chooses to observe a part of it. Time is not limited to an 'internal observer'.
Besides, time is not limited to entangled systems. A system consisting of free particles does show change, hence time.
Entanglement is a description of overcorrelation between components. 'Components', or 'correlation', are meaningful only within a certain spacetime framework. To put entanglement above time or space is like to put sense of humor above human brain.