Foreign investors who wish to operate a local limited liability company (PT PDMN) should understand that this can lead to legal uncertainties, as a PT PDMN can only be owned by Indonesian citizens.

According to Article 33 of the Investment Law of 2007, foreign investors are prohibited from making agreements stating that share ownership or joint ownership in a company is on behalf of another party. Such an agreement, known as a ‘nominee agreement,’ is often used by foreign investors to bypass the regulations and requirements that apply to them.

However, this carries inherent risks, as local shareholders will have full control of the business, and the foreign investors’ rights will not be recognized by law.

For foreign investors who cannot afford to establish a PT PMA, they can enter into joint ventures or partnerships with domestic firms. This also allows investors to enter industries that restrict foreign ownership without facing legal ramifications.

Another option is to purchase an existing PT PDMN, but this entity would need to be converted into a PT PMA. This would also require having a paid-up capital of 10 billion Rupiah (US$696,000).