EOR vs Local Entity: When to Set Up Your Own Company Abroad

Use an Employer of Record while you have a small team in a country, are still testing the market, or need someone to start quickly. Consider a local entity when the team is stable at around five or more people, when you need to sell or sign contracts locally, or when tax advice says your activities create a permanent establishment anyway.

The exact crossover depends on the country's company administration costs and on the EOR fee you have negotiated. The framework below lets you calculate it from your own quotes.

Ignoring setup costs, the entity becomes cheaper when:

Number of employees × (EOR fee − entity payroll cost per employee) > entity fixed annual overhead

For example, an EOR fee of US$7,200 a year, an entity payroll cost of US$600 per employee a year and fixed overhead of US$30,000 gives a break-even of about 4.5 employees. Then add setup and exit costs spread over the years you expect to operate, and the time your finance team will spend.

• Local revenue: you need to invoice local customers, bid for public contracts or hold local licences.
• Permanent establishment: staff habitually negotiate or conclude contracts for you, so a taxable presence may exist regardless of who employs them.
• Control: you want your own benefits, policies, equity plans and employer brand on the contract.
• Scale signals: investors, partners or regulators expect a local presence.

• Hiring demand in the country is uncertain or likely to change.
• You want to avoid dissolution costs if you leave the market.
• Your finance team has no capacity to manage another jurisdiction.
• You hire one or two people in many countries rather than many people in one.

Most providers let you transfer employees to your new entity. Ask upfront whether there is a conversion fee or minimum term, how accrued leave and seniority carry over, and whether the transfer requires new contracts. In many countries, seniority must be preserved when the employee moves.