Indonesia has introduced a significant reform to its Domestic Component Level (Tingkat Komponen Dalam Negeri or “TKDN”) regime through the issuance of Minister of Industry Regulation No. 35 of 2025 (“Permenperin 35/2025”). The regulation reflects the Government’s effort to create a more flexible and investment-friendly approach toward local content requirements in Indonesia, particularly amid increasing competition for foreign direct investment and the growing need to strengthen Indonesia’s manufacturing sector.

For years, TKDN requirements have played a major role in various sectors in Indonesia, including manufacturing, energy, telecommunications, infrastructure, and government procurement. The policy was originally designed to encourage the use of locally produced goods and services, develop domestic industries, and reduce dependence on imported components. However, many business actors, especially multinational corporations and foreign investors, viewed the previous TKDN framework as rigid and administratively burdensome, particularly for industries that depend on global supply chains and imported technology.

Under Permenperin 35/2025, the Indonesian Government has introduced a more practical calculation method for TKDN certification. The regulation simplifies the composition of TKDN calculations and provides greater recognition for domestic industrial activities, even when imported raw materials or components remain necessary for production. This reform is expected to help companies maintain compliance while continuing to operate efficiently within international supply chains.

In addition to simplifying the calculation method, the new regulation also introduces investment-based incentives. Companies that invest in Indonesia, conduct research and development activities, facilitate technology transfer, or contribute to domestic industrial development may receive additional TKDN value recognition. This policy demonstrates a shift in Indonesia’s industrial strategy from a purely protectionist approach toward a more balanced framework that also prioritizes investment attractiveness and industrial competitiveness.

The regulation further seeks to improve the TKDN certification process by streamlining administrative procedures and strengthening verification mechanisms. Businesses are expected to benefit from faster certification timelines and improved regulatory certainty. For foreign investors, these changes may significantly reduce compliance burdens and provide greater clarity regarding localization obligations in Indonesia.

The relaxation of TKDN requirements also aligns with Indonesia’s broader economic agenda, particularly in attracting investment in strategic sectors such as electric vehicles, renewable energy, advanced manufacturing, and digital infrastructure. The Government appears to recognize that more flexible local content policies may help Indonesia become more competitive within regional and global manufacturing ecosystems.

Nevertheless, companies operating in Indonesia should note that TKDN obligations remain highly relevant in many industries, especially those involving government procurement and strategic national projects. Businesses are therefore encouraged to conduct proper legal and compliance reviews to ensure alignment with the updated TKDN framework under Permenperin 35/2025.

Indonesia’s latest TKDN reform ultimately signals a more pragmatic and business-oriented regulatory approach. While the Government continues to support domestic industrial growth, it is also attempting to create a more attractive environment for investors and global manufacturers seeking long-term business opportunities in Indonesia.

For companies seeking legal guidance regarding TKDN compliance, foreign investment regulations, manufacturing licensing, corporate structuring, or government procurement matters in Indonesia, Schinder Law Firm has extensive experience in handling corporate, investment, and regulatory matters across various industries in Indonesia. Our team of experienced corporate and commercial lawyers regularly advises multinational corporations, foreign investors, and domestic companies on Indonesian regulatory compliance and business expansion strategies.

For further consultation, please contact us at info@schinderlawfirm.com.

Author:
Dewi Susanti