Investing Using A Nominee Agreement: Is It Still Relevant?

Image by witwiccan from Pixabay
Image by witwiccan from Pixabay

Written by Nino Saununu, SH.

An article about Real Estate Investment in Bali by Terje H. Nilsen in May, provided some ideas on how you can invest in Indonesia. Here are some more details on this based around Indonesian Law.

If you’re an expat and you’ve been advised to use something called a “Nominee Agreement” to invest in Indonesia, you need to know why we don’t recommend doing so.

Here’s why you should avoid the Nominee Agreement practice:

It’s against the Agrarian Law

If you intend to buy land/property in Indonesia, be aware that under Indonesian Agrarian Law as stipulated on Article 21, Section (1) and Article 26, Section (2) of Act No. 5 of 1960, foreigners are forbidden to own land/property under the Freehold Right (gronds verponding verbood), and Indonesians are forbidden to transfer their Freehold rights to foreigners.

This Agrarian Law specifically determines that foreigners are only entitled to the Right to Use (Hak Pakai) that is regulated by Government Regulation No. 103 of 2015 (PP. No. 103 of 2015), which stipulates the validity of the first period of ownership as being up to 30-years, and then can be extended for 20-years, and later can be renewed for another 30-years.

Nominee Agreements became a common practice in Bali because foreigners associated it with a nominee practice that’s very common in western countries and that it was being legally acceptable.

In fact, this practice is not legally accepted in Indonesia.

The way it works is that nominees are used by foreigners to be able to control land by borrowing the name of an Indonesian citizen through a Nominee Agreement. This is made with an underhanded deed between the Indonesian citizen and the foreigner, which supposedly registers land ownership rights in the name of an Indonesian citizen appointed as nominee.

It’s against Investment Law and Private Limited Company Law

If you plan to start a business in Indonesia then you have to abide by the laws as stipulated in the Act No. 25 of 2007 about Investment, and Act No. 40 of 2007 about Private Limited Companies.

Both laws clearly forbid the nominee arrangement practice.

Article 33, Sections 1 and 2, Act No. 25 Year 2007, mentions sanctions on nominee arrangements that have been used for some time in Indonesia, as follows:

Domestic investors and foreign investors who conduct investment in the form of capital sharing are forbidden in setting an agreement to allow another party to hold a share in a Limited Private Company for, and on behalf of, someone’s name;

Who’s the legal owner?

In cases of a domestic investor and a foreign investor making such agreements as stated in section (1), the agreement and or the statement are forfeited by the law.

When an Indonesian’s name is used as the owner of a property, or as a shareholder of a business in Indonesia, the nominee is considered as the legal owner of the said property/shareholder. Article 48 Section 1 Act 40, 2007, states that “Company shares are issued under the name of the owner.”

This means that, although the counter document is made in the form of Statement Deed or similar, that the Indonesian is only acting as the Legal Owner on behalf of the foreigner, only the Indonesian’s rights are accepted by Indonesian Law, as defined by Article 33, Section 2.

Shareholder Ownership

According to Indonesian Law, there isn’t yet a specific regulation that governs the Nominee Agreement practice, although this scenario has been frequently utilized by foreigners Investing. Referring to Article 33, Sections 1 and 2, the rule is only applied in Shareholder Ownership.

Although, there are no such rules governing Nominee Agreement practices in Land/Property Ownership as such, this could be one of the ways to sort out the deadlock involving foreigners investing in Indonesia.

This would be especially relevant to those who intend to run a business here but have no interest in setting up a Foreign Investment LLC, as extra care is needed prior to getting into this scenario to avoid unnecessary problems in the future The same thing also applies if you intend to buy Property/Land in Indonesia as a result of recent issues around the implications of the nominee practice when it comes to the law.

As Indonesian Agrarian Law clearly provides protection to its citizens in owning Land/Property, on the surface it might be seen as a proper and legally binding contract between an investor and a nominee, but when it comes to disputes, under Indonesian Law, the Foreign Owners/Investors would be the ones who would lose, because the law doesn’t allow for this kind of practice.

This means, the nominee would be entitled to the land/property when the court is involved.

Another crucial thing to consider is if one day the nominee passes away.

In these cases according to the law, all land/property would be inherited by their heirs. The Nominee’s Statement cannot be applied without the consent of all heirs made in front of a Public Notary. Problems would then arise if the heirs don’t want to sign the consent.

Using an underage person (under 17-years old is considered under age in Indonesia) as a Nominee to own property, requires a guardian’s consent and also the District Courts’ verdict. Both require money and take time.

All of this needs to be taken into consideration before deciding to go with a Nominee Agreement when you want to purchase Land/Property.

Please feel free to let me know what you think or if you have any questions around this topic, and I look forward to hearing from you!

Send an email to legal@sevenstonesindonesia.com

 

Harcourts Seven Stones is a property company headquartered in Bali, Indonesia, with a mission to help people who are interested in buying and selling residential and commercial real estate.

If you’re thinking about property, ROI, capital gains or lifestyle investments in Bali, Jakarta, Surabaya, and Indonesian’s Eastern Islands and need some friendly advice and guidance then why not email hello@sevenstonesindonesia.com or check out Seven Stones Website | Seven Stones Linkedin | Seven Stones Facebook

 

Latest Article
Indonesia Enters Peak Rainy Season, BMKG Warns Possible Floods
Indonesia’s Meteorology, Climatology, and Geophysics Agency (BMKG) has announced that many regions across...
Foreign Tourist Visits to Indonesia Surge by 22 Percent
Indonesia welcomed 1,193,867 foreign tourists in October 2024, marking a 22.01% year-on-year (YoY) increase...
Christmas and New Year Holidays, KAI Prepares 44.7 Million Tickets
PT Kereta Api Indonesia Group has allocated 44,754,280 train tickets to accommodate the surge in passengers...
Ministry Urges Tourism Collaboration for Year-end Holidays
Antara News is reporting that Indonesia’s Tourism Minister, Widiyanti Putri Wardhana, has called for...
AirAsia to Reduce Ticket Prices for Christmas and New Year
In a written statement released on Sunday (1/12/24,) AirAsia’s CEO, Veranita Yosephine announced...

Andrzej Barski

Director of Seven Stones Indonesia

Andrzej is Co-owner/ Founder and Director of Seven Stones Indonesia. He was born in the UK to Polish parents and has been living in Indonesia for more than 33-years. He is a skilled writer, trainer and marketer with a deep understanding of Indonesia and its many cultures after spending many years travelling across the archipelago from North Sumatra to Irian Jaya.

His experience covers Marketing, Branding, Advertising, Publishing, Real Estate and Training for 5-Star Hotels and Resorts in Bali and Jakarta, which has given him a passion for the customer experience. He’s a published author and a regular contributor to local and regional publications. His interests include conservation, eco-conscious initiatives, spirituality and motorcycles. Andrzej speaks English and Indonesian.

Terje H. Nilsen

Director of Seven Stones Indonesia

Terje is from Norway and has been living in Indonesia for over 20-years. He first came to Indonesia as a child and after earning his degree in Business Administration from the University of Agder in Norway, he moved to Indonesia in 1993, where he has worked in leading positions in education and the fitness/ wellness industries all over Indonesia including Jakarta, Banjarmasin, Medan and Bali.

He was Co-owner and CEO of the Paradise Property Group for 10-years and led the company to great success. He is now Co-owner/ Founder and Director of Seven Stones Indonesia offering market entry services for foreign investors, legal advice, sourcing of investments and in particular real estate investments. He has a soft spot for eco-friendly and socially sustainable projects and investments, while his personal business strengths are in property law, tourism trends, macroeconomics, Indonesian government and regulations. His personal interests are in sport, adventure, history and spiritual experiences.

Terje’s leadership, drive and knowledge are recognised across many industries and his unrivalled network of high level contacts in government and business spans the globe. He believes you do good and do well but always in that order. Terje speaks English, Indonesian and Norwegian.

Contact Our Consultants

[wpforms id=”43785″]

Ridwan Jasin Zachrie

CFO of Seven Stones Indonesia, Jakarta

Ridwan is one of Indonesia’s top executives with a long and illustrious career in the financial world. He holds several professional certifications including being a Certified Business Valuer (CBV) issued by the Australian Academy of Finance and Management; Broker-Dealer Representative (WPPE); and The Directorship Certification for Directors and Commissioners, issued by the Indonesian Institute of Commissioners and Directors.

His experience includes being the Managing Director at one of the top investment banking groups in the region, the Recapital Group, the CFO at State-owned enterprises in fishery industry and the CEO at Tanri Abeng & Son Holding. He’s also been an Independent Commissioner in several Financial Service companies and on the Audit and Risk Committee at Bank BTPN Tbk, Berau Coal Energy Tbk, Aetra Air Jakarta as well as working for Citibank, Bank Mandiri and HSBC. His last position was as CFO at PT Citra Putra Mandiri – OSO Group.

Ridwan has won a number of prestigious awards including the Best CFO Awards 2019 (Institute of Certified Management Accountant Australia-Indonesia); Asia Pacific Young Business Leader awarded by Asia 21 Network New York USA (Tokyo 2008); UK Alumni Business Awards 2008 awarded by the British Council; and The Most Inspiring Human Resources Practitioners’ version of Human Capital Magazine 2010.

He’s a member of the Board of Trustees of the Alumni Association of the Faculty of Law, Trisakti University, Co-Founder of the Paramadina Public Policy Institute and actively writes books, publications and articles in the mass media. He co-authored “Korupsi Mengorupsi Indonesia” in 2009, which helps those with an interest in understanding governance in Indonesia and the critical issue of corruption. Ridwan speaks Indonesian and English.

Per Fredrik Ecker

Managing Director of Seven Stones Indonesia, Jakarta

Per is the Managing Director of the Seven Stones Indonesia (SSI) Jakarta office and has more than 25-years’ experience in Indonesia, China, and Western Europe. He previously worked in senior management positions with Q-Free ASA, Siemens AG, and other companies in the telecom sector. Over the last six years, he has been the Chairman of the Indonesia-Norway Business Council (INBC) and recently become elected to be on the board of EuroCham Indonesia.

His most recent experience is within Intelligent Transport Solutions (ITS), Telecom, and other sectors within the Indonesian market. He is today through his position in SSI and by representing Norway Connect, promoting Nordic and European companies that would like to explore business opportunities in the Indonesian market. He’s also playing an active role to help create the Nordic House concept in Jakarta that will provide an excellent platform for Nordic companies entering Indonesia, where they’ll find a community that can offer support with trusted information and affordable services to enter this market.