annual revenue threshold.

Every Airbnb-style business must also collect and report Hotel and Restaurant Tax (PB1), which typically ranges between 10–12.5% depending on the local regency. Failure to comply with these obligations can result in steep penalties, interest charges, and possible business closure.

Fines for underreporting or failing to declare rental income are severe—ranging from IDR 500 million to over IDR 1 billion, with potential criminal charges. To stay safe, it is crucial to hire a licensed tax consultant and maintain transparent accounting records. Keeping your Airbnb-style business financially compliant is just as important as offering top-tier guest experiences.

The Risk of Running an Illegal Airbnb-Style Business

Many foreign investors have been lured by the profitability of operating an Airbnb-style business in Bali without understanding the serious risks involved. Authorities have increasingly cracked down on unlicensed operations, leading to business closures, asset seizures, and even deportations.

In recent years, there have been well-documented cases where foreign nationals were deported for running illegal villas or guesthouses without proper licenses. These incidents often begin with complaints from neighbors or the Pecalang—Bali’s traditional security force—who actively monitor community activity and report suspicious operations to the authorities.

Another major risk is related to immigration law. If a foreigner is found to be earning income—passively or actively—without the correct work permit (KITAS with IMTA), they may be subject to sanctions under Indonesia’s Immigration Law, including blacklisting and deportation. Passive income, such as profits from an Airbnb-style business, is not automatically legal just because the owner doesn’t directly manage the property.

Additionally, failing to pay the correct local taxes or operating in a restricted zone can lead to fines from regional governments, sometimes reaching hundreds of millions of rupiah. In Bali, the combination of strict community oversight and increasing digital scrutiny means no illegal activity goes unnoticed for long.

Steps to Legally Start Your Airbnb-Style Business in Bali

Starting an Airbnb-style business in Bali can be a rewarding venture—but only if done legally from the outset. The first and most important step for foreign investors is to establish a legal entity, typically a PT PMA (Foreign-Owned Company). A PT PMA is the only recognized legal structure that allows foreigners to engage in commercial activities in Indonesia, including the hospitality sector.

Once your PT PMA is established, you will need to apply for key business licenses such as the NIB (Business Identification Number) and TDUP (Tourism Business Registration Certificate). Depending on the size and classification of your accommodation, you may also need additional permits under the Hotel or MICE (Meetings, Incentives, Conferences, Exhibitions) licensing category.

Zoning is another critical factor. Make sure your chosen property is located in a tourism or commercial zone. Operating in a residential area without the correct permits can lead to serious legal complications. Before you buy or lease a villa, consult the local zoning map and get verification through the BPN (National Land Agency) or your notary.

It’s strongly advised to work with a local legal consultant or notary who understands Indonesian regulations and can guide you through the bureaucracy. They’ll ensure your Airbnb-style business meets all compliance requirements, from licensing to zoning and taxation.

Taking these proper legal steps not only secures your investment but also builds a reputable and sustainable business in Bali’s competitive hospitality landscape.

Conclusion: Is It Worth It?

Running an Airbnb-style business in Bali can be highly profitable, but only if it's done legally and responsibly. To stay compliant, you must secure the proper licenses, operate within approved tourism zones, and fulfill all tax obligations. Foreigners must use the PT PMA structure, and failure to follow these rules can result in severe penalties, including deportation and fines.

While the shortcuts may seem tempting, the long-term risks of running an illegal Airbnb-style business far outweigh the short-term gains. Ensuring legal compliance protects your investment, your reputation, and your future in Bali.

If you’re serious about building a successful operation, consult with experienced legal advisors or business consultants who understand local regulations. Don’t gamble with your business—build it the right way from the start.