It is a pitch many foreign entrepreneurs hear in their first weeks exploring Indonesia: “Skip the PT PMA. Set up a local PT and put the shares in an Indonesian friend’s name. It is cheaper and faster.” The arrangement — known as a nominee structure — looks attractive because it avoids foreign ownership rules and higher capital requirements. It is also one of the riskiest ways to do business in the country. This guide explains why, and what legal alternatives exist.
What a nominee arrangement is
In a nominee structure, an Indonesian citizen or local company is registered as the legal shareholder of a PT, while a foreign investor provides the money and controls the business behind the scenes. The relationship is usually documented in private agreements: loan agreements, share pledges, powers of attorney, and a statement that the Indonesian shareholder holds the shares “on behalf of” the foreigner.
The legal problem
Indonesia’s Investment Law (Law No. 25 of 2007) explicitly prohibits agreements or statements that declare share ownership in a limited liability company to be held for and on behalf of another person. Such agreements are declared null and void by law.
In practice, this means:
- The foreign investor has no enforceable ownership. If the relationship breaks down, the law recognizes the registered Indonesian shareholder as the owner.
- Side agreements may not protect you. Courts may treat loan or pledge agreements that are really disguised nominee arrangements as invalid.
- Assets are exposed. Bank accounts, land rights, licenses and contracts held by the company follow the registered owner.
Real-world risks
Beyond the legal invalidity, nominee structures create practical risks:
- Death, divorce or bankruptcy of the nominee can bring the shares into an estate, marital property or a creditor’s claim.
- Disputes — the nominee may simply refuse to act as instructed.
- Regulatory issues if authorities determine the company is in fact foreign-controlled in a sector with limits.
- Immigration issues — foreigners actively running a company without the right work permit risk visa violations.
- Exit problems — selling or restructuring a business you don’t legally own is complicated and often impossible on good terms.
Legal alternatives for foreign investors
- PT PMA (foreign-owned company). Many business lines are open to 100% foreign ownership under the Positive Investment List. With the minimum paid-up capital reduced to IDR 2.5 billion under BKPM Regulation No. 5 of 2025, the PT PMA route is more accessible than it used to be. See our guide on simpler business setup for foreign investors.
- Joint venture PT PMA. Where a sector limits foreign ownership, a properly documented joint venture with a genuine Indonesian partner — holding shares in their own right — is the lawful way to participate.
- Representative office. If you only need to promote, research or coordinate (not earn revenue), a representative office (KPPA or KP3A) is a lighter option.
- Distributor or independent importer model. If your goal is to sell products, appointing a distributor or using an independent BPOM registration holder allows market entry without owning an Indonesian company at all.
How to tell if you are being offered a nominee structure
Be cautious if a provider suggests:
- Putting shares in the name of their staff or associates.
- Signing powers of attorney giving you “full control” of a company you don’t own.
- A local PT that conducts activities restricted to foreigners.
How Watershore helps
Watershore helps foreign investors choose a compliant structure — PT PMA, joint venture, representative office or distributor model — and handles PT PMA setup, licensing and ongoing compliance so you own what you build.
References
- Law No. 25 of 2007 on Investment (Article 33)
- Law No. 40 of 2007 on Limited Liability Companies (as amended)
- Presidential Regulation No. 10 of 2021 on Investment Business Lines (as amended)
- BKPM Regulation No. 5 of 2025
This article is general information and not legal advice. Investors should obtain advice on their specific situation.