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Limitation of Investment as Part of State Sovereignty

In general, foreign investment activities in a country are limited by the rules of the country of origin of the foreign investor (governance by the home nation), the host country where the foreign investor invests (the governance by the host nation) and also the relevant international law (governance by multi nation organizations and International Law).

Arrangements including restrictions on foreign investment by the host country are essentially the authority of the country derived from its sovereignty. However, the host country’s sovereignty is also limited by international law, including international conventions in which it is a party, such as the World Trade Organization deals in the field of Trade Related Investment Measures.

Such investment limitation may be made at the time of entry of the foreign investment (entry requirements) as well as during the operational activities of the foreign investment (operational requirements). In Indonesia, such restrictions are manifested through, among other things, the regulation of a list of closed business fields and open business fields with requirements in the field of investment or often called an investment negative list or negative list of investments (negative list).

To overcome the limitation of foreign capital ownership in an enterprise in Indonesia as defined in the negative list or for other purposes, it is often found that there is a nominale ownership or stock ownership practices in an enterprise in Indonesia.

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Although the nominal ownership of shares is unknown in the Indonesian legal system, it is even expressly prohibited in Article 33 paragraph (1) and (2) of Law no. 25 of 2007 on Investment (Investment Law), the practice of nominale share ownership is still only found.

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