Do I Need to Set Up a Business Overseas to Hire Overseas Workers?

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Here’s a common question I get from agency owners who are new to hiring overseas:

Do I need to establish a business entity overseas to make these hires?

Let’s go over the three options and see which route might be best for your business.

Please note that nothing in this email is legal advice and you should contact a qualified employment attorney if you have specific legal questions.

Option 1: Hiring Through an Employer of Record (EOR)

What It Is: 

An Employer of Record (EOR) is a third-party entity that acts as the legal employer for your international hires. They manage payroll, benefits, tax compliance, and even local HR matters, while you maintain control over day-to-day responsibilities and oversight.

The Pros:  

• Quick and Easy Setup: No need to navigate the complexities of setting up a local entity, which can be costly and time-consuming.

• Compliance Support: EORs handle local labor laws, tax withholdings, and employment regulations, reducing your compliance burden.

• Scalability: EORs make it easy to expand into multiple countries without establishing physical offices.

The Cons:

• Limited Control Over HR Functions: Since the EOR is the legal employer, you may have less direct influence over employment terms and HR processes.

• Higher Cost Per Employee: EOR services typically come at a premium, which can add up, especially if you’re hiring several workers.

• Not Ideal for Large Teams: If you plan to build a substantial workforce in one country, the ongoing costs of an EOR might outweigh the benefits compared to establishing a local entity.
  
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Option 2: Working with Independent Contractors

What It Is:
Instead of hiring full-time employees, you can work with overseas independent contractors. These individuals operate as self-employed workers, handling their own taxes, benefits, and legal obligations.

The Pros:

• Cost-Effective: Contractors don’t require payroll taxes, benefits, or other expenses associated with full-time employment.

• Flexibility: You can easily scale contractor work up or down based on project needs without long-term commitments.

• Low Administrative Burden: Since contractors manage their own business expenses and tax obligations, your administrative load remains minimal.

The Cons:  

• Risk of Misclassification: some countries throughout the world have very strict rules about who can or cannot be classified as an Independent Contractor

• Extra work for your team members: in order to be compliant in countries like Serbia, contractors must diligently keep accounting and bank records. 

• Recruiting disadvantage: While candidates with less than 5 years of experience tend to be ok with the compliance aspects of being an independent contractor, this isn’t always the case for more senior applicants who have plenty of options. If you’re hiring folks who are very senior, they may want you to setup a subsidiary or use an EOR.

Option 3: Setting Up a Foreign Subsidiary or Branch

What It Is:
Creating a subsidiary or branch office in the country where you’re hiring establishes a formal, legal presence for your business. This involves registering the business locally, setting up payroll, and ensuring compliance with local employment laws.

The Pros:

• Greater Control Over Operations: You have direct control over your team and can ensure a consistent approach to HR, payroll, and benefits.

• Team Cohesion: Establishing a local entity fosters a strong, consistent company culture for overseas teams, which can improve long-term retention.

• Long-Term Cost Savings: For large teams, setting up a local entity may be more cost-effective than paying for EOR services over time.

• If you’re interested in going this route, Go Carpathian’s managed on-site recruiting solution may be right for you. Reply to this email for more info. 

The Cons:  

• Cost and Complexity: Establishing a foreign entity involves significant upfront costs, legal fees, and ongoing administrative requirements.

• Compliance Burden: You must comply with all local laws, taxes, and regulations, which can be complicated, particularly in countries with strict labor laws.

• Longer Setup Time: Compared to other options, setting up a local entity takes longer, so this approach isn’t ideal if you need a quick hiring solution.

Which Option Is Right for You?

If your business is just testing the waters overseas or needs to hire only a handful of people, an EOR or independent contractor model is likely your best bet. They provide speed and flexibility without the costs and complexities of establishing a legal entity.

However, if you’re planning significant expansion in a particular market or envision a large, dedicated team in one country, setting up a foreign subsidiary might be a better long-term investment. This approach gives you greater control over your operations, helps you build a strong local presence, and may ultimately save money if you’re scaling up your workforce.

Bottom Line:

You don’t necessarily need to set up a business overseas to hire international talent, but your choice depends on your specific needs and growth plans. In my opinion, most agencies can get by without setting up an entity. If you need to recruit very senior candidates, an EOR might be helpful.

As always if you’re looking for someone to guide you through the process of hiring in Eastern Europe and South Africa, book a call with one of Go Carpathian’s Recruiting Specialists.

—> Interested in learning more? Click here to book a free consultation with one of my recruiting specialists < —

And as always, each role placed at Go Carpathian: 

• Is placed on a flat fee basis without marking up the prices you see. (we have no incentive to find you expensive candidates) 

• Is guaranteed for up to 12 months (as a part of our membership program) 

• Let’s you “skip the line” and use our expert recruiters as your own to find the very best Eastern European candidates. (So you save time & money)
  
  From single roles to hiring entire teams, our recruiters will make sure you have access to the top talent and choose the right setup to match your agency’s needs

Until next time,

Nathan

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