Legal Implications of Using Local Nominees in Foreign Ownership Structures in Indonesia

Indonesia limits foreign ownership in certain sectors under its Positive Investment List (Presidential Regulation No. 10/2021, as amended by No. 49/2021). These restrictions apply to activities ranging from retail and media to transport services. To gain market access in these restricted areas, some foreign investors register the company in the name of an Indonesian individual or entity, while using private agreements to retain control. This practice, known as using a local nominee, may seem like a shortcut into the market, but it carries serious legal and commercial risks.

How nominee arrangements look in practice

In a typical nominee arrangement, a local citizen or company appears as the legal shareholder in the corporate records maintained by the Ministry of Law and Human Rights.

The foreign investor may sign private contracts, such as loan agreements, powers of attorney, or profit-sharing terms, to direct the business and receive returns. On paper, however, the nominee is the owner. Under Law No. 25/2007 on Investment (Article 33) and Law No. 40/2007 on Limited Liability Companies (Article 48), such arrangements are prohibited or ineffective if used to disguise foreign ownership and can be declared void.

Legal and regulatory exposure

Because the nominee is the registered owner, they hold the legal rights to the shares. If a dispute arises, Indonesian courts and regulators will generally follow the official records, not private agreements. This can leave the foreign investor without enforceable control, even if significant capital has been invested. The Ministry of Investment/BKPM has the authority to impose administrative sanctions under Article 34 of the Investment Law, which may include warnings, activity restrictions, freezing of operations, license revocation, or ordering closure of the business.

Example scenario

A foreign investor entered the retail sector — restricted under the Positive Investment List — using a local nominee. When the relationship soured, the nominee refused to transfer shares or profits. The investor’s private agreements were found invalid as they breached the Investment Law, and BKPM initiated a license review. The investor ultimately lost both control of the company and access to its assets.

Tax and disclosure consequences

Nominee ownership can also create tax and compliance complications. The Indonesian tax office will assess obligations based on the registered shareholder, which can make it difficult to repatriate profits or apply double taxation treaty benefits.

In addition, Presidential Regulation No. 13/2018 requires companies to disclose their ultimate beneficial owner (UBO). As of February 2025, Minister of Law and Human Rights Regulation No. 2/2025 has tightened these rules. All covered entities — including civil partnerships and sole proprietorships — must now update and verify their UBO information annually or whenever changes occur.

A risk-based verification system allows the Ministry and notaries to cross-check submitted data digitally, with administrative sanctions for inaccurate or incomplete disclosures.

These structures can also create practical banking challenges. Because banks rely on official shareholder records for compliance checks, a nominee setup may delay or block account openings, international wire transfers, or profit remittances, especially when the beneficial owner is not the same as the registered shareholder.

Safer, compliant paths for foreign investors

Investors have secure alternatives that meet Indonesian legal requirements. In many sectors, full foreign ownership is possible through a PT PMA (foreign-owned limited liability company) if the investor meets the licensing and capital thresholds. Where restrictions apply, a formal joint venture with a trusted local partner offers a compliant structure. Another option is to invest indirectly through a holding company in a jurisdiction with favorable investment treaties with Indonesia, allowing participation within legal limits.

While these approaches may take longer to set up, they avoid the uncertainty and legal exposure of nominee ownership.

Final considerations and advisory note

Using a local nominee in Indonesia may seem like an easy route into restricted sectors, but it places your investment at legal and operational risk. The safest course is to work within Indonesia’s investment framework from the outset.

This article first appeared on ASEAN Briefing, our sister platform.