TKDN Calculations

The Minister of Industry Regulation No. 16 of 2011 provides specific rules and procedures for TKDN calculations. Generally, TKDN is calculated based on a comparison between the total price of finished goods minus the price of foreign components used in the finished goods (“TKDN Formula”).  The TKDN Formula is as follows: 

The TKDN for goods, services and combinations of goods and services is calculated differently: 

(1) TKDN Calculation for Goods 

The TKDN for goods will be calculated based on the TKDN Formula. The price of finished goods consists of: 

1. direct material costs, which are assessed based on the cost of materials used to produce one unit of a certain product; 
2. direct labor costs, which are assessed based on the labor costs used to transform direct materials into semi-finished or finished goods to produce one unit of a certain product; 
3. indirect factory costs (factory overhead), which are assessed based on the costs of indirect labor, machines/work tools/work facilities and all other manufacturing costs to produce one unit of a certain product whose costs cannot be charged directly to a particular product. 

Domestic components used in the production of goods will be determined based on the following criteria: 

1. for direct materials: based on the country of origin of the goods (i.e., percentage of locally produced materials compared to imported materials); 
2. for work tools/work facilities: based on their ownership and country of origin; and 
3. for workers: based on their nationality (i.e., percentage of local workers compared with foreign workers hired in the production of goods). 

Further, research and development costs for industries conducting research and development domestically can be considered in the assessment of TKDN for goods, with the following criteria: 

1. research and development costs are included in the calculation of production costs distributed to each product concerned; 
2. products resulting from such research and development within Indonesia are proven by an intellectual property rights certificate for the product concerned and/or proof of costs for carrying out the stages of research and development consisting of product/technology definition, design, prototype, integration and testing systems, as well as preparations for implementing domestic production; and 
3. domestic research and development costs are taken into account in the TKDN assessment for a period of five years from the issuance of the intellectual property rights certificate or proof of expenditure costs for carrying out the research and development stages. 

(2) TKDN Calculation for Services 

The TKDN for services is calculated by comparing the total cost of the services to the cost of any foreign services involved. The total service cost refers to the expenses incurred in delivering services at the worksite (on-site) and consists of the following components: 

1. Project Management and Engineering Costs: 

These are determined based on the labor costs associated with management and engineering functions that directly support job orders, tenders, or contractual obligations. 

2. Work Equipment/Facilities Costs: 

This includes the depreciation of owned equipment or facilities and the rental expenses for leased equipment or facilities. 

3. Construction/Fabrication Costs: 

These costs encompass the expenses related to construction work under a contractual agreement, which directly contribute to the construction or fabrication process. This excludes activities that are not directly related to the core work, such as administrative, secretarial, sales, and marketing roles. 

4. General Service Costs. 

The domestic content of services will be determined based on the same criteria used for calculating the TKDN of goods.  Research and development (R&D) costs can be included in the TKDN for services provided that the R&D activities are conducted in Indonesia.  If the R&D work is conducted in Indonesia, the related expenses (such as wages for local R&D personnel, facilities, and materials) can count toward the TKDN calculation. 

(3) TKDN Calculation for Combination of Goods and Services 

The TKDN for a combination of goods and services is calculated by comparing the total value of domestic components of goods, along with the total value of domestic components of services, to the overall price of the combined goods and services.The overall price of goods and services is the cost incurred to produce a combination of goods and services, which is calculated at the work location (on site) and which includes the following: 

1. direct material (raw materials) costs, which are assessed based on the materials/raw materials used to produce a work package; 
2. equipment (finished goods) costs, which are assessed based on a final product that will be integrated into the respective work package; 
3. project management and engineering costs, which are assessed based on labor costs originating from project management and engineering functions that directly support the project activities; 
4. costs for work tools/work facilities rented or owned for direct use in the work implementation activities; 
5. construction costs, which are assessed based on direct labor costs for construction work, which are bound in a work contract and are a direct function of a job; 
6. fabrication costs, which are assessed based on direct labor costs incurred to carry out production functions; 
7. general services costs (which may include local R&D work), which are assessed based on handling services or other related services required for project activities. 

The TKDN for a combination of goods and services will be used, among others, in calculating the TKDN in construction work (including integrated construction work). 

The authority responsible for issuing TKDN certification is the Ministry of Industry.  Specifically, the Directorate General of Small, Medium, and Multi-National Enterprises within the Ministry of Industry handles the certification process.  Final calculation and verification of the TKDN will be carried out through TKDN certification by the Minister of Industry who can appoint an independent verification agency for a specific area.  Based on information available at https://tkdn.kemenperin.go.id/, currently there are two independent verification agencies that have been appointed by the Ministry of Industry to conduct the TKDN certification, namely PT Surveyor Indonesia and PT Sucofindo (Persero).  Note that the application and issuance of the TKDN certification will be the authority of the Ministry of Industry.