Understanding the Prohibition on Nominee Shareholding
Foreign investors frequently ask whether they can use a nominee arrangement—a structure where an Indonesian individual or entity holds shares on behalf of a foreign party.
Under Law No. 25 of 2007 on Investment, this practice is explicitly prohibited.
Indonesia enforces this ban to maintain investment transparency, prevent misuse of ownership structures, and ensure compliance with foreign ownership limits set under the Investment List (Presidential Regulation No. 49 of 2021).
What Is a Nominee Arrangement?
A nominee arrangement occurs when a local person or company is registered as a shareholder, but the beneficial ownership and control belong to a foreign investor.
Common methods include:
- Trust or proxy agreements stating the local shareholder is “holding the shares” for the foreign investor.
- Loan agreements that simulate share transfers or give the foreign investor effective ownership.
- Power of attorney documents that give full control over company decisions, despite the foreign party not being the registered shareholder.
Although these may look legitimate contractually, Indonesian law considers them invalid.
Legal Consequences Under the Investment Law
Article 33 of Law No. 25 of 2007 declares that nominee agreements between Indonesian and foreign parties are null and void.
This means:
- The foreign party cannot claim ownership of the shares.
- The local nominee is considered the sole legal shareholder.
- Both parties may face sanctions, including potential license revocation by BKPM.
- Any underlying agreements involving nominee structures cannot be enforced in court.
Indonesia treats nominee arrangements as attempts to bypass foreign ownership laws—making them legally unsafe and risky for investors.
Why Indonesia Prohibits Nominee Structures
The ban supports several regulatory objectives:
1. Ensuring Transparency
Accurate reporting of foreign ownership helps regulators monitor investments and capital flows.
2. Protecting Domestic Strategic Sectors
Some business activities are restricted or partially closed to foreign investors. Nominee structures could obscure foreign control.
3. Upholding Accountability
Authorities must be able to hold the actual owners responsible—not hidden foreign controllers behind informal agreements.
By prohibiting nominees, Indonesia strengthens its foreign investment governance and maintains regulatory integrity.
Legal Alternatives for Foreign Investors
Foreign investors seeking fully compliant ownership options may consider:
1. Establishing a PMA Company
A PMA entity allows direct foreign ownership in all business sectors open to foreign participation.
2. Forming a Joint Venture
Some sectors require foreign–local partnerships. A lawful share structure ensures compliance with the Investment List.
3. Using Holding or Affiliate Structures
Group companies can meet shareholder requirements without violating nominee prohibitions.
4. Engaging Licensed Legal Consultants
Professional guidance helps foreign investors structure ownership legally and safely.
These alternatives provide strong legal protection without relying on prohibited nominee practices.
Conclusion
Nominee arrangements—where a local party holds shares on behalf of a foreign investor—are strictly prohibited in Indonesia.
Such agreements are automatically void, and foreign investors cannot claim beneficial ownership over the shares.
To operate legally, foreign investors should instead establish a PMA company, form a joint venture, or use legitimate corporate structures that align with Indonesia’s investment rules.
Compliant business structuring protects investors, supports transparency, and ensures stable long-term operations within Indonesia’s regulatory framework.