A lot of questions and curiosity emerged regarding the distinctive features of Lombok nominee versus foreign company when foreigner wishes to buy land in Lombok.
Under the Agrarian Law, Free Hold is the highest land title and is only allowed for Indonesian citizens. While foreigners can own Right to Build title, which is granted through a foreign owned company.
However, in many instances, a lot of foreigners try to pursue Free Hold title in order to enjoy the full benefit of land ownership. In that kind of setting, they use local people as their nominee.
Local Nominee
Nominee can be any person assigned by the real owner to act for his interests. It’s often spouse, friend, girl/boy friend, work mate, partner, or anyone.
Under Nominee Agreement, the nominee acts for the real owner, but “not on behalf” of him/her. Instead, the nominee acts “on behalf of him/herself”. Therefore, the nominee is the registered-owner of the property.
However, for the real owner legal security interests, on the back end, the real owner and the nominee owner arrange certain strict binding agreements that is normally consists of the following set agreement:
The Loan Agreement is to state that the real owner gives an amount of loan to the nominee and the nominee states and acknowledges the loan, which is used to buy the property.
The Lease Agreement is to give the full exclusive rights to the real owner to use the land for intended purposes. The lease period is made as long as possible.
The Power of Attorney gives the full power to the real owner to make use of the land in any manner and even transfer it to any party at any time, including to the real owner him/herself.
Why Would Someone Uses Local Nominee?
Empirically, there are three main reasons foreigner prefers local nominee arrangement to foreign owned company to buy property in Lombok.
- The investment scale is lower than the minimum requirement.
- He/she wants only a holiday house for him/herself. It neither meets the minimum investment requirement nor intended to run a business.
- He/she wants to enjoy the Free Hold title under which the holder holds the title forever without any extension.
Foreign Company
Foreigner can establish a foreign owned company in Lombok to run a business. Foreign owned company is also the most reliable vehicle for foreigners to buy property. Under the law, a company is eligible to own land under Right to Build title.
To start foreign owned company is just a matter of weeks and —depending on the business area— it’s shares can be 100% owned by foreigners
Capital Requirement
The minimum paid-up capital requirement for foreign owned company has been increased from initially IDR 2,5 billion to 10 billion +. This is part of the effort to protect local small scaled enterprises as well as to increase foreign investment. However, please bear in mind that in some specific area, such as mining, banking and manufacturing, higher capital is required. Please note that the minimum paid-up capital excludes the value of lands and buildings.
Company Structure
A company must consist of at least two share holders, one commissioner, and one director. Share holders can be natural persons or legal persons. Below is the company’s organization structure.
- Share Holders
- Board of Commissioner
- Board of Director
Shareholder can also act as either commissioner or director at the same time. However, please bear in mind that foreign shareholder acting as director requires work permit.
