The Grey Area of Using Nominee Structures in Indonesia: What You Should Know (2025 Guide)

Introduction

For many foreign investors looking to enter Indonesia’s lucrative markets, nominee arrangements often seem like a convenient shortcut. These setups, where an Indonesian individual or company holds shares on behalf of a foreigner, have become relatively common due to restrictions on foreign ownership in certain business sectors. On the surface, nominee structures promise an easier way to bypass regulatory hurdles and gain quick access to opportunities, particularly in industries where foreign ownership caps apply.

Indonesia’s foreign ownership restrictions are rooted in its regulatory framework, including the Positive Investment List, which limits or conditions foreign participation in various sectors. These rules are designed to protect local businesses, maintain economic sovereignty, and encourage partnerships that benefit both domestic and foreign stakeholders. While these goals are legitimate, they often prompt foreign investors to seek alternative routes, such as nominee arrangements, to achieve greater control over their investments.

However, using nominee structures in Indonesia carries significant legal and ethical risks. These arrangements are typically unenforceable under Indonesian law and can expose both the foreign investor and the local nominee to severe consequences, including disputes, financial losses, and even criminal liability. Moreover, they undermine the intent of Indonesia’s investment regulations and can damage reputations and business relationships.

This article explores why nominee arrangements are risky, the legal implications investors must understand, and why pursuing legitimate, compliant structures is the only sustainable and ethical way to invest in Indonesia.

Understanding Nominee Structures

Nominee structures in Indonesia refer to arrangements where a local individual or entity is officially listed as the owner or shareholder of a company or asset on behalf of a foreign investor. In practice, the foreign party provides the funds and retains control through side agreements, while the nominee acts as the “front” to comply with formal ownership requirements. These agreements often include trust deeds, power of attorney documents, or unofficial contracts intended to transfer benefits back to the foreign investor.

Foreign investors typically use nominee structures to navigate ownership restrictions imposed by Indonesian law. Certain business sectors limit or prohibit foreign ownership, making it difficult for overseas entrepreneurs to directly hold shares or acquire property. By using a nominee, foreign investors believe they can bypass these limitations and gain effective control over assets. While this might appear as a convenient solution, it comes with significant legal and reputational risks.

Nominee arrangements are most common in industries with high demand and strict regulations, such as property (land ownership), retail, food and beverage (F&B), and other service sectors. For example, many foreigners interested in purchasing land for villas or resorts use local nominees because Indonesian law generally prohibits foreign individuals from directly owning freehold land. Similarly, foreign brands entering the retail and F&B industries sometimes resort to nominees to circumvent the ownership caps listed under the Positive Investment List.

The legal framework surrounding foreign ownership has evolved significantly in recent years. Indonesia’s Positive Investment List, introduced under Presidential Regulation No. 10/2021, replaced the previous Negative Investment List. This list outlines which business sectors are open to foreign investment, which require partnerships with local entities, and which remain closed. Additionally, the OSS RBA (Online Single Submission Risk-Based Approach) system regulates business licensing and compliance obligations, reinforcing transparency and accountability for investors.

While nominee structures remain a tempting workaround, they are not recognized under Indonesian law. These arrangements can be declared null and void if disputed, leaving the foreign investor with little legal protection. Understanding the legal context and the risks involved is essential before pursuing any investment strategy that involves a nomine

Legal Landscape in Indonesia

Indonesia’s investment framework is governed by Law No. 25 of 2007 on Investment, which clearly stipulates that all investors—both domestic and foreign—must comply with ownership restrictions set by the government. The law emphasizes transparency and lawful structuring of ownership. Under this framework, foreign investors are only permitted to own shares up to the maximum percentage allowed in specific sectors, as outlined in regulatory lists and licensing systems.

One of the most notable updates affecting foreign ownership is the Omnibus Law (Law No. 11 of 2020 on Job Creation), which replaced the previous Negative Investment List (DNI) with the Positive Investment List. This reform aimed to attract more foreign investment by opening certain sectors while still maintaining restrictions on strategic industries like property, retail, and F&B. However, the law does not legitimize nominee arrangements, and using Indonesian citizens or companies to hold assets on behalf of foreign investors remains a violation of both investment and anti-corruption laws.

Despite this, some investors assume nominee structures are acceptable because the law doesn’t explicitly mention the term “nominee.” This perceived grey area often leads to risky arrangements where agreements are made privately without legal recognition. However, the Indonesian Supreme Court and the Investment Coordinating Board (BKPM) have repeatedly clarified that such structures violate the intent of investment regulations.

As legal expert Bayu (LL.M., Georgetown University) explains:

“Nominee agreements are a legal minefield. While not always explicitly outlined, courts have consistently ruled that such arrangements can be deemed void and unenforceable under Indonesian law.”

The bottom line: Indonesia’s investment laws demand compliance with ownership caps, and relying on nominee structures exposes foreign investors to significant legal and financial risks.

The Ethical and Legal Risks

While nominee arrangements might seem like a convenient workaround for foreign ownership restrictions, they come with significant ethical and legal risks that investors should not underestimate.

1. Contracts Can Be Deemed Void
Nominee agreements often lack a solid legal foundation. Under Indonesian Investment Law, true ownership must align with registered shareholding structures. If challenged in court or investigated by authorities, such contracts can be declared void ab initio (invalid from the outset). This means the foreign investor could lose their entire investment without legal recourse.

2. Disputes Between Foreign Investors and Nominees
Nominee structures inherently create a trust-based dependency on the local partner. In cases of disagreements or falling-out, foreign investors have little control over the assets since the nominee legally owns them. Disputes over profit distribution, operational control, or asset management are common and can escalate into costly litigation.

3. Potential for Fraud, Extortion, or Mismanagement
Because the nominee holds legal ownership, unethical behavior can occur. Some investors have reported situations where nominees demand additional fees, transfer assets without consent, or engage in mismanagement. This risk is exacerbated when there are no proper compliance and governance mechanisms in place.

4. Criminal Liability Under Anti-Fronting Laws
Indonesia has specific anti-fronting provisions designed to curb illegal circumvention of ownership laws. Foreign investors and their local nominees can face fines, business license revocation, and even imprisonment if found guilty of fronting practices.

Case Examples and Due Diligence
There have been multiple instances where nominee setups collapsed due to misaligned expectations, resulting in loss of property or business rights. While we won’t name individuals, these cases illustrate why nominee structures are red flags during due diligence by serious investors, law firms, and acquisition teams.

Ultimately, relying on nominee arrangements in Indonesia creates a fragile foundation for business. Both ethically and legally, the risks far outweigh the perceived benefits. Investors are better served exploring compliant ownership models that align with Indonesian regulations.

The Grey Area: Why It Persists

Despite the well-documented legal and ethical issues surrounding nominee structures in Indonesia, their use continues in certain sectors. One primary reason is the lack of investor awareness and legal literacy. Many foreign investors are unfamiliar with the complexities of Indonesian investment regulations and instead rely on hearsay, informal advice, or practices observed from other countries. This knowledge gap often leads them to believe nominee arrangements are a legitimate shortcut to bypass ownership restrictions.

Another factor contributing to the persistence of this grey area is the varying interpretations of Indonesian law. While the Indonesian Investment Law and related regulations do not explicitly permit nominee arrangements, they also do not always provide detailed enforcement guidelines. This ambiguity creates room for misinterpretation, leading some investors to assume that as long as there is a private contract with a local nominee, they are protected.

“Handshake agreements” and informal contracts exacerbate the problem. Many nominee setups are based on trust rather than formal, enforceable agreements. This makes them vulnerable to disputes, fraud, or unilateral actions by the nominee. Unfortunately, in the absence of proper legal frameworks, foreign investors often find themselves without recourse if issues arise.

Lastly, some legal consultants and agencies still promote nominee structures despite their risks. These consultants may see nominee arrangements as an easy way to close deals, driven by short-term profit motives rather than client protection. They often fail to explain the potential long-term consequences, leaving investors exposed.

Understanding why nominee structures persist highlights the urgent need for proper legal advice and transparent investment strategies. Engaging reputable legal and business advisors is essential to navigate Indonesian regulations safely and sustainably.

Ethical Considerations & Business Reputation

Using nominee structures in Indonesia does not only pose legal risks—it can also significantly harm an investor’s ethical standing and long-term business reputation. In today’s interconnected business environment, stakeholders, partners, and clients place high value on transparency and compliance. If an investor is discovered using a nominee arrangement to bypass foreign ownership regulations, it can signal a lack of integrity and raise doubts about their business practices.

Global compliance and anti-corruption standards, such as the OECD guidelines and similar frameworks, emphasize ethical conduct and transparency in cross-border investments. Multinational corporations and institutional investors often adhere strictly to these standards. Any association with nominee arrangements—often seen as a form of regulatory evasion—can make investors appear non-compliant with these global norms. This perception can hinder future partnerships, limit access to financing, or even trigger investigations by foreign regulators, depending on the jurisdiction.

Another critical factor is the risk posed during due diligence processes. If the business is ever sold or seeks external investors, nominee arrangements can be a red flag for potential buyers or partners. Sophisticated due diligence procedures typically uncover hidden ownership structures, and discovering irregularities can lead to lower valuations, failed deals, or legal scrutiny. Beyond financial implications, reputational damage can be lasting and affect future ventures in Indonesia or elsewhere.

Ethical business practices are becoming increasingly important for long-term sustainability. Choosing legitimate ownership structures and adhering to legal requirements not only protects investors from legal and financial risks but also strengthens their reputation as responsible and trustworthy business players in the global market.

Legal & Safer Alternatives to Nominee Structures

While nominee arrangements may seem like a shortcut to enter Indonesia’s market, there are fully legal and safer alternatives that protect investors and their business in the long term. The most common and compliant structure is establishing a PT PMA (Perseroan Terbatas Penanaman Modal Asing), which allows foreign investors to hold shares directly within the limits defined by Indonesia’s Negative Investment List (DNI) or Positive Investment List. By meeting the required minimum capital and ensuring compliance with sector-specific regulations, investors can maintain control of their business without resorting to risky nominee agreements.

Another legitimate option is forming joint ventures with local partners under clear and legally binding contracts. These partnerships should include transparent ownership divisions, profit-sharing arrangements, and exit strategies. Proper documentation and regulatory compliance ensure that both parties are protected, and the structure can withstand future scrutiny.

Investors may also consider convertible loan agreements or shareholder arrangements permitted under Indonesian law. These mechanisms allow an investor to initially enter a market in a financial capacity and later convert loans into equity once the business meets legal requirements. Such structures provide flexibility while staying compliant with regulations.

Importantly, navigating these legal avenues requires expert legal counsel specializing in foreign investment. Experienced professionals can guide investors through Indonesia’s evolving regulatory landscape, ensuring all agreements are enforceable and compliant with both domestic and international standards.

Ultimately, success in Indonesia does not require nominee schemes. Legal and transparent ownership structures build credibility, attract reputable partners, and safeguard investments. By choosing legitimate paths, investors not only reduce legal and financial risks but also strengthen their reputation as ethical business operators—an increasingly important factor for global investors and stakeholders. These compliant strategies allow businesses to grow sustainably while maintaining full protection under Indonesian law.

What the Government is Doing

The Indonesian government has taken significant steps to make foreign investment more transparent, accessible, and legally secure. Recognizing the importance of attracting global capital, it has introduced policies and reforms aimed at streamlining business licensing and reducing unnecessary bureaucracy. One key initiative is the Positive Investment List, which provides clear guidelines on sectors open to foreign ownership and the percentage of equity allowed. This transparency helps investors understand their rights and obligations without resorting to nominee structures.

To simplify the process further, the government implemented the OSS (Online Single Submission) system, a digital platform that allows businesses to apply for licenses, permits, and registrations in one place. This system reduces processing time, ensures better coordination between government agencies, and minimizes opportunities for administrative inconsistencies or misinterpretation of regulations.

Additionally, the government has launched various investment facilitation programs, including the Indonesia Investment Coordinating Board (BKPM) services. These programs are designed to assist investors with legal compliance, project approvals, and guidance on tax incentives or special economic zones, which often provide favorable conditions for foreign investors.

Continuous regulatory reforms and efforts to clarify rules are also underway. The Omnibus Law on Job Creation, for instance, aims to simplify business regulations and attract more legitimate investment by removing outdated restrictions and harmonizing rules across different sectors.

Through these initiatives, the government seeks to foster a business-friendly and legally compliant environment, giving foreign investors the confidence to enter Indonesia without relying on informal or risky practices. These efforts not only protect investors but also support sustainable economic growth for the country.

Expert Insights & Best Practices

Legal and compliance experts consistently emphasize that thorough due diligence is the cornerstone of any successful foreign investment in Indonesia. According to reputable lawyers and compliance consultants, the first step is to verify ownership and legal standing of any assets or companies involved. This includes checking land titles, corporate documents, and any existing legal obligations. Engaging a trusted local notary and legal advisor early in the process helps ensure that all documentation is valid and compliant with Indonesian law.

Experts also recommend conducting a compliance and risk assessment before entering into any nominee arrangement. This involves reviewing the sector’s foreign ownership regulations, assessing potential tax liabilities, and identifying any anti-corruption or anti-money laundering risks. Aligning your investment structure with OECD guidelines and global compliance trends can help maintain credibility and avoid reputational risks.

A practical checklist for investors includes:

1. Confirming sector-specific ownership limits and Positive Investment List requirements.
2. Conducting legal audits of nominee agreements to ensure enforceability.
3. Assessing partner reputation and ensuring no past regulatory violations.
4. Implementing transparent governance structures and proper reporting systems.
5. Engaging in ongoing compliance monitoring to adapt to legal changes.

By following these best practices and working with credible legal professionals, foreign investors can significantly reduce risks and ensure their business operates within a transparent, ethical, and legally sound framework in Indonesia.

Conclusion

Entering the Indonesian market offers tremendous opportunities, but it also comes with significant legal and compliance risks—especially when using Nominee Structures. Key concerns include unclear ownership rights, potential regulatory violations, and exposure to legal disputes if agreements are not properly structured. These risks can threaten not only your investment but also your reputation and long-term business operations.

However, there are legal alternatives such as setting up a PT PMA (foreign-owned company), using joint ventures with transparent agreements, or leveraging government-supported investment schemes through OSS. These approaches ensure your business operates within the boundaries of Indonesian law, minimizing future complications.

Ultimately, compliance is the foundation of sustainable growth. Aligning your business structure with legal requirements protects your assets and fosters trust with regulators, partners, and clients.

Before opting for any nominee arrangement, consult with experienced legal and compliance professionals. Proper guidance helps you evaluate the best structure for your business while safeguarding your rights and long-term interests. Taking a proactive, lawful approach is the smartest way to succeed in Indonesia’s dynamic market.

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