EOR vs local entity: Which is better for global expansion?

Expanding into new markets means making a choice. Use an Employer of Record (EOR) or set up a local entity. Both options let you hire compliantly abroad. But the EOR vs local entity decision comes down to significant differences in cost, speed, risk, and long-term flexibility.

This guide breaks down the Employer of Record vs local entity comparison so you can choose the right structure for your business.

An Employer of Record is a company that legally employs workers on your behalf in countries where you don’t have your own entity. You manage the day-to-day work. The EOR handles the legal, tax, and compliance obligations.

EOR services enable companies to hire globally without establishing a legal presence in each market. It’s a practical solution for global expansion, whether you’re testing a new region or building a distributed team.

A compliant EOR provider manages:

• Employment contracts drafted to local legal standards
• Payroll processing, including salary, bonuses, and deductions
• Tax withholding and filing for income tax and social contributions
• Statutory benefits such as pension, health insurance, and paid leave
• Termination procedures that follow local dismissal laws
• Ongoing compliance as employment regulations change

You retain control of hiring decisions, work allocation, performance management, and team culture. Learn more about the division of EOR compliance responsibilities.

A local entity is your own legal company established in a foreign country. You register a subsidiary or branch office, then hire employees directly through that structure.

Setting up a legal entity abroad gives you full control but requires significant investment in time, money, and ongoing management.

Establishing a local entity typically involves:

• Registering the company with local authorities
• Appointing local directors or representatives (required in many jurisdictions)
• Opening local bank accounts
• Registering for corporate tax, VAT, and employer obligations
• Meeting minimum capital requirements (varies by country)

Timeframes vary widely. Some countries take weeks. Others take months or longer.

Once established, you’re responsible for:

• Filing annual accounts and corporate tax returns
• Managing payroll and employment taxes in-house or through local providers
• Staying current with changing labour laws
• Handling audits, inspections, and regulatory reporting
• Renewing registrations and licences

This requires either in-house local expertise or ongoing relationships with local accountants, lawyers, and payroll providers.

Testing new markets: Hire before committing to an entity. Prove the market, build confidence, then decide on infrastructure.

Hiring across borders without the overhead: For international teams of one or even two hundred employees, EOR services are often more cost-effective than setting up entities. The economics work further than most people realise.

Speed matters: When you need someone hired and working in days/weeks rather than months, EOR for global expansion is often the only option.

Retaining relocating employees: When valued team members want to move countries, EOR lets you keep them without scrambling to set up entities on short notice.

Closing an entity but keeping the team: If you have an entity that’s become more trouble than it’s worth, you can move employees to an EOR instead of making them redundant.

Large, permanent local presence: If you’re building a 200+ person team in one country for the long term, your own entity may make economic sense. But test the maths first.

Highly regulated operations: Some industries require a local entity for licensing or regulatory reasons, regardless of headcount.

Countries where EOR is restricted: Not every country allows compliant EOR arrangements. Spain is the clearest example, where there’s no fully compliant way to use an EOR without a local entity.

Some countries, like Germany, France, and Poland, permit EOR but limit the duration (Germany caps temporary employment arrangements at 18 months). A provider willing to say no to restricted countries is one you can trust when they say yes.

Permanent establishment considerations: An EOR doesn’t remove the risk of creating a permanent establishment for tax purposes. If this applies to your situation, consult a tax specialist before proceeding.

Assuming you need an entity from day one: Many companies default to setting up a local entity abroad before testing whether the market justifies the investment. EOR lets you hire first, commit later.

Underestimating ongoing entity costs: Setup is just the start. Accounting, legal, admin, and filings add up. Factor in the time cost, too. Someone on your team has to manage all of this.

Choosing an EOR based on country count alone: A provider covering 180 countries could have deep expertise in the ones you need, or they might be spreading themselves too thin. What matters is whether they can answer detailed employment law questions in your target markets. See our guide on how to choose an Employer of Record.

Ignoring country restrictions: Some EOR providers will offer employment in countries where there’s no fully compliant way to do it. That’s a risk that lands on you AND them. Ask upfront about limitations.

Treating EOR as a temporary fix: Many companies use EOR services for years, not as a stopgap but as a strategic choice. The “graduate to an entity” path is one option, not the only one.