Foreign companies can hire people in Indonesia without first setting up their own Indonesian company. One option is to use an Employer of Record (EOR), where an Indonesian provider employs the workers locally while they work for the foreign company.
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However, EOR is a commercial term rather than a specific type of employment arrangement recognized under Indonesian law. The employment arrangement must comply with Indonesian employment law and, where it falls within the country’s outsourcing framework, the applicable outsourcing rules.
How Does EOR Employment Structure Work?
In a typical EOR arrangement, the Indonesian provider signs the employment contract and becomes the employee’s legal employer. It administers salary payments, applicable income tax withholding, BPJS, religious holiday allowance (THR), and other employment obligations. Statutory employment costs continue to apply in addition to the provider’s service fee.
Which Types of Work Can Be Outsourced Under Indonesia’s 2026 Rules?
Indonesia introduced more specific restrictions on outsourced work in 2026. Minister of Manpower Regulation No. 7 of 2026, effective from April 30, limits outsourced work to six categories: cleaning services; food and beverage provision; security; drivers and worker transportation; operational support services; and supporting work in mining, oil and gas, and electricity.
This matters when an EOR arrangement falls within the outsourcing framework. A foreign company cannot assume that any position can be placed with an Indonesian provider simply because the service is marketed as EOR. The actual role and employment structure determine whether the arrangement fits Indonesia’s rules.
Where an EOR arrangement falls within the outsourcing framework, the regulation also covers business licensing, registration of outsourcing agreements, and labor supervision. Existing outsourcing agreements have up to two years from April 30, 2026, to comply with the new requirements.
Separately, employing personnel through an Indonesian provider does not give the foreign company an Indonesian business license. If the foreign company’s own activities require an Indonesian license or legal presence, using an EOR does not remove that requirement.
Can EOR Employees Create a Permanent Establishment?
Activities performed by employees in Indonesia can potentially create a permanent establishment (PE) for the foreign company, regardless of whether an Indonesian provider is their legal employer.
The applicable PE test depends on Indonesian tax rules and, where relevant, the tax treaty between Indonesia and the foreign company’s jurisdiction. Depending on the treaty, this can include a fixed place of business, services performed through employees or other personnel for a specified period, or certain people acting on behalf of the foreign enterprise in relation to contracts.
The conditions and time thresholds differ between treaties. Using an Indonesian EOR does not, by itself, prevent a PE from arising.
What Happens When the Foreign Company Establishes a PT PMA?
Employees legally employed by the Indonesian provider do not automatically become employees of a newly established PT PMA.
Check whether your planned roles fit Indonesia’s 2026 outsourcing rules. Email info@mapresourcesindonesia.com to speak with MAP Resources Indonesia
The existing employment arrangements must be addressed before employment under the PT PMA begins. Depending on how the transition is structured, this can affect continuity of service, accrued employment rights, BPJS registration, payroll, and termination-related entitlements.
Once the employees are directly employed by the PT PMA, the Indonesian company assumes the applicable employer obligations.
Hire Employees in Indonesia with MAP Resources Indonesia
MAP Resources Indonesia supports foreign companies hiring personnel in Indonesia through employment, payroll, and Employer of Record arrangements. Contact us at info@mapresourcesindonesia.com.
