Drafted by : Nasfiahtul Istani Daely, S.H., dan Jennifer Angelina.
Reviewed by: Noverizky Tri Putra Pasaribu, S.H., L.LM (Adv.)
The concept of nominee or sometimes called the concept of trust was initially unknown in the civil law legal system prevailing in Indonesia. The concept of nominee was originally only found in the common law legal system, but over time the concept of nominee agreement gradually and has even become widespread in the civil law legal system in Indonesia, where the nominee is appointed by the beneficiary owner (beneficiary owner).
Then, what is meant by beneficiary owner?
The concept of beneficial owner in the laws and regulations in Indonesia can be found in several regulations that apply in Indonesia, such as in the tax sector regulations, financial sector regulations, as well as in Presidential Regulation No. 13 of 2018 concerning the Application Of The Principle Of Recognizing The Beneficial Owner Of A Corporation In The Context Of The Prevention And Eradication Of The Crime Of Money Laundering And The Financing Of Terrorism (“Presidential Regulation No. 13/2018”) which specifically regulates the obligation to determine and transparency of beneficial owner data.
The beneficial owner arrangement in Article 1 number 2 of Presidential Regulation No. 13/2018 defines the beneficial owner as follows:
“An individual who can appoint or dismiss the board of directors, board of commissioners, management, supervisor, or supervisor of the Corporation, has the ability to control the Corporation, is entitled to and/or receives benefits from the Corporation, either directly or indirectly, is the actual owner of the funds. or Corporate shares and/or meet the criteria as referred to in this Presidential Regulation.”
Presidential Regulation No. 13/2018 is intended to increase transparency of beneficial owner data of a corporation. Furthermore, the scope of corporations referred to this Presidential Regulation is corporations in the form of legal entities or not, which are located in Indonesia or outside.
Then, is the practice of the nominee appointed by the beneficiary, a practice that is allowed in Indonesia?
If referring to the provisions of the laws and regulations in Indonesia, the nominee agreement in the Civil Code includes an anonymous agreement (innominaat) and is not an action that is justified under applicable law in Indonesia. In practice, this is contrary to the laws and regulations in Indonesia and the principles of Good Corporate Governance. The following are legal arrangements related to nominee agreements that often occur in Indonesia, as follows:
1. Nominee For Capital Ownership
In Law No. 25 of 2007 Comcerning Investment, there are several articles that can be used as a reference to prohibit the conduct of nominee agreements, namely as follows:
Article 33 paragraphs (1) and (2) which reads:
“(1) Domestic investors and foreign investors who invest in the form of a Limited Company are prohibited from entering into agreements and/or statements confirming that the ownership of shares in the Limited Company is for and on behalf of others.
(2) In the case of domestic investment and foreign investment making an agreement and/or statement as referred to in paragraph (1), the agreement and/or statement shall be declared void by law.”
The purpose of this article is to affirm that nominee agreements are prohibited by domestic investors and foreign investors in their interests to invest in Indonesia.
2. Nominee For Share Ownership
It is clear that there is actually no regulation regarding the nominee provisions in shares in Law No. 40 of 2007 concerning Limited Liability Companies (“Company Law”). However, regarding the existence of the nominee shareholder, it can be related to Article 48 paragraph (1) of the Company Law which reads:
“The Company’s shares are issued in the name of the owner. The meaning of the article is that the Company is only allowed to issue shares on behalf of the owner and the Company may not issue shares on appointment, or in other words, the shares are nominated on behalf of the owner who is not the actual owner.”
The purpose of this article is to stipulate that the ownership of the shares of the Limited Liability Company is in the name of the owner. Thus, the shares must be in the name of the actual shareholder, and it cannot be named a different shareholder as is the understanding of the actual nominee practice. The regulation regarding share ownership by more than one person are allowed according to article 52 paragraph (5) of the Company Law which stipulates that several people who own the shares must appoint 1 (one) person as the joint representative. However, the practice of the regulation is different from the practice of nominees, where the article means that if the shares are owned by more than one person, then the names of those people must still be registered as appointing one representative to exercise the rights arising from the shares.
Nominee for share ownership is also declared null and void for violating the Objective requirements of Article 1320 of the Civil Code against nominees for share ownership of a company established under the laws of the Republic of Indonesia and the nominee agreement made on the deed of establishment of the company’s share ownership will be considered legally flawed due to violating Article 8 paragraphs (1) and (2) of the Company Law, which reads:
Article 8 paragraphs (1) and (2) reads:
“(1)The deed of establishment shall set forth articles of association and other information related to the Company’s establishment.
(2) Other information as referred to in paragraph (1) shall contain at least:
Because the company deed is legally flawed, the company can be dissolved as stated in Article 146 paragraph 1 of the Company Law which reads:
“The District Court may dissolve the Company upon:
In addition, another obstacle that arises from the use of nominees in share ownership is the risk of tax on nominee shares, where the party who becomes a nominee generally object to reporting the annual tax on the distribution of dividend received from his shares with reason that the shares do not actually belong to him.
3. Nominee For Land Ownership
It is not possible for foreigners to own land with a formal juridical status of the Right Of Ownership, but there is a practice that has occurred in several cities in Indonesia until now that Foreign Citizens (“Foreigners”) purchase land with property rights by looking for someone who has Indonesian citizenship and borrows his name for ownership rights (nominee arrangement) and is usually followed by an agreement between an Indonesian citizen and a foreign citizen by giving a power of attorney, which gives rights that cannot be withdrawn by Authorizer (“Indonesian Citizen”) and and give authority to the Attorney (Foreigner) to carry out all legal actions regarding the ownership rights of the land. For example: followed by a loan agreement as an additional agreement, where the person whose name is borrowed owes a certain amount and time to Foreigner with the purpose of making the purchased land as collateral for the debt.
In practice in Indonesia, the nominee agreement is an effort to provide the possibility for Foreigners to have ownership rights to land which are prohibited by Law Number 5 of 1960 concerning The Fundamentals Of Agrarian Affairs (“Agrarian Law“) by using the guise of buying and selling on behalf of Indonesian Citizens, therefore in a formal juridical manner it does not violate the provisions of the Prevailing Laws.
The nominee agreement followed by other agreements related to the control of land ownership rights by foreign nationals shows that indirectly through notarial agreements it has become legal smuggling because the nominee agreement is an imaginary agreement or pretend agreement made by an Indonesian Citizen with Foreigner that they seem to show that there has been an agreement between them. If this is known by the agencies that are authorized to regulate and administer agrarian affairs, it is decided to declare that the sale and purchase is void because the law and the land fall to the State. This is as stipulated in Article 26 paragraph (2) of the Agrarian Law, which reads:
“Every sale/purchase, exchange, gift, and bequest by a will and every other act which are intended to either directly or indirectly transfer a hak milik to a foreigner or to a person of Indonesian citizenship who concurrently holds foreign citizenship or to a corporate body other than those stipulated by the Government in line with paragraph (2) of Article 21 shall be nullified for the sake of law and the land in question shall go to the State with the understanding that any other parties’ rights which encumber the land shall remain in existence and that all the payments which the owner of the land may have received cannot be reclaimed.”
The control of land by Foreigners by entering into nominee agreements indirectly in addition to violating the provisions in the Agrarian Law, and also harms the state, especially in the function of state revenue receipts in the tax sector. The scope of state finances is described in detail in Article 2 of Law Number 17 of 2003 concerning State Finances (“State Finances Law“) includes the right of the state to collect taxes, as follows:
A. Income Tax on Land and/or Building Rent in General
The nominee agreement in the transfer of land and/or building rights begins with a sale and purchase agreement and then added to the lease agreement and/or debt agreement. In an additional agreement in the form of a lease, both parties determine the contents of the agreement as well as the additional contents (addendum) in the agreement. However, the standard clauses in the form of the amount of the rental fee, period and method of payment as stated in this additional agreement were not executed and paid. Therefore, it can be concluded that there were actually no transactions carried out by both parties, because this agreement was made in such a way only to strengthen the beneficial owner in minimizing defaults that might be committed by the nominee. Due to this “pretend” agreement, the state is harmed by the avoidance of income tax on income from rental of land and/or buildings by 10% which has been stated in Article 4 (1) of the Government Regulation of the Republic of Indonesia Number 34 of 2017 concerning Income Tax On Income From Land Leasing And/Or Building.
B. Income Tax on Loan Interest from the Debt-Receivable Mechanism
The debt agreement which is a derivative agreement from the previous nominee agreement states that Indonesian Citizen as the nominee has unpaid debt to Foreigner as beneficial owners for a certain amount and a certain time. The purpose of the agreement was to bind Indonesian Citizen with Foreigner related to the agreement on the amount of land and land as collateral for debt. This is because Indonesian residents who is Foreigners cannot buy land which is the object of the agreement directly, therefore they use the name of the nominee who is an Indonesian Citizen. However, this scheme is described without stating the repayment period and does not mention the principal interest or the difference between the current interest amount and the future amount of money. Basically, the object of income tax on loan interest is 15% as stated in Article 23 Paragraph (1) of Law Number 38 of 2008 concerning the Fourth Amendment to Law Number 7 of 1983 concerning Income Tax (“Income Tax Law“). In Article 23 of the verse (1) Income Tax Law which reads:
“(1). The following income, in whatever name and form, paid, apportioned to be paid, or on the due date of payment by a government institution, a resident taxable entity, a person who organizes an activity, a permanent establishment or a representative of any other nonresident enterprises to a resident Taxpayer or permanent establishment, shall be subject to withholding tax of:
Therefore, it will be very possible for the parties not to carry out the agreement in truth, therefore the debt agreement will not result in a payment, then the object of PPh on the loan interest of 15% is not paid.
In the nominee agreement, the tax burden owed by the beneficial owner from disguised assets can be circumvented. Disguised assets can be categorized as untruth disclosure of the Annual Tax Return (“SPT“). In the contents of Law Number 6 of 1983 concerning General Provisions and Tax Procedures (“Law No. 6/1983”) as has been amended several times, most recently by Law of the Republic of Indonesia Number 16 of 2009 concerning Stipulation of Government Regulations in Lieu of Law Number 5 Years 2008 Regarding the Fourth Amendment to Law Number 6 of 1983 concerning General Provisions and Tax Procedures to Become Law (“Law No. 16/2009“), the disclosure of incorrect SPT is divided into 2 (two) namely:
Professor Ronan Palan in his book entitled “How Globalization Really Works” said that a transaction can be said to be tax avoidance if it takes one of the following actions: 
Therefore, the nominee agreement in the transfer of rights to land and/or buildings constitutes tax avoidance. Disclosure of the untruth of the SPT is carried out by the Taxpayer prior to the submission of the Tax Return of the Audit Result to the Taxpayer subject to a penalty of 50% of the total underpaid tax. In contrast to the disclosure of the untruth of the act leads to an indication of a tax crime.
In the substance of the Law No. 16/2009, disclosure of the untruth of actions is divided into 2 forms and time limits, namely:
The existence of the nominee agreement has violated the principle of justice in the tax system as well as eroded the tax revenue base, both for regional taxes and central taxes, especially income taxes (PPh). Because the tax burden on the income obtained by the beneficial owner from the disguised assets can be avoided.
4. Nominee in Company Management by the Board of Directors (Nominee Directors)
Based on Article 92 paragraph (1) of the Company Law, The Board of Directors shall undertake its duty to manage the Company for the interest of the Company in the pursuit of its purposes and objectives. In its management as a company organ, the Board of Directors is a party that can be appointed by the General Meeting of Shareholders is an individual who is capable of carrying out legal actions.
The appointment of the company’s directors is related to the implementation of good corporate governance principles, where the company’s directors in determining strategic policies for the company are expected to continue to protect the interests of minority shareholders, stakeholders and the company itself. By looking at the close relationship between the appointment of the company’s Directors and Good Corporate Governance principle, it is possible that the management of the company by the Nominee Director may conflict with the principles contained in Good Corporate Governance, where any and all actions taken by the Nominee Director are related to the policies applied to the company are only based on orders from the beneficiary. In the Common Law legal system, Nominee Directors are also known as shadow directors.
5. Utilization of Anonymity Instruments and Crime Threats on Nominee Practices
In practice, criminals often use various ways to hide their identity, thus becoming anonymous. Anonymity can be increased through the use of various mechanisms, including through bears shares (shown shares are transferred through the delivery of share certificates), nominee shareholders, and nominee directors. Some of the potential crimes that may occur with the practice of nominees are as follows:
Based on the explanation above, it can be concluded that the nominee agreement has been expressly prohibited in investment, shares and land ownership in Indonesia but in reality there are still many business actors or Indonesian Citizens in Indonesia who make nominee agreements, therefore the government should provide preventive measures in the form of socialization regarding the prohibition of use of nominee agreement. Nominee agreements are often agreed upon by the parties who made them due to ignorance by business actors or Indonesian Citizens of the nominee prohibition and business actors consider the making of a nominee agreement as a manifestation of the principle of freedom of contract, even though there are restrictions that result in the nominee agreement being null and void. For this reason, socialization should be carried out by the Notary as a potential party to make the nominee agreement and provide an understanding of the legal consequences of the nominee agreement to the client as a form of legal counseling as mandated by Law Number 2 of 2014 concerning Amendments to Law Number 30 of 2004 concerning Notary Positions.
References and Legal Base:
Translated version of the article as attached: