Reform of Indonesia's Domestic Component Regime: Toward a More Robust Calculation Method and Certification Procedures

Executive summary

The Minister of Industry of the Republic of Indonesia ("MOI") has recently enacted MOI Regulation No. 35 of 2025 on the Provisions and Procedures for Certification of Domestic Component Level (Tingkat Komponen Dalam Negeri – "TKDN") and Company Utilisation Value (Bobot Manfaat Perusahaan – "BMP") ("MOI Reg 35/2025"). The regulation will come into force on 11 December 2025.

MOI Reg 35/2025 supersedes the provisions and procedures for calculating TKDN, including those applicable to small-scale industries, as previously stipulated under MOI Regulation No. 16/M-IND/PER/2/2011 ("MOI Reg 16/2011") and MOI Regulation No. 46 of 2022. Key changes under MOI Reg 35/2025 include a revised TKDN calculation methodology, more detailed procedures for obtaining certain TKDN- and BMP-related documents, and clearer supervision of TKDN and BMP implementation through the involvement of independent verification agencies.

Despite the changes under MOI Reg 35/2025, sector-specific regulations governing TKDN calculation for certain product categories, such as pharmaceutical products, electronics and telematics, battery-based electric motor vehicles, and in-vitro diagnostic medical devices, remain in effect and are not superseded by MOI Reg 35/2025.

Coverage

MOI Reg 35/2025 governs the methodology for calculating TKDN and BMP. The regulation sets out the specific formulas used to calculate TKDN for goods, services, and a combination of goods and services, as well as the formula to determine BMP.

TKDN measures the proportion of Indonesian domestic components in a product or service, while BMP represents the value attributed to business actors that invest and operate in Indonesia, effectively capturing their contribution to the domestic economy.

These two metrics, TKDN and BMP, are particularly important in sectors where regulations require companies to utilise domestic goods with certain minimum TKDN and BMP levels. For instance, Government Regulation No. 29 of 2018 on Industrial Empowerment (as amended, "GR 29/2018") requires certain procurement of goods and/or services (including those conducted by private entities) to utilise domestically produced goods and/or services that meet a combined minimum TKDN and BMP threshold of 40%.

In addition to defining the calculation methodologies, MOI Reg 35/2025 also establishes detailed procedures for the issuance of: (a) TKDN certificates, (b) TKDN calculation statement letters, and (c) verification of TKDN and/or BMP values.

The regulation also mandates a supervisory framework for post-certification compliance. Specifically, independent verification agencies (Lembaga Verifikasi Independen – “LVI”) appointed by the MOI are required to conduct ongoing surveillance of TKDN certificates through periodic or ad-hoc reassessments. Additionally, the MOI retains the authority to evaluate and supervise the implementation of TKDN and BMP certification.

To ensure enforcement, MOI Reg 35/2025 prescribes a range of sanctions for non-compliance. These may include (i) written warnings, (ii) revocation of appointment (in the case of an LVI), (iii) revocation of TKDN/BMP certificates and (iv) blacklisting. A blacklisted entity will be prohibited from applying for TKDN and/or BMP verification and calculation for a period of one year following the revocation of its TKDN/BMP certificate.

Key highlights

1. Calculation of TKDN value for goods

MOI Reg 35/2025 provides a comprehensive framework for calculating TKDN value for goods. The TKDN value is derived from key production factors, with the following assigned weightings:

• Direct materials: 75%;
• Direct labor: 10%; and
• Indirect costs (factory overhead): 15%

The total TKDN value for goods is obtained by summing the weighted contributions of each of these production factors, based on the resources expended to manufacture a single unit of product.

a. Direct materials

The calculation of the direct material component involves summing the results of multiplying the TKDN value of each main component by its usage proportion in the production of the final product. MOI Reg 35/2025 prescribes in detail how much of each component can be credited toward the TKDN value—ranging from 0% to 100%—based on several criteria, including:

• the availability of a TKDN certificate for the component;
• whether the producing company is domestic or foreign company;
• the origin of raw materials used in the component; and
• other relevant manufacturing conditions.

Direct material formula:

c. Indirect costs (Factory Overhead)

The value assigned to indirect production costs considers various factors, such as:

• whether the business actor has invested domestically; and
• whether the production is carried out in-house and in the company's own facility.

The TKDN calculation methodology for goods as set forth above represents a notable departure from the approach under the previous regulation, MOI Reg 16/2011. Under MOI Reg 16/2011, the TKDN value for goods was determined simply by dividing the cost of domestic components by the cost of finished goods. The “cost of finished goods” under that regulation referred to the production cost incurred to manufacture the goods, which included direct material costs, direct labor costs, and indirect factory costs (factory overhead), but excluded profit, indirect company costs (company overhead), and output tax.

Additional TKDN from brainware (Intellectual Property)

MOI Reg 35/2025 also allows the allocation of an additional TKDN value of up to 20% based on the contribution of intellectual property ("brainware"). This applies to goods produced by businesses engaging in research and development (R&D) activities. The brainware value is calculated based on:

• Investment in R&D over the past 5 years – weighted at 30%;
• Existence of a dedicated R&D division – weighted at 20%;
• Availability of R&D programs – weighted at 20%; and
• Implementation of R&D outcomes in production – weighted at 30%.

The total TKDN value, including any additional value from brainware, may not exceed 100%.

Qualification

To qualify for TKDN assessment, the goods must be the result of domestic industrial production and aligned with the Standard Classification of Indonesian Business Fields (KBLI) as set out in the risk-based business licensing system (OSS).

Special treatment for small industries

MOI Reg 35/2025 permits self-declared TKDN calculations for goods produced by small-scale industrial enterprises, defined as businesses with capital of no more than IDR 5 billion (excluding land and buildings used for operations).

2. Calculation of TKDN value for industrial services

Formula

The TKDN value for industrial services is calculated by dividing the domestic industrial service costs by the total industrial service costs. In summary the formula is as follows:

“Total industrial service costs” include all costs incurred in the delivery of an industrial service up to the location of work. These costs consist of labor costs, work equipment and facilities and general service-related costs.

Eligible activities

To qualify for TKDN calculation, the industrial service activities must fall within the scope of the standard classification of Indonesian business fields for industrial services, as defined in MOI Reg 35/2025. Only services registered under the applicable business classifications (KBLI) are eligible for TKDN certification.

3. Calculation of TKDN value for combined goods and services

Formula

The TKDN value for a combination of goods and services is calculated by summing the weighted TKDN values of each component based on their respective acquisition values. The formula is as follows:

The total TKDN value for the combination of goods and services is the value obtained to produce the combination of goods and services calculated up to the work location and is calculated for each work activity of the combination of goods and services.

Multiple goods

The calculation of the TKDN value for a combination of multiple goods is carried out by summing the results of multiplying the TKDN value of each item by its proportion of the total acquisition value of the combined goods.

4. Calculation of BMP value

The BMP value is calculated based on the following determining factors and weights:

b. Direct labor

c. Indirect factory costs (factory overhead)

d. Recapitulation of TKDN value for goods

Certain industries maintain specific sectoral TKDN requirements

Despite the general TKDN and BMP calculation methods outlined in MOI Reg 35/2025, certain industries are governed by sector-specific regulations for TKDN and BMP calculations. These include:

1. Medical devices

For medical devices, the TKDN calculation is governed by MOI Regulation No. 31 of 2022 on the Provisions and Procedures for the Calculation of TKDN for Medical Devices and In-Vitro Diagnostic Medical Devices (“MOI Reg 31/2022”).

Under MOI Reg 31/2022, the TKDN of medical goods is calculated by summing the domestic components that represent the total production cost of the goods. The production cost is divided into manufacturing (which accounts for 80% of the TKDN calculation) and development (which accounts for the remaining 20%). The regulation further specifies detailed factors within both the manufacturing and development aspects.

2. Battery-powered vehicle

For battery-powered vehicles, the TKDN calculation is governed by MOI Regulation No. 6 of 2022 on Specifications, Development Roadmaps, and Provisions for the Calculation of TKDN for Battery Electric Vehicles (as amended, “MOI Reg 6/2022”).

Under MOI Reg 6/2022, the TKDN calculation for battery electric vehicles is based on three factors: (a) manufacturing, which accounts for up to 60% of the TKDN value; (b) assembly, up to 30%; and (c) development, up to 10%. The regulation further specifies detailed criteria within each of these categories. However, MOI Reg 6/2022 does not regulate the calculation of parts used in the manufacturing process of battery-powered vehicles; the TKDN for each part is calculated according to the formula stipulated in MOI Reg 35/2025.

Notably, with respect to manufacturing, MOI Reg 6/2022 stipulates that battery composition accounts for 40% of the TKDN value in this category, thus significantly influencing the overall TKDN calculation for the vehicle.

3. Upstream oil and gas

For upstream oil and gas activities, the calculation of TKDN is governed by the Ministry of Energy and Mineral Resources Regulation No. 15 of 2013 on the Use of Domestic Goods in Upstream Oil and Gas Activities (“MEMR Reg 15/2013”). Unlike medical devices and battery-powered vehicle activities, for which TKDN is regulated by the Ministry of Industry, the TKDN calculation for upstream oil and gas activities falls under the authority of the Ministry of Energy and Mineral Resources. As a result, it is not revoked by MOI Reg 35/2025 and remains applicable.

Under MEMR Reg 15/2013, the mechanism for calculating the TKDN of goods follows the rules set by the Ministry of Industry. Therefore, MOI Reg 35/2025 is also applicable. With respect to the TKDN of services, MEMR Reg 15/2013 stipulates that the TKDN for services is calculated based on the ratio of domestic service fees to the total service fee. The total service fee includes the cost of materials used, labor fees, consultant fees, equipment fees, and general service fees (excluding profit, tax, and overhead fees).