Nominee Agreement: Why Putting Land in a Local Friend’s Name Is a Financial Mistake

Nominee Agreement in Indonesia: The Risks for Foreigners Registering Property Under a Local’s Name

Indonesia—particularly Bali—continues to attract foreign investors interested in buying real estate. However, the country’s legal framework imposes clear restrictions: foreigners are not allowed to directly own land under titles such as Hak Milik (Freehold) or Hak Guna Bangunan (Right to Build). In an attempt to bypass this law, many resort to a questionable method—registering the land in the name of an Indonesian citizen through what is called a nominee agreement.

In practice, this approach often leads to serious legal complications and substantial financial loss. Let’s explore why putting property in a local’s name is not a workaround—but a legal and financial trap.

What Is a Nominee Agreement?

A nominee agreement is an unofficial arrangement in which a foreigner, lacking the legal right to own land directly, uses an Indonesian citizen as the “nominal owner.” The land is registered under the Indonesian’s name, while a series of side documents are signed—powers of attorney, agreements mandating transfer or resale, declarations of acting in the foreigner’s interest.

Why Do Foreigners Use This Method?

The main driver is the restriction outlined in Law No. 5/1960 on Basic Agrarian Principles. Foreign nationals are prohibited from owning land outright under titles such as:

Hak Milik — full ownership rights,
Hak Guna Bangunan (HGB) — the right to build and use the land, granted only to legal entities registered in Indonesia.

Since many Bali properties are sold under the Hak Milik title, foreigners sometimes believe a nominee structure is a “viable workaround.” But this belief opens the door to extensive legal and tax risks.

Why Putting Property in a Local’s Name Is Legally Dangerous

1. It Violates the Law and Judicial Precedent

According to statements from the National Land Agency of Indonesia (BPN) and the Ministry of Agrarian Affairs and Spatial Planning, nominee schemes contradict both the spirit and the letter of Indonesia’s land law. Official BPN statements make it clear: such arrangements are deemed attempts to circumvent the law and are not recognized as legal.

⏵ Real ownership doesn’t legally exist. Regardless of the foreigner’s financial contribution, the land remains registered in the Indonesian citizen’s name.

⏵ Side agreements are invalid in court. Case precedent shows that even notarized documents between a foreign investor and their nominee do not protect the investor’s rights. In the case 504/Pdt.G/2008/PN.DPS in Denpasar, the court invalidated the side agreements, leaving the foreign investor unable to recover their investment.

2. No Legal or Property Protection

By registering land in another person’s name, you give up all legal security. Some possible consequences:

💼 If the nominee dies: the land is inherited by the nominee’s family—not you.
⚖️ If the nominee faces legal trouble: such as criminal charges or tax investigations, the land can be seized as part of the proceedings.
🏠 If the nominee changes their mind: they can ignore informal agreements or even sell the land without your consent.

In each of these cases, the foreign investor is left defenseless—legally, you are not the registered owner and cannot claim the property in court.

3. Financial and Tax Risks

Using a nominee also creates serious issues related to taxation and financial transparency:

— Lack of tax transparency. The formal owner must declare the purchase, pay Capital Gains Tax (PPh Final 2.5%), and file proper reports. In reality, this is often neglected, exposing the asset to penalties and investigations.

— Double taxation risk. If income is generated through resale or rental, authorities may consider it undeclared taxable revenue—both in Indonesia and potentially in the investor’s country of residence.

— Asset confiscation possibilities. If authorities discover that a foreigner illegally controls the asset and the documentation is a sham, the property may be seized for violating land laws.

What Are the Legal Ways for Foreigners to Acquire Property in Indonesia?

Despite restrictions, there are legitimate ways for foreigners to gain long-term use and control over real estate in Indonesia:

1. Hak Pakai (Right to Use)

This allows foreign nationals to legally hold property such as a villa or house for up to 30 years, with extensions up to 80 years. The title is officially registered with the BPN and grants full residence rights, including resale with BPN approval.

Note: English sources may refer to this as Right to Use or Use Title.

2. Lease Agreement (Long-Term Lease)

Indonesian law permits long-term lease agreements of 25–30 years with the possibility of extension:

Registered under the foreigner’s own name.
May involve full upfront payment or phased installments.
Includes subsale or sublease rights.

This is a flexible and lawful option for both residential and investment purposes.

3. Through a Foreign Investment Company (PT PMA)

If the goal is commercial use or construction, foreigners can form a Foreign Investment Company (PMA — Penanaman Modal Asing). A PT PMA is eligible to hold long-term lease rights through Hak Guna Bangunan for up to 80 years.

Requires a business plan and registration with BKPM (Investment Ministry).
Minimum investment: 10 billion IDR (~USD 600,000), usually split across share capital and company assets.

This is the only reliable pathway that connects property control to foreign capital.

📌 What Should Foreigners Know Before Buying Land in Indonesia?

Foreigners cannot legally own land under the Hak Milik (freehold) title.
The *nominee agreement* violates the law and offers zero legal protection.
There are three legal pathways for ownership or use: Hak Pakai, long-term lease, and PT PMA.

When investing in Bali’s real estate market—or anywhere in Indonesia—it is essential to rely on lawful structures. Those who try to cut corners are typically the ones who incur the greatest losses.

Conclusion: Putting Land in a “Friend’s” Name Will Cost You Everything

Registering property under an Indonesian citizen through a nominee agreement isn’t a smart deal—it’s a legal trap. Without official ownership, you can’t safeguard your investment, can’t legally sell, and can’t even claim residence on the land.

Smart investing in Indonesia is possible—but only through legitimate mechanisms. Don’t risk hundreds of thousands of dollars on so-called “trusted friends.”

Recommended Steps Before Buying Property

Seek legal advice from a lawyer specializing in Indonesian land law.
Never register land under a local’s name without full legal due diligence.
Explore legal structures for ownership: Hak Pakai, long-term lease, or a registered PT PMA.

Invest responsibly—by the law, not against it.

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