Do you want to expand to Indonesia but don’t know how?
As a business person aware of the market potential in Indonesia, you understand why this expansion is crucial, yet you are unsure of the most effective way to proceed. This is where the concept of Employer of Record (EOR) comes into play.
An Employer of Record (EOR)can streamline the expansion process by handling administrative and legal aspects of hiring local employees, allowing you to focus on core business activities. Before we compare Employer of Record (EOR) with establishing a Legal Entity, let’s first understand the reasons for considering Employer of Record (EOR)and Legal Entity in the context of business expansion.
What is the purpose of Employer of Record (EOR)?
Source: Business Research Insights
Before comparing Employer of Record (EOR), it is better for us to first understand what Employer of Record (EOR) is and the reasons why many companies use Employer of Record (EOR) for new hires.
Employer of Record (EOR) is a service that makes it easier for companies to employ individuals or employees if they want to expand globally.
In fact, before you have LLC (Limited Liability Company) or in Bahasa Indonesia PT (Perusahaan Terbuka) or a business entity in a country. The Employer of Record (EOR) service provider will find a suitable candidate for you, and the employee will be under the auspices of the service provider.
When reading this article, it is certain that you need information about Employer of Record (EOR) in Indonesia. Therefore, Abhitech will explain in simple terms how Employer of Record (EOR) from Abhitech.
- You can contact Abhitech here
- After that, you will discuss with the responsive Abhitech team to ensure your company’s needs.
- The Abhitech team will find the best quality talent that suits your company.
- Once matched, Abhitech will accommodate the employee to work with you. So full control will remain with you.
- The employee will help run your business in Indonesia
Learn more about the benefits of using Employer of Record (EOR) in Indonesia.
If you already understand the Employer of Record (EOR) in Indonesia, Next we will discuss Owned Companies or Legal Entities in Indonesia.
What is the purpose of a Legal Entity in Indonesia?
image: Freepik
Why would people choose a legal entity over another?
In addition to the Employer of Record (EOR), many companies also feel ready to immediately open a business in Indonesia.
In Indonesia itself, there are several types of business entities that are available to foreigners, namely
- PT PMA (Foreign-Owned Limited Liability Company):
- Representative Office (KPPA)
- Branch Office
Learn more: What types of business entities are available for foreign investors in Indonesia?
In general, there are several main goals for establishing a company in Indonesia.
1. Comply with Legal and Regulatory Requirements
All foreign companies must comply with the rules and regulations in force in Indonesia. By establishing a local business entity, it will be easier for the company to comply with all applicable legal requirements. This includes business permits, taxes, and also compliance with employment.
Before setting up a business in Indonesia, you must first fulfill all the requirements.
Learn more: What are the legal requirements for establishing a business in Indonesia?
2. Obtaining Permits and Rights to Operate
As you know, business is not just about regulations with employees. However, there are also other business activities, such as Import permits, production permits, and permits for distribution.
According to Deloitte Legal, “Global compliance is seen as a top issue for in-house lawyers, with more than a quarter (26%) saying it is the biggest challenge in their department.”
By having local entities, the company will find it easier to run the business.
If you ask How to start a Business in Indonesia.
3. Strengthening Local Presence and Credibility
When your company has a local entity that can be found in Indonesia, indirectly you will look more professional in the eyes of your customers, and business partners, including the local government.
To imagine how important Local Presence is Starbucks adding a local touch by selling branded cups specifically for each city they are in.
Yes, Starbucks the world’s largest coffeehouse chain really wanna feel more “local”
Forbes wrote the article 13 Techniques To Make Your Business Feel More ‘Local’
By having a business entity in Indonesia, your company will be more easily found by the Indonesian people, and also because it is in the same environment, it will be easier to understand customer needs and preferences.
Did you know that Indonesia is a country with the 4th largest population in the world?
By knowing the figure you can imagine how big the market in Indonesia is. It would be a shame if you let go of that potential.
After knowing the purpose of using Employer of Record (EOR) and Local Entity in Indonesia. we summarizes the pros and cons of Employer of Record (EOR) and Local Entity.
So you will know the best method to expand your business to Indonesia.
image: Freepik
Pro and Cons use Employer of Record (EOR)
Pro:
1. Quick and Easy to Start: Employer of Record (EOR) allows companies to immediately start operations in Indonesia without having to go through the lengthy process of establishing a business entity. This saves a lot of time and allows companies to be active in the market immediately.
image: Freepik
2. Low Overhead: Using Employer of Record (EOR)reduces the need for physical infrastructure and administrative staff in Indonesia. Operating costs and overhead are lower compared to setting up and running a local business entity.
3. Reduced Legal and Administrative Risk: Employer of Record (EOR) is responsible for employment law compliance and employee administration, reducing legal risk and administrative burden for the parent company.
What are the 5 Essential Roles of an Employer of Record in Indonesia?
Cons:
1. Limited Activities That Can Be Performed: Employer of Record (EOR) can only handle employment administration and cannot perform direct business transactions such as sales or invoicing. This limits the types of business operations that can be performed.
2. Dependence on Employer-of-Record (EOR) Service Providers: Companies rely heavily on Employer of Record (EOR) providers for administrative management and legal compliance. If the Employer of Record (EOR) provider is incompetent or has problems, this can affect the company’s operations.
Learn More: How to choose Employer of Service (EOR) provider in Indonesia
Pros and Cons Use Legal Entity in Indonesia
Pro
1. Full Control over Business Operations: By establishing a local business entity, a company has full control over all aspects of business operations, including management, marketing, production, and business strategy.
2. Ability to Conduct All Types of Business Transactions: A local business entity can issue invoices, receive payments, and conduct other business transactions directly in Indonesia. This allows the company to run full business operations.
3. Higher Credibility in the Eyes of Local Customers and Partners: The presence of a local business entity provides a professional image and higher credibility in the eyes of customers, business partners, and the local government. This can strengthen business relationships and open up greater opportunities.
Cons:
1. Time-consuming and Costly Setup Process: Setting up a local business entity requires a significant amount of time and costs for permits, registration, and infrastructure.
Learn More: How long does it take to complete the business registration process in Indonesia?
2. Full Legal Responsibility: The company assumes all legal responsibilities for operating the business in Indonesia, including taxes, business permits, and compliance with local regulations.
3. Higher Administrative Overhead: Local businesses require administrative staff, a physical office, and other infrastructure that increase overhead and operating costs.
Conclusion
After knowing all these things, the question arises
Why do they use Employer of Record (EOR) and some choose Local Entity?
Abhitech will create a situation to explain when you should use Employer of Record (EOR) and also open a local entity.
Suitable Situations for Using Employer of Record (EOR)
1. New Market Exploration: Companies looking to test the Indonesian market before making a long-term commitment can use an Employer of Record (EOR) to quickly and flexibly start operations.
2. Representation and Marketing Activities: An Employer of Record (EOR) is suitable for companies that need a local presence for representation, marketing, and business development activities without conducting direct business transactions.
3. The Need to Start Operations Quickly without Large Investments: If a company wants to start operations immediately without incurring large costs for establishing a business entity, an Employer of Record (EOR) is the ideal solution.
Suitable Situations for Establishing a Local Business Entity
1. Long-Term Commitment to New Markets: Companies that have long-term plans in Indonesia and want to grow their business significantly should consider establishing a local entity to gain full control and operational flexibility.
2. The Need to Conduct Direct Business Transactions in New Markets: If a company needs the ability to issue invoices, accept payments, and conduct direct business transactions, establishing a local entity is a good choice.
3. The Need to Have a Strong Local Presence: Companies that want to build a strong reputation and high credibility in the local market will benefit from establishing a local entity, which shows a serious commitment to the Indonesian market.
If you need help with Employer of Record (EOR) services in Indonesia, visit our service page here for a reliable provider. You can also directly contact our expert team to get started here.
