Legally, you may have no standing to enforce the agreement. You could lose your entire investment.
Using nominee shareholders may seem like a quick solution for foreigners looking to tap into Indonesia’s lucrative market. But is it really safe? As tempting as it sounds, this shortcut could backfire—legally and financially. Let’s unpack the legal risks of nominee shareholder arrangements in Indonesia and explore safer alternatives for your business.
A nominee shareholder is someone who holds shares on behalf of another person—typically, a foreign investor. In Indonesia, this setup is commonly used when foreign ownership in certain sectors is restricted.
Many foreign investors turn to nominee shareholders to bypass the Negative Investment List (now the Positive Investment List under Presidential Regulation No. 10 of 2021). They want to operate in sectors where full foreign ownership is not permitted. However, this workaround may open the door to unintended consequences.
Here’s where the problem starts. Nominee structures are not explicitly regulated under Indonesian law—but they are also not recognized as valid ownership.
Under Law No. 25 of 2007 on Investment, all foreign investments must be conducted through a PT PMA (foreign direct investment company). Using an Indonesian citizen to “hold shares on behalf of” a foreigner is not a recognized mechanism for foreign ownership.
The legal system in Indonesia recognizes de jure (legal) ownership—not beneficial or economic ownership unless it is formally structured. A foreign party hiding behind an Indonesian nominee may be left with no enforceable rights.
Nominee arrangements take many forms. Understanding how they structure these arrangements can help you recognize the risks involved.
Some use individuals—friends, employees, or local partners—as nominees. Others create an Indonesian company to act as the shareholder. In both cases, ownership remains under the name of the nominee, not the foreign investor.
Some foreign parties sign “loan agreements” or powers of attorney to control the nominee. However, Indonesian courts often disregard these as attempts to circumvent investment regulations.
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Let’s look deeper at why nominee arrangements can become a legal landmine.
Courts may declare nominee arrangements null and void. Even with signed contracts, the authorities may not legally enforce ownership that doesn’t align with licensing and BKPM approvals.
Article 33 of the Indonesian Company Law and Article 263 of the Criminal Code (regarding false documents) may apply in nominee cases. Misrepresenting ownership to authorities could lead to criminal sanctions.
Unreported ownership structures may raise red flags with Indonesian tax authorities. Tax authorities may subject beneficial owners to tax audits, impose penalties, or even accuse them of tax evasion.
If a dispute arises, the foreign “owner” has no legal standing to sue or defend their interest in court. You’re essentially investing without protection.
The case of PT Asuransi Jiwa Manulife Indonesia vs. PT Tirta Amarta Bottling highlighted that agreements violating investment laws may be unenforceable. The courts tend to protect the formal shareholder on paper, not the “real” owner behind the scenes.
These are not rare—they’re frequent cautionary tales.
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Indonesia is moving toward greater investment transparency and tax enforcement. Cross-border data sharing, beneficial ownership disclosure (OJK & PPATK), and stricter BKPM requirements increase risks for hidden ownership.
Instead of taking shortcuts, here are smarter options:
Set up a PT PMA, get BKPM approval, and operate lawfully. Foreigners can now fully own businesses in many sectors.
Consider joint ventures with legally compliant frameworks, profit-sharing agreements, or holding companies—structured by legal professionals, not templates.
At Kusuma & Partners, we regularly advise clients who have unknowingly stepped into nominee traps. We’ve seen cases where parties lost millions of dollars due to unenforceable nominee contracts Our recommendation is clear: always structure your investment lawfully. We help clients set up PT PMA, navigate licensing with BKPM, and protect their investments from hidden legal liabilities. If you’re already in a nominee setup, we can assist in risk mitigation or restructuring.
Nominee shareholder arrangements may seem convenient—but in Indonesia, they’re a legal minefield. From ownership invalidity to criminal exposure, the risks are far-reaching. Fortunately, there are lawful ways to invest and operate in Indonesia, and they offer stronger protection and clarity.
If you’re considering investing in Indonesia or are currently using a nominee arrangement, consult us today. Let our expert lawyers help you secure your business the right way. Book your free consultation now.
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“DISCLAIMER: This content is intended for general informational purposes only and should not be treated as legal advice. For professional advice, please consult with us.”
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