Legal Insights

Indonesia’s New Local Content Level Regulation: An Overview

Local Content Level, or Tingkat Komponen Dalam Negeri – “TKDN”, refers to the proportion of domestic components contained in goods, services, or a combination of both. TKDN plays a central role in strengthening Indonesia’s local industry participation and enhancing competitiveness by prioritizing the use of domestic products and services in national projects. Government institutions are required to give preference to products and services that meet or exceed the prescribed local content threshold.  

On September 11, 2025, the Ministry of Industry of the Republic of Indonesia enacted Minister of Industry Regulation (“MIR”) No. 35 of 2025 on the Terms and Procedures for Certification of Local Content Level and Company Benefit Weight. This regulation replaces MIR No. 16/M-IND/PER/2/2011 on the Terms and Procedures of Local Content Value Calculation. The updated framework is designed to provide businesses with greater flexibility and incentives to increase the use of local components by streamlining both the certification process and the calculation method. Presented below are 9 (nine) key updates in the new regulation: 

Certificate Unification 

MIR 35/2025 introduces the unification of certificates for TKDN and Company Benefit Weight (“BMP”). Instead of being issued separately, both values are now presented in a single certificate, when applicable. This streamlines the process and provides one standardised reference for businesses and authorities. 

Extension of Validity Period 

Previously, the validity period of a TKDN certificate varied by business scale and sector, typically ranging from 2 (two) to 3 (three) years. Under MIR 35/2025, the validity period is standardised and extended to 5 (five) years across all sectors of goods and services, with mandatory monitoring conducted once every 5 (five) years by an independent verification agency (Lembaga Verifikasi Independen or “LVI”). 

Changes in Calculation Method

In the new regulation, the method for determining TKDN value for goods is revised. The calculation, which was previously conducted purely on a cost-based approach, now incorporates a checklist-based assessment for certain components. This includes components such as direct labour, factory overhead, as well as research and development.  

Incentive for Intellectual Capability (Brainware)

To encourage innovation and strengthen domestic industrial development, MIR 35/2025 introduces an additional 20% TKDN value for businesses that demonstrate strong intellectual capability (brainware). This incentive applies to businesses engaged in research and development (“R&D”) activities and is calculated based on several determining factors: 

1. R&D investment made within the last 5 (five) years (30%) 

2. Existence of an R&D division within the company (20%) 

3. Availability of ongoing R&D programs (20%) 

4. Implementation of R&D results in product manufacturing (30%) 

Simplified Processing Time  

MIR 35/2025 shortens the processing period for TKDN certification. Certification through an LVI is now completed within 10 (ten) working days, compared to the earlier 22 (twenty-two) working days. For small enterprises, the process has also been accelerated, with certification issued within 3 (three) working days after the required documents are declared complete. 

Restrictions on TKDN Calculation

To prevent misuse of TKDN value facilitation, the new regulation introduces a filtering mechanism for goods that are not eligible for certification. Only goods produced from industrial activities in Indonesia, in accordance with the Standard Indonesian Business Field Classification (KBLI) listed in the Business License, can be certified. 

The calculation of TKDN value cannot be applied to: 

1. Goods whose entire raw materials are imported. 

2. Goods produced solely from packing and/or packaging activities. 

3. Goods produced only from painting, colouring, cutting, slicing, or dilution activities that do not change the tariff position/Harmonized System (HS) code. 

4. Goods produced from component disassembly. 

5. Goods sourced directly from nature without undergoing a production process. 

As an exception to the first restriction, goods that rely on imported raw materials may still qualify for TKDN certification if the required raw materials are not available in Indonesia. 

TKDN for Industrial Services

MIR 35/2025 introduces provisions on Local Content Level (TKDN) for industrial services, an area that was not regulated under the previous framework. The new regulation sets out the basis for calculating and certifying domestic content in industrial services, expanding the scope of TKDN beyond goods, regular services, and combined goods-services.  

Flexible TKDN Approach

Through MIR 35/2025, businesses now possess flexibility in the application of TKDN calculation methods. They may choose to apply either the newly established calculation method or the specific method applicable to their sector, depending on which better reflects their operations. This approach revises the previous framework, which required businesses to comply with a strict and uniform calculation method. 

BMP Calculation Factors

The new regulation expands the scope of factors used to calculate the BMP. While the previous framework limited the calculation to 4 (four) factors, the updated approach allows for up to 15 (fifteen) factors to be considered, with a maximum total weight of 15%. Companies are free to select the most relevant factors applicable to their operations in determining the BMP value, which may include the following: 

1. Employment absorption (maximum weight: 4%) 

2. Additional new investment (maximum weight: 4%) 

3. Partnership and supply chain strengthening (maximum weight: 4%) 

4. Pioneer industry or conducting import substitution (maximum weight: 4%) 

5. Use of domestically manufactured machinery and production equipment (maximum weight: 4%) 

6. Production location (maximum weight: 4%) 

7. Implementation of Industry 4.0 (maximum weight: 2%) 

8. Development of industrial human resources (maximum weight: 2%) 

9. Ownership of domestic brands (maximum weight: 2%) 

10. Implementation of green industry (maximum weight: 2%) 

11. Export value (maximum weight: 2%) 

12. Ownership of certificates/accreditations (maximum weight: 1%) 

13. Implementation of ESG (environmental, social, and governance) (maximum weight: 1%) 

14. Ownership of awards (maximum weight: 1%) 

15. Compliance with industrial data reporting in SIINas (maximum weight: 1%) 

Restrictions on BMP Calculation

MIR 35/2025 specifies certain conditions where the BMP value cannot be calculated. In these cases, BMP certification does not apply. BMP calculation is excluded for: 

1. Industrial service companies. 

2. Businesses engaged in both goods and services production. 

3. Businesses working in collaboration with industrial companies to produce goods. 

MIR 35/2025 marks a significant step towards modernizing Indonesia’s TKDN policy framework. By streamlining certification procedures, expanding calculation methods, integrating new components, and extending the validity period of TKDN certificates, the regulation enhances both regulatory clarity and business practicality.