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The risks of using Indonesian nominee shareholders are severe enough to end a business, forfeit a property, and expose both the foreign investor and the local nominee to criminal liability. A nominee arrangement — where an Indonesian national holds shares, land title, or company voting rights purely on behalf of a foreign investor — is not a legal grey area. It is directly prohibited under Article 10(1) of Law No. 25 of 2007 on Capital Investment, and the consequences run from company dissolution to asset seizure to prison.
This piece lays out why. It covers the specific legal provisions, what happens in practice when the relationship goes wrong, why the side-letters and trust deeds that investors use to “protect” themselves mostly do not hold up in Indonesian courts, and what the confiscation risk actually looks like. It is information only. Nothing here substitutes for retaining a licensed Indonesian notaris, an PPAT (land deed official), and a business-formation consultant qualified under Indonesian law.
What a Nominee Arrangement Actually Is
The term gets used loosely, so a definition matters. In the Indonesian context, a nominee structure typically takes one of two forms.
The first is equity nomination: an Indonesian individual holds shares in a local PT (Perseroan Terbatas) — or acts as a director or commissioner — but does so on paper only, with the beneficial owner being a foreign national or foreign entity. A side-letter or a private trust deed records the real ownership. The Indonesian citizen receives a fee, signs whatever documents the foreign investor requires, and exercises no real control.
The second is land-title nomination: a foreign national cannot hold Hak Milik (freehold title) under the Basic Agrarian Law, Law No. 5 of 1960, so an Indonesian friend or business contact holds the title, and a private agreement — sometimes a power of attorney — records the foreigner’s beneficial interest.
Both forms share the same structural problem: the legal record says one thing, and a private contract says another. Indonesian courts are asked to enforce the private contract when the relationship fractures. They mostly decline.
The Explicit Prohibition: Article 10(1) of Law 25/2007
Article 10(1) of the Capital Investment Law states plainly that Indonesian citizens and business entities may not act as nominees for foreign investors. The provision was written with exactly this arrangement in mind. It is not an ambiguous rule that a creative lawyer can read around.
The consequences stipulated in the law include three distinct categories of sanction.
- Company dissolution
- A PT established using a nominee structure can be wound up. The government does not need a criminal conviction to initiate dissolution proceedings; a determination that the company was formed to circumvent foreign-ownership rules is sufficient basis.
- Asset forfeiture
- Assets held through the invalid structure — shares, land, business equipment, operating licenses — can be forfeited to the state. This is not hypothetical. Forfeiture has been applied in Indonesian courts in cases where the nominee arrangement was proved.
- Criminal liability
- Both parties to the nominee agreement — the foreign investor and the Indonesian nominee — can face criminal prosecution. The law does not treat the foreigner as the sole wrongdoer; the nominee who knowingly participated is equally exposed.
The law’s framing reflects a deliberate policy choice. Indonesia’s capital-investment regime under the Omnibus Law era (the Job Creation Law of 2020 and its implementing regulations) has moved toward making foreign ownership more accessible through legitimate channels — the PT PMA structure, the Positive Investment List under Perpres 10/2021 as amended by Perpres 49/2021, and the OSS risk-based licensing system. The logical corollary is that there is less tolerance, not more, for arrangements designed to bypass these channels.
Why the Side-Letter Doesn’t Save You
The standard pitch for nominee structures — particularly from property brokers and informal advisors — is that a side-letter, a private trust deed, or a special power of attorney protects the foreign investor. You hold the real claim, the argument goes; the Indonesian nominee is just a name on a certificate.
There are at least three reasons this reasoning fails in practice.
Indonesian Courts Won’t Enforce an Illegal Contract
Indonesian contract law, rooted in the Civil Code (Burgerlijk Wetboek, carried forward as KUH Perdata), will not give effect to a contract whose underlying purpose is to evade a legal prohibition. A trust deed that says, in substance, “I hold these shares on behalf of a foreign investor to circumvent the capital-investment law” is a contract with an illegal object. Courts have the power — and have used it — to declare such instruments void ab initio, meaning void from the beginning as if they never existed.
When that happens, the foreign investor has no enforceable claim. The Indonesian nominee holds the asset, and the nominee’s name is what appears on the registry.
The Power of Attorney Can Be Revoked
A special power of attorney (Surat Kuasa Khusus) granted by the nominee to the foreign investor is revocable by the nominee at any time under Indonesian law, unless it is irrevocable and coupled with an interest — a construction that requires specific legal conditions. In practice, a nominee who decides to keep the asset, respond to a family pressure, or simply change their mind can revoke the power of attorney. The foreign investor, holding a document that described control, now holds nothing enforceable.
Land Certificates Are Constitutive, Not Just Declaratory
For real property, Indonesia operates a system of registered land rights. The Hak Milik certificate, issued by the National Land Agency (BPN/ATR), is not just evidence of ownership — it is the title itself. A private agreement that says someone other than the certificate holder is the “real” owner does not alter what BPN records say. To change land ownership, you need a notarial deed registered with BPN, which requires a lawful underlying transaction. A nominee arrangement is not a lawful underlying transaction, so it cannot be formalized through this route without exposing the illegality.
The Confiscation Risk in Real Terms
Foreign investors often picture asset confiscation as something that requires a government enforcement action — a raid, a court judgment, an official decree. This framing underestimates the actual risk profile because it misses the more common pathway to loss.
The Nominee Decides to Keep the Asset
In the majority of nominee disputes that reach litigation or mediation in Indonesia, the precipitating event is not a government action. It is a breakdown in the personal relationship between the foreign investor and the Indonesian nominee. Death of the nominee, inheritance by nominees’ heirs who were not party to any agreement, marriage and divorce affecting the nominee’s assets, financial pressures on the nominee, a business dispute — any of these can cause the nominee to assert that the asset is theirs, not the foreigner’s.
At that point, the foreign investor goes to court. The court sees an Indonesian citizen holding a validly registered title or properly issued share certificate, and a foreigner presenting a side-letter that on its face describes an arrangement designed to evade foreign-investment law. The outcome is predictable. The foreigner loses the asset not because the government seized it, but because no court will return it.
The Government Can Also Act
Beyond the private-dispute pathway, the Ministry of Investment (Kementerian Investasi/BKPM) and the Ministry of Law and Human Rights retain the authority to investigate and dissolve companies found to have been established in violation of the Capital Investment Law. Where nominee equity is proved, dissolution triggers the asset-forfeiture provisions. The practical frequency of this enforcement varies and is not systematically published, but the legal authority is clear and has been exercised.
Criminal Exposure for the Nominee
Indonesian nominees sometimes underestimate their own exposure. If a nominee arrangement is investigated, the Indonesian national faces the same criminal risk as the foreign investor. This asymmetry — a foreign investor who may have significant assets offshore versus an Indonesian individual without equivalent resources — can lead nominees to cooperate with investigations in ways that further damage the foreign investor’s position.
How This Plays Out in Raja Ampat Specifically
Raja Ampat’s remoteness and the prevalence of customary (adat) land make the nominee problem worse, not better.
Much of the land in the Raja Ampat regency — coastlines, small islands, reef-adjacent areas — is held under adat (customary tenure) by Papuan clans (marga/keret). This land is often unregistered in the BPN sense. There is no SHM (Sertifikat Hak Milik) to point to. What exists are customary agreements, community understandings, and informal arrangements.
Foreign investors sometimes attempt to use a local intermediary — not formally a nominee in the legal sense, but playing the same functional role — to hold a lease or use-agreement with an adat clan. When this structure is used to circumvent the foreign-investment requirements for a PT PMA, it carries all the nominee risks described above, compounded by additional layers of customary-law complexity.
The Papua Special Autonomy framework — Law No. 21 of 2001, significantly amended by Law No. 2 of 2021 — gives Orang Asli Papua (indigenous Papuans) strengthened land and resource rights, and enables special regional regulations (Perdasus and Perdasi) on consent and benefit-sharing. Any structure that attempts to appropriate adat land through a local proxy without genuine adat community consent (free, prior, and informed consent, or FPIC) runs into this layer on top of the standard capital-investment prohibitions.
The result is that a foreign investor using a nominee structure in Raja Ampat faces compounded risk: the Capital Investment Law prohibition, the general unenforceability of nominee contracts, the revocability of powers of attorney, and the potential for adat community challenges to any agreement made without proper clan-wide consent.
What the Legal Alternatives Actually Look Like
This piece is information, not advice, and the decisions here require licensed Indonesian counsel. But it is worth being clear that the legal alternatives exist and are used successfully by foreign investors in eastern Indonesia.
PT PMA: The Direct Route
A PT PMA (Perseroan Terbatas Penanaman Modal Asing) is the standard vehicle for foreign investment in Indonesian companies. For most large-scale tourism, resort, and hospitality activities, the Positive Investment List permits 100% foreign ownership. A qualifying PT PMA requires a minimum investment plan exceeding IDR 10 billion per business field per project location (excluding land and buildings), and the paid-up capital requirement has been cited by advisors in 2025/26 at IDR 2.5 billion — though these figures require independent verification against current BKPM regulations, as they have changed and advisors cite different numbers.
A correctly structured PT PMA can hold HGB (Hak Guna Bangunan, right to build) over leasehold land for up to 30+20+30 years under the current PP 18/2021 framework. It can enter lease agreements with adat clans, with the PT PMA as the legal counterparty rather than a nominee individual. The company’s articles of association, board structure, and share register are transparent and legally recorded.
This route costs more to establish, requires ongoing compliance (LKPM quarterly reporting, annual audits for larger entities, tax filings), and demands careful KBLI code selection — the business field codes determine which downstream licenses the company can later obtain. Getting the KBLI wrong early creates regulatory blockages later. These are manageable costs for a properly capitalized project, and they create certainty that nominee structures cannot.
Genuine Joint Ventures with Local Partners
A PT that is genuinely jointly owned — where Indonesian shareholders have real economic interests, real decision-making roles, and real dividends, rather than being placeholders — is structurally different from a nominee arrangement. In Raja Ampat, joint ventures with Papuan community entities or with experienced Indonesian operators can also satisfy the social-licence requirements that adat land investment demands, in ways that a purely foreign-owned PT PMA with a nominee land intermediary cannot.
The line between a genuine joint venture and a nominee arrangement is not always obvious from the outside. The test applied in practice is whether the Indonesian party has a real economic interest, real rights, and real risk — or whether they are simply a name on a document in exchange for a fee. Courts and regulators look at substance, not form.
A Comparison of Structures
| Structure | Legal status | Enforceability of private agreements | Confiscation / dissolution risk | Criminal exposure |
|---|---|---|---|---|
| Nominee shareholder / land nominee | Prohibited — Art 10(1) Law 25/2007 | Side-letters largely unenforceable; illegal-object doctrine applies | High — dissolution + forfeiture provisions apply | Both parties (foreigner + nominee) |
| PT PMA (correctly structured) | Legal — Perpres 10/2021, PP 5/2021, OSS/NIB | Full enforceability; articles of association registered with MOLHR | Low if compliant; normal commercial risk only | None from structure itself |
| Genuine joint venture (local + foreign shareholders) | Legal if structured correctly and interests are real | Full enforceability via shareholder agreements registered under Indonesian law | Low if compliant | None from structure itself |
| Foreign individual + Hak Pakai | Legal for individuals in limited circumstances | Registered title; no side-letter needed | Low; limited to 30+20+30 yr term | None from structure itself |
If you are evaluating a potential acquisition in Raja Ampat and want to map the structure against these categories before retaining local counsel, plan your approach with our team. We can help you frame the right questions for the notaris and the consultants you will need to retain.
Red Flags That Indicate a Nominee Arrangement
When buying an existing resort or business, the nominee question is a due-diligence issue as well as a structuring one. A business built on a nominee foundation carries all the same legal fragility for the buyer as for the original investor.
Watch for these patterns in any deal documentation.
- Shares held by an Indonesian individual with no visible business relationship to the venture. A share register showing a local individual as majority shareholder in a resort operated by foreigners, with no evident rationale for that individual’s involvement, is a starting point for harder questions.
- Side-letters, trust deeds, or undisclosed powers of attorney referenced in seller disclosure but not in the company documents. Sellers sometimes disclose these reluctantly, or not at all until due diligence forces the issue.
- A power of attorney granting sweeping rights to a foreign national over assets held by an Indonesian individual. This is a common documentary fingerprint of the land-nominee arrangement.
- Discrepancy between who operates the business and who appears on legal documents. If the day-to-day operator, the bank signatory, and the person holding the lease are three different people with no documented relationship, the structure requires scrutiny.
- Advisors who present nominee structures as a routine, low-risk option. This is not a credible position given the plain text of Article 10(1). An advisor who presents it this way is either uninformed or is prioritising their fee over your legal exposure.
The 2025 Permit Environment and Why Enforcement Risk Is Rising
There is a structural reason why nominee arrangements carry more enforcement risk now than they did a decade ago. The Indonesian government’s investment-transparency agenda has expanded significantly under the Omnibus Law era. OSS (Online Single Submission) requires companies to register their shareholder structures electronically. The Beneficial Ownership disclosure requirements, introduced under Presidential Regulation No. 13 of 2018, require Indonesian companies to report their ultimate beneficial owners — meaning the real human beings who ultimately hold control — to the government’s beneficial-ownership information system.
A nominee arrangement in which an Indonesian national appears as shareholder but a foreign national is the beneficial owner is precisely the structure these disclosure requirements are designed to surface. A company that discloses the nominee as the beneficial owner provides false information. A company that discloses the foreign national as the beneficial owner in a structure not permitted under the Positive Investment List reveals the illegal arrangement.
Add to this the 2025 nickel-mining permit revocations in Raja Ampat — four IUPs cancelled following Greenpeace Indonesia’s documentation of environmental damage, announced by the Minister of Energy and Mineral Resources — and the broader pattern is clear. Indonesian regulatory appetite for scrutinising how businesses are actually structured, particularly in sensitive environmental areas, is increasing. The Geopark designation (UNESCO, 2023) and the Gold Blue Park Award (2022) have put Raja Ampat under a level of international conservation scrutiny that makes permit revocations and ownership challenges more likely, not less, for operations that cut regulatory corners.
Practical Guidance for Investors Considering or Holding These Structures
If you are considering entering Raja Ampat through a nominee structure — whether land or equity — the analysis above describes why that is a bad idea.
If you are currently holding an investment through a nominee structure, the situation calls for legal advice specific to your facts, but the general direction is regularisation. Converting a nominee equity structure into a compliant PT PMA is possible. It requires unwinding the existing shareholding, establishing the PT PMA correctly with BKPM registration and a proper NIB under OSS, and transferring assets through documented, notarised transactions. This process is complex, has tax implications at every step, and requires the cooperation of the nominee — who, during the regularisation process, retains legal title and therefore leverage. Doing it proactively, while the relationship is intact, is considerably less costly than doing it after a dispute has emerged.
For land specifically: regularising a nominee land arrangement into a PT PMA holding HGB or a properly documented Hak Pakai involves land transactions that must be notarised by a PPAT (Pejabat Pembuat Akta Tanah) and registered with BPN/ATR. In Raja Ampat, where much of the relevant land is adat land, the additional step of formalising adat community consent and ensuring any underlying use-rights are validly constituted under the Papuan Special Autonomy framework is not optional.
For investors in the due-diligence phase, engaging a qualified Indonesian advocate (advokat) and a licensed notaris/PPAT with West Papua experience before signing anything is the minimum threshold. Given the adat layer, retaining a consultant with documented experience in Papua indigenous-rights processes is also worth the cost.
If you want a structured framework for assessing a specific deal in Raja Ampat before you begin that legal process, reach out via our contact page or plan an initial conversation via WhatsApp — we can help you map the questions your legal team will need to answer and identify the right local specialists.
Frequently Asked Questions
Are nominee shareholders in Indonesia ever legal?
No. Article 10(1) of Law No. 25 of 2007 on Capital Investment explicitly prohibits Indonesian nationals from acting as nominees for foreign investors in Indonesian companies. There is no lawful nominee structure of this kind. What is legal is a genuine Indonesian shareholder with real equity, real economic rights, and real decision-making authority — that is a joint venture, not a nominee arrangement. The distinction is substantive, not just terminological.
What happens to the land if an Indonesian nominee dies?
The land title passes to the nominee’s heirs under Indonesian inheritance law. A private side-letter or trust deed in favour of the foreign investor is unlikely to be enforced, because it describes an arrangement that is illegal under the Capital Investment Law. The foreign investor has no registered claim and no enforceable private-law remedy. In practice, this scenario forces a negotiation with the nominee’s heirs from a position of significant weakness, or a complete loss of the asset.
Can a side-letter or trust deed be notarised to make it more enforceable?
Notarisation authenticates a document’s execution — it records that the parties signed voluntarily before a notaris. It does not make an illegal contract enforceable. An Indonesian court asked to enforce a notarised trust deed that describes a nominee arrangement prohibited by Article 10(1) of Law 25/2007 can still, and regularly does, refuse on the grounds that the underlying purpose is to evade a legal prohibition. Notarisation adds cost and formality to a document that is still substantively unenforceable.
Does the PT PMA minimum capital requirement of IDR 10 billion mean I need to have that cash in an Indonesian bank?
Not necessarily all at once. The IDR 10 billion figure refers to the required investment plan — the total investment the company commits to make, excluding land and building costs, per business-field activity per project location. The paid-up capital (the equity actually subscribed and paid into the company) is a different figure, cited by advisors in 2025/26 at IDR 2.5 billion, though this must be confirmed against current BKPM regulations because the number has changed and different sources quote different amounts. A qualified business-formation consultant with current BKPM experience will give you the accurate, current figures.
I was told nominee structures are common practice in Bali. Does the same risk apply in Raja Ampat?
The legal prohibition under Article 10(1) of Law 25/2007 is national law. It applies across all of Indonesia, including Bali and Raja Ampat. The fact that a practice is widespread does not make it legal, and the fact that enforcement has been uneven historically does not eliminate the risk. In Raja Ampat specifically, the additional complexity of Papuan Special Autonomy land rights, the UNESCO Geopark designation, and the heightened regulatory scrutiny following the 2025 mining permit controversies all compound the standard risks. An arrangement that has persisted without consequence in Bali carries higher, not lower, risk in Raja Ampat.