Expanding into Indonesia is a promising opportunity for global companies looking to tap into Southeast Asia’s growing digital and economic potential. Imagine being a startup CEO aiming to build a skilled team in Jakarta, Surabaya, or Bali yet you’re unsure whether to set up a legal entity or work with an Employer of Record (EOR) in Indonesia. Both models offer distinct advantages and challenges.
This guide breaks down everything you need to know about EOR vs. entity establishment in Indonesia, helping you make a compliant, cost-effective, and strategic decision for your business expansion.
Table of Contents
- What is an Employer of Record (EOR) in Indonesia?
- Establishing a Legal Entity in Indonesia: What It Involves
- EOR vs. Setting Up an Entity in Indonesia
- Factors to Consider When Choosing EOR vs Entity Establishment
- Why Global Companies Choose Indonesia for Remote Hiring
- Cost Implications of EOR vs Entity Establishment
- Compliance and Legal Exposure
- When to Choose an EOR vs Entity Setup
- Key Considerations Before Partnering With an EOR
- Transitioning From an EOR to Your Own Entity
- Foreign Compliance: EOR vs Entity Setup in Indonesia
- Why Asanify is the Best Choice for EOR Services in Indonesia
- FAQs
What is an Employer of Record (EOR) in Indonesia?
An Employer of Record (EOR) in Indonesia is a third-party company that legally employs your staff on your behalf. While you manage day-to-day operations, the EOR handles payroll, BPJS registration, PPh21 tax deductions, contracts, THR payments, and all HR compliance tasks under Indonesian labor law (Law No. 13/2003 as amended by the Omnibus Law).
Using an EOR in Indonesia allows you to:
- Hire employees without setting up a local PT (Perseroan Terbatas) entity.
- Ensure compliance with labor laws, including BPJS Ketenagakerjaan (employment social security) and BPJS Kesehatan (health insurance).
- Handle THR (Tunjangan Hari Raya) the mandatory religious holiday bonus equivalent to one month’s salary.
- Process payroll in IDR while managing PPh21 income tax filings.
In short, an EOR in Indonesia enables fast, compliant hiring while reducing administrative and legal risks.
Establishing a Legal Entity in Indonesia: What It Involves
Setting up a legal entity in Indonesia means formally registering a company usually a PT (Local Company) or PT PMA (Foreign-Owned Company) allowing you to directly employ workers, manage payroll, and conduct business activities.
The setup process typically involves:
- Business registration with the Ministry of Law and Human Rights.
- Obtaining a NIB (Business Identification Number) via the OSS (Online Single Submission) system.
- Registering for tax (NPWP) and social security (BPJS).
- Setting up payroll systems and HR policies aligned with Indonesian Manpower Law.
- Maintaining annual reporting, audits, and compliance filings.
While this option provides full control and branding autonomy, it demands high capital investment, regulatory complexity, and ongoing maintenance costs. It is ideal for companies planning a long-term presence in Indonesia.
Suggested Read: The Power of EOR Services: How to Choose a Compatible EOR
EOR vs. Setting Up an Entity in Indonesia
| Feature | Employer of Record (EOR) | Setting Up a Legal Entity |
| Cost | Predictable monthly fee; no setup costs. | High upfront investment; ongoing HR and admin expenses. |
| Compliance | EOR handles labor law, BPJS, THR, and tax filings. | Full responsibility for legal, payroll, and tax compliance. |
| Speed of Setup | Hire within days. | Incorporation may take 2–3 months. |
| Administrative Workload | Minimal handled by EOR. | Heavy HR, tax, and legal management required. |
| Flexibility | Ideal for testing or short-term hiring. | Suited for long-term market establishment. |
| Risk | Low compliance and legal exposure. | High liability for penalties and audits. |
| Scalability | Easy to add or remove employees. | Complex and slower expansion. |
Factors to Consider When Choosing EOR vs Entity Establishment
1. Legal and Compliance
- EOR: Ensures adherence to BPJS, PPh21 tax, and THR obligations. Handles employment contracts under Indonesian Manpower Law.
- Entity: You bear full responsibility for compliance with Ministry of Manpower and tax regulations.
2. Cost Efficiency
- EOR: No setup cost; pay only per employee monthly.
- Entity: Requires capital deposit, local director, and office lease significant fixed costs.
3. Control and Customization
- EOR: Limited HR control but complete compliance coverage.
- Entity: Offers full control over policies and branding but demands legal upkeep.
4. Speed of Market Entry
- EOR: Immediate hiring possible.
- Entity: Takes weeks or months due to multiple government approvals.
5. Scalability and Risk
- EOR: Low risk; easy to exit the market.
- Entity: High exit costs; dissolution is complex.
Why Global Companies Choose Indonesia for Remote Hiring
Indonesia, with its 280 million population and young, digital-savvy workforce, is Southeast Asia’s top remote hiring hub. Its strong ICT infrastructure, competitive labor costs, and growing English proficiency make it an attractive choice for global teams.
Two main hiring routes:
- Employer of Record (EOR) in Indonesia – Enables quick hiring without incorporation; ideal for pilot teams or remote roles.
- Legal Entity Setup – Provides full local presence and brand identity for companies planning to expand long-term.
Cost Implications of EOR vs Entity Establishment in Indonesia
Setup and Maintenance Costs
- Entity: Requires setup fees (USD 3,000–5,000 / IDR 45–75 million), paid-up capital, local directors, and office leases.
- EOR: No incorporation; pay a monthly management fee (usually USD 300–600 / IDR 4.5–9 million per employee).
Compliance Costs
- Entity: Handle BPJS, payroll, and PPh21 filings in-house or via consultants.
- EOR: Manages these obligations entirely, minimizing compliance risks.
Time Efficiency
- Entity: Takes up to 3 months for registration.
- EOR: You can onboard employees within 1–2 weeks.
Summary:
EOR = faster, lower cost, minimal risk.
Entity = full control, long-term commitment, high cost.
Cost Comparison Table
| Factor | EOR in Indonesia | Entity Establishment |
| Setup Time | 1–2 weeks | 2–3 months |
| Setup Cost | None | USD 3,000–5,000 (IDR 45–75M) |
| Monthly Cost | Fixed per employee | Variable + HR + overheads |
| Compliance Handling | By EOR | By company |
| Legal Risk | Low | High |
| Scalability | High | Moderate |
Compliance and Legal Exposure
1. BPJS and Payroll Compliance
EORs register employees for BPJS Ketenagakerjaan and BPJS Kesehatan, deduct PPh21 tax, and ensure THR payments minimizing the company’s compliance burden.
2. Labor Law Responsibility
A legal entity must comply with:
- Law No. 13/2003 and Omnibus Law regulations.
- Overtime and working hours (max 40 hours/week).
- Leave entitlements, termination benefits (Article 156 severance pay).
3. Risk of Penalties
EORs mitigate risk by keeping you compliant. In contrast, entities face audit risks and fines if filings are delayed or incorrect.
When to Choose an EOR vs Entity Setup
Choose an EOR When:
- You want to hire quickly without incorporation.
- You’re testing the Indonesian market or running a pilot project.
- You prefer cost efficiency and reduced compliance workload.
- You’re managing remote teams with flexible contracts.
Choose an Entity When:
- You plan a long-term presence with 20+ employees.
- You want complete control over HR and payroll policies.
- You have the financial resources for setup and maintenance.
- You’re working on local tenders or regulated industries.
Key Considerations Before Partnering With an EOR
- Verify the EOR’s local licensing and legal standing.
- Ensure they manage BPJS and PPh21 compliance directly.
- Review THR and severance policies included in contracts.
- Check data protection practices under Indonesia’s Personal Data Protection Law (2022).
- Look for transparent pricing and local HR expertise.
Transitioning From an EOR to Your Own Entity
Many companies start with an EOR in Indonesia for speed, then transition to their own PT PMA once growth stabilizes.
Steps to transition smoothly:
- Begin company registration while employees remain under EOR.
- Open corporate bank accounts and register NPWP (Tax ID).
- Transfer payroll and BPJS accounts once the entity is active.
- Work with your EOR partner (like Asanify) for seamless contract migration.
Foreign Compliance: EOR vs Entity Setup in Indonesia
Entity Establishment:
- Requires compliance with Indonesian and home-country regulations.
- Subject to Permanent Establishment (PE) taxation.
- Must file annual financial reports and employee taxes.
EOR Model:
- EOR handles employment compliance locally.
- Simplifies cross-border hiring for foreign entities.
- No PE risk, as EOR remains the legal employer.
Suggested Read: Employer of Record vs Contractor | 2025 Hiring & Compliance Guide
Why Asanify is the Best Choice for EOR Services in Indonesia
Asanify helps global businesses hire, pay, and manage employees in Indonesia without the need for a local entity. We handle everything from BPJS registration, PPh21 tax filing, THR payments, contracts, payroll processing, and ongoing labor compliance.
Asanify’s EOR solutions include:
- Localized payroll management in IDR.
- Real-time payslip and compliance reporting.
- End-to-end HR and attendance management tools.
- Transparent pricing with no hidden fees.
- Seamless transition to entity setup if you expand.
With Asanify, you gain peace of mind, compliance confidence, and a strategic edge in Indonesia’s dynamic market.
FAQs
An EOR in Indonesia legally employs your team, managing payroll, PPh21 tax, BPJS, and compliance while you control their work and performance.
Typically 2–3 months, depending on business type and documentation.
Yes, employers must pay THR (one month’s salary) before religious holidays, as per Ministry of Manpower Regulation No. 6/2016.
Employers contribute about 3.7% (Ketenagakerjaan) and 4% (Kesehatan) of salary, while employees contribute 2% and 1%, respectively.
Yes, EORs like Asanify handle PPh21 calculations, deductions, and filings in accordance with Indonesian tax law.
When scaling beyond 15–20 employees or establishing a permanent office presence in Indonesia.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.
