Indonesia presents a challenging commercial environment, particularly for small and medium-sized enterprises seeking to enter the market [See the U.S. Trade Representative National Trade Estimate Report on Foreign Trade Barriers 2025 for additional information.] While the government has made notable efforts to improve the investment climate through reforms such as the 2023 Job Creation Law, substantial structural and regulatory hurdles remain in place. These challenges complicate market entry and long-term success for many foreign companies, including U.S. firms.

Local Content Requirements (LCR), known in Indonesia as TKDN, are among the most significant obstacles facing foreign businesses. Originally applied to the oil and gas sector, these requirements have since expanded to cover a broad range of industries, including pharmaceuticals, medical devices, renewable energy, electronics and aerospace. While there have been some recent adjustments to lower thresholds in the renewable energy sector, particularly for solar and wind power projects, high local content mandates continue to disadvantage foreign companies in many areas of the economy. Indonesia’s oil and gas regulator maintains particularly rigorous local content rules aimed at achieving an average of 91 percent local content by 2025. Additionally, goods and services supplied by foreign companies without majority Indonesian ownership are typically not recognized as qualifying local content, placing foreign energy service providers at a disadvantage. Although some exemptions have been introduced for projects financed by foreign loans or grants, these apply only under specific conditions and do not alleviate the burden for most U.S. exporters.

The protection of intellectual property rights remains a major concern. Despite Indonesia’s efforts to bring its legal framework closer to international standards, enforcement continues to lag. Indonesia remains on the U.S. Trade Representative’s Priority Watch List due to ongoing concerns about widespread copyright piracy and trademark counterfeiting, both in physical markets and online. Amendments to the Patent Law in late 2024 offered some improvements, including clearer patentability criteria and the introduction of a novelty grace period, which is expected to provide better protection for incremental innovations. However, issues such as local clarity on annual submission for patent implementation statement, compulsory licensing procedures, and disclosure obligations tied to traditional knowledge and genetic resources continue to create uncertainty for rights holders.

The overall regulatory environment remains opaque and unpredictable. While the Job Creation Law was intended to streamline regulations and cut bureaucratic red tape, its implementation has been uneven. Businesses operating in Indonesia often contend with abrupt regulatory changes, inconsistent enforcement, and a lack of transparency in policymaking. These factors can complicate long-term business planning and increase operational risks for foreign investors.

Testing and certification requirements further complicate market entry. U.S. exporters frequently encounter mandatory testing by Indonesian laboratories or certification by domestic bodies, even when their products already comply with recognized international standards. These duplicative requirements add costs and can significantly delay the time it takes for products to reach the market.

Foreign firms pursuing public tenders face additional complexities. The procurement process in Indonesia remains non-transparent, with opaque pricing mechanisms and local content obligations that are often applied inconsistently. For example, manufacturers of medical devices continue to seek clarity on pricing and reimbursement policies under the Indonesian National Formulary, while also navigating unpredictable enforcement of local manufacturing requirements.

The growing digital economy presents both opportunities and challenges. E-commerce businesses that meet the criteria for a significant presence in Indonesia are subject to an 11 percent value-added tax on all domestic transactions. Current thresholds define significant presence as either monthly gross sales exceeding 50 million rupiah, or annual sales over 600 million rupiah, or surpassing 1,000 customer transactions in a month or 12,000 per year. These thresholds apply to a wide range of foreign sellers and increase compliance costs for U.S. companies active in Indonesia’s expanding online marketplace.

While President Prabowo’s administration has expressed its intention to improve the business climate, including a potential review of local content rules and efforts to streamline customs operations, foreign businesses should anticipate that many of these challenges will persist in the near term. Companies operating in Indonesia will benefit from maintaining close engagement with local authorities, carefully monitoring regulatory developments, and adopting tailored market entry strategies that account for the country’s complex and evolving commercial landscape.