Key takeaways
You generally cannot legally hire someone as an employee in a country where you have no registered entity, so the practical routes are setting up an entity, engaging a contractor, or hiring through an Employer of Record.
Setting up a local entity gives you full control but is slow and expensive, which makes it hard to justify for your first hire or a small team in a market.
Engaging the person as an independent contractor is fast, but if the role looks like employment under local law it creates misclassification and permanent establishment exposure.
An Employer of Record lets you employ the person compliantly without your own entity, because the EOR is the legal employer and carries the local employment obligations.
If you need to hire someone in a country where your company has no registered entity, you have three realistic options: set up a local legal entity, engage the person as an independent contractor, or hire them through an Employer of Record. Employing someone directly as an employee requires legal standing in that country, and without an entity you typically do not have it. An EOR is the route most companies use, because it lets you employ the person compliantly while a third party carries the local employment infrastructure. The right answer depends on the work, the country, and how long the role will last.
Hiring across borders looks simple until you try to run the first payroll. Then the questions arrive: who signs the employment contract, who withholds tax, which benefits are mandatory, and what happens if you get the worker's status wrong. This guide walks through each route, sets out some of the compliance risks that can catch companies off guard, and explains how to choose the model that fits the work rather than defaulting to whichever product a vendor happens to sell.
Why hiring in a country without an entity is complicated
Employment is local. Every country or locality decides who is allowed to employ people inside its borders, how payroll and tax withholding work, which benefits and contributions are mandatory, and how a worker can be let go. To take on those obligations directly, a company usually needs a registered presence in that country. No entity means no legal footing to run payroll, remit tax, or issue a compliant employment contract.
That is why hiring one person in a new market is rarely as easy as sending an offer letter. The friction shows up in familiar places:
No legal employer. Without an entity, the company has no vehicle to sign an employment contract or appear on a payslip in that jurisdiction.
Tax and withholding obligations. Income tax, social security, and statutory contributions have to be calculated, withheld, and reported to local authorities in local currency.
Mandatory benefits and labor law. Notice periods, paid leave, severance, and statutory benefits vary widely and are rarely optional.
Speed pressure. The person is usually needed now, and standing up the infrastructure to employ them properly can take months.
The result is that companies either walk away from talent in a market they want to enter, or reach for a workaround that carries risk they have not fully priced. Understanding the three routes below is how you avoid both. For the wider context of bringing flexible talent into an organization, see our guide on hiring contingent workers.
The three ways to hire someone in a country where you have no entity
There are three established routes in most circumstances. Each solves the "no entity" problem differently, and each carries a different cost, timeline, and risk profile.
Option 1: Set up a local legal entity
Registering a subsidiary or branch gives you the legal standing to employ people directly. You own the relationship end to end, which suits a long-term commitment to a market or a team you expect to grow. The trade-off is time and money. Incorporation, tax registration, and local banking commonly take several months, and setup plus ongoing administration such as filings, local accounting, and audits runs well into five or six figures before anyone starts work. For a single hire or a short project, the cost is hard to justify.
Option 2: Engage the person as an independent contractor
Engaging the person as an independent contractor avoids entity setup entirely. The contractor invoices you, handles their own taxes, and is not an employee, which makes this route fast and light. It genuinely fits self-directed, project-based work with defined deliverables or limited scope services. The catch is that the label does not decide the relationship. If the person works in an employment-like manner with fixed hours under your direction, using your systems, and functioning like a member of staff, local authorities may treat them as an employee regardless of the contract. That is worker misclassification, and it is one of the more expensive mistakes in cross-border hiring. When independent contractor status is genuinely appropriate, engaging the person through an Agent of Record can ensure the engagement and its contract comply with local law, with some AORs offering indemnification against misclassification-related claims if the independent contractor classification turns out to be non-compliant, rather than leaving the risk with you.
Option 3: Hire through an Employer of Record (EOR)
An Employer of Record is the route most companies use to employ someone in a country where they have no entity. The EOR is already a registered employer in that country, so it signs a locally compliant employment contract, runs payroll in local currency, administers statutory and supplemental benefits, and manages tax withholding and local labor law obligations, including notice periods and severance. The worker is a full, properly employed employee of the EOR who takes day-to-day direction from you. You get compliant employment in weeks rather than the months an entity takes, without the six-figure commitment. It is the fastest compliant way to put a genuine employee on the ground in a new market.
Comparing your options: entity, contractor, and EOR
The three routes are easy to conflate because they all end with "someone is working for you in that country." They are very different in how they work and what they expose you to. The table below sets out the comparison.
Model | How it works | Speed | Best for | Key risk |
|---|---|---|---|---|
Local legal entity | You register a company or branch in the country and employ the person directly through it. | Months to set up | A long-term commitment to a market or a team you expect to grow. | High upfront cost and ongoing administrative burden that is hard to justify for a small team. |
Independent contractor | The person invoices you as a self-employed service provider and handles their own taxes. | Days | Genuinely self-directed, project-based work with defined deliverables. | Misclassification if the role functions like employment, plus possible permanent establishment exposure. |
Employer of Record (EOR) | A registered local employer employs the person on your behalf while you direct the work. | Weeks | Employing genuine employees quickly in markets where you have no entity. | Choosing an EOR without the local depth or compliance rigor to stand behind the employment. |
The clean way to hold it: an entity gives you control at high cost and slow speed, a contractor gives you speed at the price of misclassification-related risk if the work is really employment, and an EOR gives you compliant employment quickly without your own entity. None of the three is the right answer for every situation, which is the point of the next section.
The compliance risks you cannot ignore
Whichever route you take, three main risks decide whether a cross-border hire holds up. They are the risks the shortcut approaches tend to underestimate.
Worker misclassification
Misclassification happens when a company engages someone as an independent contractor but the relationship, under local law, looks like employment and the company fails to meet some employment-related obligation as a result . The tests vary by country and the legal claim(s) at issue, and generally weigh factors such as control over how and when the work is done, financial dependence, and how integrated the person is into the business. No single factor is determinative; classification generally depends on the totality of the circumstances. Get it wrong and the exposure includes back taxes, unpaid benefits, penalties, and a variety of potential claims. Guidance from the U.S. Department of Labor illustrates how seriously authorities treat this, and most jurisdictions apply their own version or focus on different factors.
Permanent establishment
Permanent establishment is a tax concept, not an employment one, and it surprises companies that focus only on payroll. If a person working in a country negotiates contracts, generates revenue, or otherwise appears to represent the company there, local authorities may decide the company has a taxable presence in that country. That can trigger corporate tax obligations even where only one person is engaged. The activities that create this exposure often overlap with what a genuine employee does, which is one reason the contractor workaround can cost more than it saves.
Data privacy
Anyone working for you abroad will likely handle company or customer data, which brings data protection rules into scope. Regulations such as the GDPR set strict requirements for how personal data is collected, processed, and stored, and the company generally remains accountable for compliance. These obligations do not disappear because a company lacks a local entity, which is why the engagement model you choose has to account for them from the start. For how to build controls around a distributed workforce, see our guidance on contingent workforce governance.
How to choose the right model for the work
The right model depends on three questions: what is the work, where is it, and how long will it last. A long-term leadership role in a market you are committing to may justify an entity. Self-directed, deliverable-based work often fits an independent contractor engagement, provided the relationship genuinely qualifies. A full-time role that needs to start soon in a country where you have no presence points to an EOR.
Most vendors in this space answer the question the same way every time, because they sell one product. An EOR-only provider recommends EOR for everyone, since that maximizes what they earn per worker. That is worth naming, because the honest answer is that different roles call for different models, and forcing every hire into a single model creates cost or risk somewhere else. The better approach is to match the model to the work, then engage the person through a partner that can actually deliver whichever model fits, and adjust if the role changes shape over time.
Hire compliantly in 180+ countries with Lifted
Hiring in a country where you have no legal entity comes down to picking the right route and executing it compliantly. An entity gives you control but takes months. A contractor is fast but risky if the work is really employment. An EOR lets you employ someone properly without your own entity, and for most companies it is the practical answer.
Lifted is a tech-enabled contingent workforce supplier that engages talent compliantly in 180+ countries. Where employment is the right fit, our Employer of Record service becomes the legal employer, handling contracts, global payroll, benefits, and local labor compliance, with average onboarding of 1.3 days and 77% of workers onboarded in under a day. Where independent contractor status fits, we engage that way instead. We do not push every worker into one model, because the right model depends on the work. We source and engage any type of contingent talent and plug into the program you already run, so you can enter a new market without building the infrastructure yourself. If you are weighing how to hire in a country where you have no entity, we are happy to talk through the model that fits each market.
Frequently asked questions
Can I legally hire an employee in another country without a legal entity?
Not directly. Employing someone as an employee requires legal standing in that country, which you typically get from a registered entity. Without one, the compliant way to employ the person is through an Employer of Record, which is already a registered employer locally and takes on the employment obligations on your behalf while you direct the work.
What is the difference between an EOR and hiring a contractor?
An Employer of Record employs the person as a full employee, running payroll, benefits, and local labor compliance. A contractor is self-employed, invoices you, and handles their own taxes. EOR suits ongoing, employee-like roles and removes misclassification risk. Contractor engagement suits self-directed, project-based work, but it carries risk if the role actually functions like employment.
How much does it cost to set up a legal entity abroad?
Costs vary widely by country, but entity setup typically runs into five or six figures once incorporation, tax registration, local banking, and professional fees are counted, plus ongoing costs for accounting, filings, and audits. That is before anyone starts work, which is why entity setup is hard to justify for a single hire or a small team in a new market.
How long does it take to hire someone through an EOR?
Because the Employer of Record is already a registered employer in the country, onboarding is measured in days to weeks rather than the months an entity takes. At Lifted, average EOR onboarding is 1.3 days, with 77% of workers onboarded in under a day. The main variables are local document requirements and any role-specific checks.
Is it cheaper to use contractors instead of an EOR?
Contractors can look cheaper upfront because there are no statutory contributions or benefits. That comparison ignores risk. If the relationship is really employment, misclassification can bring back taxes, penalties, and claims that far exceed the savings, and it can create permanent establishment exposure too. For genuine project work a contractor may fit, but cost alone is the wrong basis for the decision.
Author
Lee Willoughby
Senior Marketing Director, Lifted
Lee Willoughby is the Senior Marketing Director at Lifted, an Upwork company helping enterprises source, engage, and manage contingent talent across every contract type. With a background as a co-founder and workforce technology entrepreneur, Lee focuses on the future of contingent workforce management, helping organizations navigate the complexities of global talent, compliance, and workforce transformation.
This content is for general informational purposes only, and is not intended to be and should not be viewed as legal or tax advice. Readers should contact their attorney or tax professional to obtain advice with respect to any particular legal or tax matter. Information discussed can change frequently, and Lifted cannot guarantee that all information is current at all times.
