Understanding Indonesia’s Local Content (TKDN) Framework

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Authors

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In a recent national policy address, President Prabowo Subianto underscored the need to reassess Indonesia’s Local Content (Tingkat Komponen Dalam Negeri – “TKDN”) framework to ensure it remains aligned with the nation's industrial development goals while preserving its appeal to investors. This policy direction suggests a potential shift toward a more flexible, incentive-based approach and invites ministries to revisit existing TKDN requirements. Against this backdrop, it is increasingly important for businesses, particularly manufacturers and foreign investors to understand the current regulatory landscape surrounding TKDN, including sector-specific obligations.

1. Definition of TKDN

   TKDN refers to the percentage of domestic contribution in goods or services, including materials, labour, and production processes sourced within Indonesia. ¹ It is a key instrument of Indonesia’s industrial policy, aimed at promoting local manufacturing and reducing reliance on imports.

   TKDN plays a critical role in public procurement, where government institutions and state-owned enterprises are required to prioritise products meeting specific local content thresholds. ² In certain sectors, TKDN also serves as a regulatory obligation or a prerequisite for fiscal incentives. ³ For instance, electric vehicles that meet the applicable TKDN threshold may qualify for a value-added tax (VAT) exemption. ⁴ Understanding TKDN obligations is therefore essential for strategic planning and legal compliance.

2. Legal Framework and Current Regulations

   1. General Provision & Updates

      TKDN is primarily regulated under Law No. 3 of 2014 on Industry (“Law 3/2014”) and Government Regulation No. 29 of 2018 on Industrial Empowerment (“GR 29/2018”). In practice, TKDN is further governed through sector-specific regulations and rules on government procurement.

      TKDN becomes mandatory in two key situations: (i) when required by specific sectoral regulations; and/or (ii) when the goods or services are used in government procurement.

      Presidential Regulation No. 46 of 2025 on the Government Procurement of Goods/Services ("PR 46/2025") sets out the latest technical guidance, emphasizing the obligation to prioritise products that meet verified TKDN thresholds.

   2. Concept and Calculation Mechanism

      Where TKDN applies, businesses must understand how it is calculated. TKDN is determined by comparing the value of domestic components (e.g. local raw materials, labour, and overhead) to the total production cost. The calculation method varies depending on whether the object is a good, service, or a combination of both.

      Sample Calculation – TKDN for a Manufactured Product:

      A company produces an electrical panel with the following cost breakdown: it spends Rp400 million on local raw materials, Rp300 million on imported components, and Rp100 million on local labour and overhead. The total production cost (excluding profit and tax) amounts to Rp800 million.

      Based on the above figures, the TKDN is calculated as follows:

      TKDN = (Local raw materials + Local labour and overhead) / Total cost × 100%

      = (400 Mio + 100 Mio) / 800 Mio × 100%

      = 62.5%

      Additionally, business entity shall also consider on the Company Benefit Weight (Bobot Manfaat Perusahaan – “BMP”) which is a separate value that measures a company’s broader economic contribution beyond its use of domestic components. BMP includes elements such as partnerships with local micro and small businesses, implementation of health and safety standards, use of local labour, after-sales support, and community development. ⁵

      Sample BMP Assessment:

      BMP Indicator	Points
      Partnership with local micro enterprises	4
      Local labour > 75%	4
      Certified health, safety, and environment	2
      Community development initiatives	2
      After-sales services	3
      Total BMP Score	15%

      The guideline for the calculation of BMP and TKDN are specifically regulated in the Ministry of Industry (“MoI”) Regulation No 16/M-IND/PER/2/2011 on Provisions and Procedures for the Calculation of Domestic Component Level, and its appendices (“MoI Reg 16/2011”).

   3. TKDN Certification and Independent Verification

      TKDN certification is a unified process covering both the calculation and official validation of local content. The assessment must be carried out by an independent verification agency appointed by the MoI. Commonly appointed verifiers include PT Sucofindo, PT Surveyor Indonesia, and PT Biro Klasifikasi Indonesia.

      Businesses must submit documentation for review, after which the verifier conducts inspections and confirms the TKDN and BMP values. The final certificate is issued by the MoI and is typically valid for three years.

   4. TKDN in Government Procurement

      As detailed in PR 46/2025, government procurement follows a strict prioritisation hierarchy: ⁶
      1. If TKDN + BMP ≥ 40% and TKDN ≥ 25%, only these products may be procured.
      2. If unavailable, products with TKDN > 25% may be selected.
      3. If still unavailable, products with TKDN < 25% may be selected.
      4. If no TKDN-certified products exist, domestic products listed in the National Industrial Information System (Sistem Informasi Industri Nasional – “SIINas”) may be procured.

      This hierarchy reinforces the strategic importance of TKDN certification in securing access to public tenders.

   5. Sector-Specific TKDN Provisions

      Several sectors are subject to mandatory TKDN requirements, including:

      Sectors	Regulations	Minimum TKDN Requirement
      Electric Vehicle (EV)	MoI Regulation No. 28 of 2023	Manufacture for main parts: 50% (until 2029) & 60% (starting from 2030). Assembly: 30% (until 2029) and 20% (starting from 2030).
      Electronics (e.g. Tablet, PC, and Mobile Phones)	MoI Regulation No. 29/M-IND/PER/7/2017	35% (for 4G and 5G devices) *determined by Directorate General of Resources and Equipment of Post and Information Technology
      Textile & Footwear	MoI Regulation No. 29 of 2021	No fixed % but structured roadmap and requirement for local sourcing
      Medical Devices	MoI Regulation No. 31 of 2022	Depending on products category

   6. Implications for Foreign Direct Investment

      Foreign investment companies (PT PMA) are not automatically required to comply with TKDN. However, compliance becomes mandatory if their products are used in public procurement, fall under a sector with a specific TKDN obligation, or if the business seeks incentives that require a minimum local content threshold.

      For PMAs operating in regulated sectors, having TKDN certification can provide both compliance certainty and commercial advantages. Certified products are more competitive in government procurement, may access fiscal incentives, and demonstrate alignment with Indonesia’s industrial policy priorities. Companies are advised to assess their ability to meet the combined 40% TKDN and BMP threshold when entering or expanding in the Indonesian market.

For further information and assistance on this matter, please feel free to contact us.

1. Article 1 point 24 of GR 29/2018 ↩
2. Article 86–87 of Law 3/2014 ↩
3. Article 88 jo. 86 of Law 3/2014 ↩
4. Regulated under MoF Reg 12/2025 ↩
5. Article 1 point 11 of MoI Reg 16/2011 ↩
6. Article 66 of PR 46/2025 ↩

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Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

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1. Definition of TKDN
2. Legal Framework and Current Regulations

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