All You Need to Know about Local Nominee Services in Indonesia (2021)

Indonesia is flooded with many opportunities to set up your company! However, setting up a business as a foreign company or PT PMA (Perseroan Terbatas Penanaman Modal Asing in Bahasa) might call for more capital than you’d like.

One way to go around the high capital requirements for foreign businesses is to set up a Local Limited Liability Company or PT PMDN (Perseroan Terbatas Penanaman Modal Dalam Negeri in Bahasa). There are many benefits to reap from such an approach, yet finding the right people could be challenging. That’s why many service providers offer a service called “Nominee Shareholders and Director” to help you connect with local people who can be shareholders or directors in your business through a trustworthy agreement.

In this article, we will introduce you to the different local nominee services, their respective duties and responsibilities, and how to safely use these services.

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Learn about local nominees in Indonesia.

Local nominee directors, shareholders, and commissioners are popular in countries with strict regulations for foreigners wanting to start a business, especially emerging markets like Indonesia.

However, using nominee services comes with a lot of essential things that you need to consider. Below, we’ll outline everything that you should know.

What are local nominee services?

Local nominees are people or legal entities that serve as directors, shareholders, or commissioners of a company on behalf of someone else. In other words, the nominees won’t have direct authority over the company and only represent the actual directors or shareholders.

A local nominee service offers you a list of one or more candidates that you can use as your local nominee. Moreover, these services usually provide legal arrangements to safely distribute control, ownership, and income between the nominees and actual owners.

Why do companies use local nominee services?

There are usually three main reasons why companies opt to use local nominee services in Indonesia. These are on top of the basic elements of setting up a local company in Indonesia whereby the company requires at least the following people:

  • Two local shareholders
  • One local commissioner
  • One local or foreign director

The other two reasons are to get around the limited amount of foreign ownership and minimum capital requirements for foreign companies.

Although most businesses are open to 100 percent foreign ownership since the introduction of the Omnibus Law in 2020 and the Positive Investment List in 2021, there are still some business fields not fully open yet. This means that if your business field is not fully open to foreign ownership, then you’d need to have a local partner. Therefore, companies hire nominee directors to fulfill the necessary requirements.

Lastly, a foreign company in Indonesia needs to submit at least ±IDR 2.5 billion (±USD174,750) of paid-up capital and plan to invest at least ±IDR 10 billion(±USD698,998) in total. However, if all shareholders of the company are local nominees, which means that you set up as a local company, then the capital requirements will be lower.

What are the available types of local nominees?

Companies in Indonesia usually use three types of local nominees:

  • Local nominee directors,
  • Local nominee shareholders, or
  • Local nominee commissioners.

1. Local nominee director

A nominee director is a person who acts as director of a particular company in a passive role.

In other words, the nominee won’t be involved in managing the company. Also, they won’t be named as signatories for the company’s bank account in Indonesia, unless the real owner requires them to

The role of a nominee director in Indonesian company law is to satisfy the requirement of having at least one director in the company. Therefore, the nominee director mainly the overall management of the company; such as to produce an annual report and arrange general meetings.

What is the purpose of nominee directors?

A foreign or local company with no foreign national, who has stayed for more than 183 days and has the work permit and tax ID in Indonesia, would need a local director. This can happen when the company hires a foreigner from overseas who does not have an Indonesian work permit yet or transfers someone from the headquarter.

So, until they can arrange a KITAS for the foreign director, companies have the option to:

  • Name an Indonesian citizen as the director in the incorporation documents, or
  • Using a local nominee director service.

Either way, they’ll have the option to change the company director later on.

2. Local nominee shareholders

A nominee shareholder is a person or company that acts as the registered owner of another company’s shares on behalf of the actual owners.

In other words, the nominee shareholders’ roles will be to represent the actual owners with their names on the legal documents.

What is the purpose of nominee shareholders?

Setting up a foreign company (PT PMA) in Indonesia can be quite challenging, especially if you want to start a business in industries where foreign ownership is limited or even closed.

For some business purposes, incorporating a local company (PT PMDN) would be a more efficient option. By using local nominee shareholders, businesses can register as a local company, effectively bypassing the requirements of setting up a foreign company.

Specifically, there are two main reasons why foreign companies use local Indonesian nominee shareholders:

3. Local nominee commissioners

A nominee commissioner is a person that acts as the commissioner of a company on behalf of the actual owners.

The commissioner will act as a supervisor for the director and the company’s activities.

What is the purpose of nominee commissioners?

Similar to nominee shareholders, local nominee commissioners can be an option for foreigners that want to incorporate as a local company (PT PMDN) instead of a foreign company (PT PMA).

This is because the commissioner of a local company needs to be an Indonesian citizen, and can’t be the same person as the director.

What are the risks of using local nominees?

Local nominee arrangements can be efficient solutions for a company to start a business in Indonesia. However, it may come with some risks if you don’t choose a proper nominee service.

The nominee might leave with your assets.

An untrustworthy local nominee shareholder might use their legal ownership to seize control of your assets.

If this happens and you didn’t set up any legal agreements with them beforehand, you can’t pursue legal action against them. After all, the company documents specify the nominees as legal owners.

The ownership might transfer to someone else.

In the event of your nominee shareholder’s death, marriage, or divorce, their shares in your company might be counted as assets that someone else will inherit.

So, even if you trust the nominee shareholder, you should still arrange legal agreements to avoid unforeseen circumstances like this.

How can I safely use local nominees in Indonesia?

You need to be careful when choosing local nominees to represent you. However, local nominee arrangements are relatively common in Indonesia, so there are several safe practices that you can use.

Use nominee services from trustworthy service providers.

Look for companies or service providers with a proven track record in serving as local nominee shareholders. Trustworthy partners will ensure that you’ll always have full control over your assets.

Make legally binding agreements.

Arrange a set of reliable, notarized arrangements with the nominee shareholders. Doing this will help protect your rights and ownership over your assets.

Are there any alternatives?

Yes. If you want to set up a company in Indonesia without the minimum capital requirements, you can also consider setting up a representative office or KPPA. This can be a simpler alternative to using local nominees. However, you should note that representative offices aren’t allowed to generate revenue.

We have covered the purpose of using local nominee services in Indonesia and how to avoid the risks. If you have any questions regarding the contents of the article, do feel free to contact us through this link and we’ll be happy to help you answer any questions.

Need help to nominate a nominee director for your company?

Greenhouse offers an online platform for you to book business incorporation services and connect with market entry consultants in your target markets.

We’ll connect you with experienced consultants on the ground who can help answer your questions about doing business in Indonesia.

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