Legal & Regulatory > Indonesia > Localization

The key facts about localization in the Indonesian pharma market. Prepared in association with ABNR, a leading global law firm, this is an extract from The Pharma Legal Handbook: Indonesia, available to purchase here for GBP 99.

1. Are there any rules or regulations requiring and/or encouraging localization in your country? What is the legal framework defining these localization rules and policies?

In principle, MOH Regulation No. 1010/MENKES/PER/XI/2008, as amended by MOH Regulation No. 1020/MENKES/PER/XII/2008 on Drugs Registration, requires that the agreement between an offshore manufacturer of drugs and a domestic manufacturer registering the imported product in Indonesia, must stipulate a transfer of technology requirement to enable the drug to be produced in Indonesia within 5 years of registration. However, this requirement is not applicable to products that are still patent-protected.

Further, BPOM Regulation 24/2017, which is an implementing regulation for the drug registration process, stipulates that the registration of imported drugs is prioritized for products that are:

1. included in the national health program as determined by the government agency in charge of national health program;
2. newly discovered, including products that are still patent-protected or originator products; and/or
3. drugs that are needed but cannot be produced domestically, such as:

• drugs that require special technology and production facilities that are not available in Indonesia;
• drugs that require special technology and production facilities that are already available in Indonesia, but local manufacturing capacity cannot meet domestic demand;
• drugs that economically are not feasible to be produced locally as the demand is very low, such as “orphan drugs”; or 
• drugs that are centrally produced in an offshore facility by a multinational pharmaceutical company having a pharmaceutical manufacturing presence in Indonesia, indicated by the balance between import and export volumes.

It is worth noting that in 2016, President of the Republic of Indonesia, Joko Widodo, through Presidential Instruction No. 6 of 2016 on the Acceleration of Development of Pharmaceutical and Medical Devices Manufacturing Companies (“Presidential Instruction”), instructed various ministers and heads of governmental bodies (“Ministers”) to take steps in accordance with their respective duties, functions and authorities to support this acceleration in order to achieve independence and to increase the competitiveness of the domestic pharmaceutical and medical devices industries. 

Following the issuance of the Presidential Instruction, in 2017, the MOH issued MOH Regulation No. 17 of 2017 on an Action Plan for the Development of Pharmaceutical and Medical Devices Manufacturing Companies (“Regulation 17/2017”). Regulation 17/2017 contains a detailed roadmap for the independence of the domestic pharmaceutical and medical devices industry, including requirements for manufacturers to prioritize the use of raw materials produced in Indonesia. 

Regulation 17/2017 also encourages pharmaceutical and medical device manufacturing companies to independently produce drugs, raw materials, and medical devices for national and export needs, and to use the local pharmaceutical and medical devices. However, as the nature of Regulation 17/2017 is more of a strategic roadmap for the industry, it does not specify any concrete incentives for industry to encourage localization. 

2. Have there been any recent significant changes involving localization rules? If yes, when did they take place and what did they involve?

A major change occurred in 2020 with the issuance of the Omnibus Law as part of the Indonesian government’s efforts to cut down unnecessary formalities and simplify business licensing for the purpose of attracting more investors. The Omnibus Law amends and/or revokes approximately 76 previously existing laws and regulations. In line with the spirit of Omnibus Law, Presidential Regulation No. 10 of 2021 on Business Fields of Investment was issued on 2 February 2021 (as further amended by Presidential Regulation No. 49 of 2021) and became effective on 4 March 2021 (“Investment List”). Under the Investment List, pharmaceutical manufacturing business is now open to 100% foreign ownership (previously limited to a maximum of 85% foreign ownership).

Further, as a response to the COVID-19 pandemic, the BPOM issued amendments to BPOM Regulation 24/2017 to enable emergency use authorization (EUA) for ease of access to COVID-19 vaccines and medicines during public emergency period. The amendment is effective as of 29 September 2020.

3. Is the process of obtaining a marketing authorization impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?

Registration of marketing authorization for imported drugs can only be applied for by companies that have obtained a pharmaceutical manufacturing license in Indonesia, including multinational pharma companies engaged in manufacturing activity in Indonesia. A manufacturer of imported drugs must also provide the following documents for review by BPOM:

1. Pharmaceutical manufacturing license issued by the authority of the country of origin;
2. GMP certificate issued by the drugs supervisory authority of the country of origin and/or drugs supervisory authority of another country;
3. The latest inspection report conducted no later than 2 years prior to the application and issued by the drugs supervisory authority of the country of origin and/or drugs supervisory authority of another country. 

If required, BPOM may conduct a physical inspection of an offshore manufacturing facility to ensure compliance with the GMP requirements. 

Further, the registration of marketing authorization for imported drugs must be accompanied by evidence on why the imported drugs cannot be produced in Indonesia.

The registration of imported drugs must gradually be carried out by technology transfer to be produced domestically, which can be in the form of transfer of knowledge/skills in the fields of: (i) product development; (ii) production techniques and methods/processes; and/or (iii) quality control.

Specifically for drugs imported for emergency use during public emergency period, the amendment to BPOM Regulation 24/2017 in 2020 exempts pharmaceutical manufacturers in Indonesia from the obligation to obtain regular marketing authorization for the importation of such drugs, and they are allowed to import the drugs on the basis of EUA. Certain leniencies and flexibilities with respect to application documentation related to safety, efficacy, and quality are given to drugs imported in this context, as stipulated in Head of BPOM Decree No. HK.02.02.1.2.11.20.1126 TAHUN 2020 on Technical Guidelines for the Implementation of Emergency Use Authorization as amended by Head of BPOM Decree No. HK.02.01.1.2.06.21.234 TAHUN 2021. Nevertheless, EUA is only valid until the end of the public emergency period by the government and will then be reviewed according to current developments and conditions.

4. Is the pricing process for pharmaceutical products impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?

No, the pricing process for pharmaceutical products in Indonesia is neither impacted nor influenced by localization policies.

5. Is the reimbursement of pharmaceutical products impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?

The drugs reimbursement program is not directly impacted by localization policies. However, it is heavily related to the public tender for pharmaceutical products as detailed in answer to question 6 below.

6. Is the access to public or public tenders of pharmaceutical products impacted by localization policies in your country? If yes, how so (what are the incentives received or the requirements)?

The drugs that can be reimbursed under the program maintained Health BPJS must be listed in the list of drugs maintained by the Health BPJS. In the tender process, Health BPJS is subject to the government procurement procedure. The government tender procedure stipulates that local products must be prioritized over imported products, unless the products cannot be produced in Indonesia yet or the volume of local production cannot meet demand.

Based on Presidential Instruction and Regulation 17/2017, to prioritize the use of locally produced pharmaceutical products, their procurement must be carried out through e-tendering and e-purchasing on an e-catalogue basis. 

7. Are import tariffs, importation and/or exportation permits, trade and/or taxation of pharmaceutical products impacted by localization policies in your country? If yes, how so?

The Presidential Instruction instructed the Minister of Finance (“MOF”) to formulate the fiscal incentives that support the growth and development of the drugs and medical device manufacturing companies. In 2019, the Indonesian Government issued Government Regulation No. 78 of 2019 on Income Tax Facilities for Specific Business Fields and/or Specific Regions, which stipulates that specific lines of business, including pharmaceutical manufacturing, are eligible for income tax facilities. The tax allowance shall apply to all products within such line of business except for those that are already subject to corporate income tax reduction facilities, currently stipulated under MOF Regulation No. 13/PMK.010/2020 on Provision of Corporate Income Tax Reduction Facilities. The MOF has further issued MOF Regulation No. 11/PMK.010/2020 on the Implementation of Government Regulation No. 78 of 2019 on Income Tax Facilities for Specific Business Fields and/or Specific Regions as amended by MOF Regulation No. 96/PMK.010/2020 as an implementing regulation to the tax allowance provisions.

In order to further manage the spread of COVID-19 in Indonesia, the MOF issued MOF Regulation No. 239/PMK.03/2020 on Provision of Tax Facilities on Goods and Services Needed in the Framework of Management of the Corona Virus Disease 2019 Pandemic and Extension of Implementation of Income Tax Facility based on Government Regulation No. 29 of 2020 on Income Tax Facilities in the Framework of Management of Corona Virus Disease 2019 (COVID-19). The regulation provides Value Added Tax (VAT) facilities and Income Tax facilities for pharmaceutical industries that import raw materials for vaccines and/or drugs for COVID-19 management.

IMPORT TARIFFS

Import tariffs are primarily regulated under MOF Regulation No. 6/PMK.010/2017 on the Determination of Goods Classification System and Imposition of Import Duty Tariff, as lastly amended by MOF Regulation No. 17/PMK.010/2020 (“Import Tariff Regulation”) which is determined by the Harmonized System Code (“HS Code”) of the imported goods. Import tariffs for pharmaceutical products under HS Code headings ‘30’ vary within the range 0%-15%. Import tariffs for medical devices must be checked by their respective specific HS Code against the list attached in the Import Tariff Regulation.

IMPORT PERMITS 

Import and export permits are not subject to localization policies, except to the extent that importers are subject to local safety, quality, and labelling standards to enter the Indonesian market, as well as the requirement to obtain an import certificate from BPOM for each importation.

8. Are there any other incentives or advantages offered by the current local localization rules in your country? If yes, what are they?

There is no other incentives or advantages offered by the current local localization rules.

9. Are there discussions about the possibility of implementing localization policies in your country? If yes, what are the proposed reforms and when should they come into place?

None that we are aware of.

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1. The relevant ministers and head of governmental bodies consist of: (i) Coordinating Minister for the Economy; (ii) Coordinating Minister of Human and Cultural Development; (iii) Minister of Health; (iv) Minister of Finance; (v) Minister of Research, Technology and Higher Education; (vi) Minister of Industry; (vii) Minister of Trade; (viii) Minister of Agriculture; (ix) Minister of State-Owned Enterprises; (x) Head of Indonesia Coordinating Investment Board; (xi) Head of Indonesia National Agency of Drug and Food Control; and (xii) Head of National Procurement Board.