Short answer: You can hire internationally without a legal entity in three ways. Use an Employer of Record (EOR) to employ full-time staff for you, engage workers as independent contractors, or (in a few countries) register as a foreign employer and run payroll directly. For most companies hiring full-time employees, an EOR is the fastest compliant route: onboarding takes days rather than months, and costs a monthly fee instead of a $15,000+ entity.
Hiring abroad used to mean incorporating a subsidiary first. That meant months of paperwork, local directors, bank accounts and tax registrations before anyone could start. In 2026, most companies skip that step for their first hires in a new country.
The rules have also gotten sharper in 2026. The OECD changed how remote employees can create tax exposure. Plus, the EU's pay transparency and platform work directives hit their transposition deadlines. Several countries, led by the Netherlands, started enforcing contractor misclassification in earnest.
This guide covers the three legal paths, what each really costs, the 2026 compliance changes that matter, and a step-by-step process you can follow this quarter.
Can you legally hire someone in another country without an entity?
Yes, but not by simply putting them on your home-country payroll. Employing someone means withholding their income tax, paying social security, and following local labour law. Most countries only let a registered local employer do that.
Why a local entity is normally required
To employ a worker directly, you typically need:
- A registered business presence so you can open a payroll and tax account
- Registration with the local social security, pension and health systems
- A local bank account to pay wages and contributions in local currency
- An employment contract that complies with local law, often in the local language
Setting that up through a subsidiary takes anywhere from 4 weeks to 6+ months, depending on the country. That's a lot of overhead for one or two hires.
The three legal paths without an entity
- Employer of Record (EOR). A provider that already has a local entity becomes the legal employer. Your worker gets a compliant local contract, payroll and benefits, while you direct their day-to-day work.
- Independent contractor. The worker invoices you as a self-employed business. There's no employment relationship, so it only works when the role is genuinely independent.
- Direct foreign employer registration. A few countries, such as the UK and Canada, let a foreign company register for payroll without incorporating. You then run payroll yourself, which means owning every filing, deadline and contribution. It also doesn't remove permanent establishment risk.
The rest of this guide compares these options and shows when each one makes sense.
Option 1: Employer of Record (EOR)
An Employer of Record is a company that legally employs your worker in their country on your behalf. It holds the local entity, signs the employment contract, runs payroll and provides statutory benefits. You choose the person, set their work and manage their performance.
How an EOR works
- You pick the candidate and agree on salary and start date.
- You sign a service agreement with the EOR.
- The EOR issues a locally compliant employment contract to the worker.
- Each month, the EOR invoices you for salary, employer contributions and its fee.
- The EOR pays the worker, withholds taxes, and files with local authorities.
The worker is your team member in every practical sense. Legally, the EOR is their employer.
What the EOR handles vs. what you still own
Pros and cons
Pros
- Hire in days, not months. Many EORs onboard a new employee in about 2–10 business days.
- No entity setup, local directors or corporate filings.
- Compliant contracts, payroll and benefits from day one.
- Easy to test a market before committing to a subsidiary.
Cons
- Monthly fees add up as headcount grows.
- Less control over benefits and payroll details than with your own entity.
- Some countries limit how long or how an EOR can be used (see the Germany section below).
- Quality varies widely between providers, especially those that rely on third-party partners.
When an EOR is the best fit
- You're hiring your first 1–10 full-time employees in a country
- The role is ongoing, managed by you, and integrated into your team
- You want to test a market before deciding on an entity
- You're converting a contractor who is at risk of being reclassified
Option 2: Independent contractors
Hiring a contractor is the simplest way to work with someone abroad. You sign a services agreement, they invoice you, and you pay them. There's no payroll, no benefits and no employer contributions.
The catch: the label on the contract doesn't decide whether someone is a contractor. How the relationship works in practice does.
When contractor status is legitimate
Most countries look at similar factors. A contractor relationship is safer when the worker:
- Controls how, when and where they do the work
- Works on defined projects or deliverables, not open-ended duties
- Uses their own equipment and sets their own rates
- Has other clients and markets their services
- Can make a profit or loss, and can send a substitute
- Isn't integrated into your team like an employee (no manager, org chart spot, or company email as their main identity)
If your "contractor" works full-time, for you only, on your schedule and under your manager, most authorities will see an employee.
Misclassification risk is rising in 2026
Enforcement is tightening across major hiring markets:
- Netherlands: The Dutch Tax Authority restarted active enforcement against false self-employment in January 2025, and penalties can apply retroactively. A legal presumption of employment for workers earning under €38 an hour is moving forward as separate legislation.
- EU: The Platform Work Directive creates a presumption of employment for platform workers. Member states must transpose it by December 2, 2026.
- UK: IR35 (off-payroll working) rules remain an HMRC enforcement focus, especially in tech and financial services.
- France, Spain and Germany: Courts and social security agencies regularly reclassify long-term, single-client contractors.
- United States: The Department of Labor proposed a new independent contractor rule in February 2026, built on two core factors: control and opportunity for profit or loss. source
What misclassification costs. If a contractor is reclassified, you can owe back payroll taxes and social contributions, interest and fines. The worker may also gain backdated employee rights such as paid leave, overtime, notice and severance. In some countries, this can reach back several years.
Contractor of Record: a middle ground
A Contractor of Record (COR) engages the contractor through its own compliant agreement, checks classification risk, and handles invoicing and payments. It reduces paperwork and some risk. It does not make an employee-like relationship legal. If the role looks like employment, switch to an EOR.
Option 3: Setting up your own entity (and when it's worth it)
A local subsidiary or branch gives you full control over employment terms, benefits and payroll. It's the right long-term setup once you have a real team in a country, but it's rarely the right first step.
Typical cost and timeline
- Setup: roughly $15,000 to $50,000+ in legal, registration, banking and advisory fees. Complex markets can cost more.
- Timeline: about 4–12 weeks in faster jurisdictions, and 6 months or more in others.
- Ongoing costs: local accounting, annual audits in many countries, corporate tax filings, a payroll provider, a registered office, and sometimes a resident director.
- Exit costs: closing an entity can take a year or more and requires settling every tax and employee obligation.
The break-even point
An entity starts to make financial sense when your yearly EOR fees exceed what it costs to run the entity.
Illustrative example (your numbers will differ): an EOR fee of $600 per employee per month is $7,200 a year. An entity that costs $60,000 a year to run, plus $40,000 setup spread over 3 years (about $13,300 a year), costs roughly $73,300 a year. Break-even is about 10 employees.
That's why many companies switch at around 10–15 employees in one country. Other triggers can come sooner: generating local revenue, signing local contracts, needing a licence, or wanting stock options that require a local entity.
EOR vs. contractor vs. entity: side-by-side comparison
Use an EOR for full-time employees, contractors for genuinely independent project work, and your own entity once a country becomes a core market.
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If the work isn't genuinely independent and you don't yet have scale in the country, an EOR is the default choice.
What does it cost to hire internationally without an entity in 2026?
Plan for three layers of cost: the salary, mandatory employer contributions (often 10–40% on top), and your EOR or service fee. Then add a buffer for currency and one-off costs.
EOR fees
Most EORs charge a flat monthly fee per employee. Some charge a percentage of payroll instead.
- Budget providers: from about $199 per employee per month
- Typical range: 400–700 per employee per month
- Enterprise: custom pricing, often with volume discounts
Fees can vary by country, and some providers charge more for high-complexity markets.
Employer contributions by country
These are the approximate employer-side social security and payroll contributions on top of gross salary in popular hiring markets. Rates change every year and many have caps, so confirm current figures before making an offer.
Hidden costs to budget for
- Deposits: some EORs require 1–2 months of payroll upfront, especially where severance is high.
- Currency conversion: FX markups of 1–3% on every payroll run add up fast.
- 13th and 14th-month salaries: mandatory or customary in much of Latin America, Southern Europe and Asia.
- Termination costs: notice periods and statutory severance can equal several months of salary.
- Supplementary benefits: private health insurance, meal vouchers or allowances that are expected in competitive markets.
- Contract exit fees: some EORs charge for early cancellation or for transferring employees to your own entity.
Worked example: a $60,000 salary in five countries
This estimate applies the approximate employer contribution rates from the table above to a $60,000 salary, then adds a $600 monthly EOR fee ($7,200 a year). It leaves out caps, extra benefits, 13th-month pay and currency effects, so treat it as a starting point.
The same salary can cost anywhere from about 24% to 80% more depending on the country. Always compare all-in cost, not just salary, when choosing where to hire.
2026 compliance changes every global employer should know
Five changes matter most for companies hiring abroad without an entity this year. Rules are moving fast, so check the current status in each country before you act.
1. OECD home-office guidance on permanent establishment (November 2025)
A permanent establishment (PE) is a taxable presence that can make your company liable for corporate tax in another country. On November 19, 2025, the OECD updated its commentary on when a remote employee's home office can create one. source
A home office is likely to create PE risk when both of these are true:
- The employee works there for at least 50% of their working time over any rolling 12-month period.
- There's a commercial reason for them being in that country, such as serving local clients, managing local suppliers, or covering a time zone your business needs.
Employee preference, talent retention or saving office costs don't count as commercial reasons. The update doesn't change the separate "dependent agent" rule: an employee who regularly negotiates or signs contracts for you abroad can still create PE, EOR or not.
What to do: Keep employees hired through an EOR away from signing sales contracts in their country. Document why each role is based where it is.
2. EU Pay Transparency Directive (deadline June 7, 2026)
EU countries had to turn this directive into national law by June 7, 2026. Most missed the deadline. As of July 2026, only Italy, Lithuania, Malta and Slovakia had fully transposed it, but the European Commission ruled out an extension. source
Core obligations as each country adopts it:
- Share the salary range with candidates (in the job ad or before the interview)
- Don't ask candidates about their pay history
- No pay secrecy clauses in contracts
- Gender pay gap reporting for employers with 100+ workers in a member state
What to do: Add salary ranges to EU job postings now, and remove pay history questions from your hiring process. Your EOR should keep you current on each country's rules.
3. EU Platform Work Directive (deadline December 2, 2026)
This directive creates a legal presumption that people working through digital platforms are employees, unless the company can prove otherwise. It also requires transparency about automated management and decision-making. If you engage contractors through a platform-style model in the EU, review those relationships now.
4. Contractor crackdowns, led by the Netherlands
The Netherlands resumed enforcement against false self-employment in 2025 and has stepped it up in 2026, with retroactive penalties possible. A legal presumption of employment for workers earning under €38 an hour is moving forward as standalone legislation. source Other countries are tightening too, so treat any full-time, long-term contractor as a reclassification risk.
5. Germany's EOR rules under the Temporary Employment Act (AÜG)
Germany treats many EOR arrangements as temporary agency work. That means the EOR in Germany needs an agency work licence, and placements are generally capped at 18 months.
In late 2024, the Federal Employment Agency also signalled that German companies using a foreign EOR to hire abroad could be engaged in illegal agency work. It reversed course with revised guidance effective October 1, 2025. EOR is permitted again for employees who work entirely from abroad with no physical presence in Germany. source
What to do: In Germany, ask your EOR whether it holds its own AÜG licence and how it handles the 18-month limit.
Also on the radar
- EU AI Act: rules for high-risk AI, including recruiting and performance tools, were due August 2, 2026. The EU's Digital Omnibus on AI, in force since July 27, 2026, pushed them back to December 2, 2027. source Use the extra time to audit any AI tools you use to screen candidates.
- Minimum wages: Germany's minimum wage is €13.90 an hour in 2026, and the UK's National Living Wage rose to £12.71 in April 2026.
- Visa thresholds: Germany's 2026 EU Blue Card salary floors are €50,700, or €45,934 for shortage occupations and new graduates. source
- Chile: the maximum work week dropped from 44 to 42 hours on April 26, 2026.
How to hire internationally without an entity: 7 steps
Follow these steps for your first hire in any new country. With an EOR, most companies go from signed offer to first day in 1–3 weeks.
- Define the role and the worker type. Decide whether the role is employment or genuinely independent work. Full-time, ongoing work under your manager means employee, so use an EOR.
- Research the country's rules. Check probation limits, notice periods, mandatory benefits, 13th-month pay, working hours and public holidays. Note any EOR-specific rules, such as Germany's 18-month limit.
- Choose your model and provider. Compare EOR providers on country coverage, owned entities, pricing, benefits and support (see the checklist below).
- Build a compliant offer. Set salary in local currency, using local market data and all-in cost, not just base pay. In the EU, share the salary range up front to meet pay transparency rules. Your EOR prepares the local employment contract.
- Handle right-to-work and visas. Confirm the candidate can legally work in the country. If they need a visa or work permit, start early, since sponsorship can take weeks to months.
- Onboard properly. Collect tax and banking details, ship equipment, and make sure IP assignment and confidentiality terms are signed. Set up data protection, such as GDPR-compliant handling of employee data in the EU.
- Run payroll and review compliance regularly. Approve payroll each month and track the employee's working location, since long stays in another country can create tax and PE issues. Review law changes in each country every quarter.
Common mistakes to avoid
- Treating contractors like employees. Fixed hours, a manager, company email and years of exclusive work add up to employment, whatever the contract says.
- Ignoring permanent establishment risk. An EOR employee who closes deals for you abroad can still create a taxable presence.
- Copying your home-country contract. At-will employment, US-style non-competes and missing statutory terms often aren't enforceable abroad.
- Budgeting on salary alone. Employer contributions, 13th-month pay and severance can add 25–80% to base pay.
- Letting employees work from anywhere without approval. A few months in another country can trigger new tax, social security and immigration obligations.
- Forgetting IP assignment. Make sure every worker, employee or contractor, signs a locally enforceable IP and confidentiality agreement.
- Granting equity without local advice. Stock options are taxed very differently by country, and some plans need local registration.
When to move from an EOR to your own entity
An EOR is meant to scale with you, but it isn't always the permanent answer. Consider setting up your own entity when:
- You have 10–15+ employees in one country and EOR fees exceed the cost of running an entity
- You're earning revenue or signing contracts locally, which already creates a taxable presence
- You need a local licence, office lease or government contracts that require a registered company
- A country limits long-term EOR use, such as Germany's 18-month cap on agency work placements
- You want full control over benefits, payroll timing and employment policies
When you're ready, plan the move 3–6 months ahead. Ask your EOR how it handles transferring employees to your entity, so you keep their service dates and benefits intact.
Frequently asked questions
Can a US company hire a foreign employee without an entity?
Yes. A US company can hire full-time employees abroad through an Employer of Record, which employs them locally on the company's behalf. It can also engage genuinely independent workers as contractors, without an entity.
Is an EOR legal in every country?
EORs operate legally in most countries, but some regulate or restrict them. Germany, for example, treats many EOR arrangements as agency work that requires a licence and has an 18-month placement limit. Always check country-specific rules with your provider.
How long does it take to hire through an EOR?
Usually about 2–10 business days once the candidate accepts. Countries with mandatory notice periods, background checks or visa requirements take longer.
Can I pay a foreign contractor directly?
Yes, you can pay contractors by international transfer or through a payments platform. You're still responsible for classifying them correctly and collecting any required tax forms, such as the W-8BEN for US companies.
Does an EOR protect me from permanent establishment risk?
It reduces the risk but doesn't remove it. PE depends on what your employee does. Someone who regularly negotiates or signs contracts for you, or works from a home office with a clear business reason for being there, can still create PE.
Can my EOR employee work from a different country?
Only with planning. Working from another country for an extended period can trigger tax, social security and immigration obligations there. Tell your EOR before any long-term move.
How do I give equity to international employees?
You can usually grant stock options to EOR employees, but tax treatment varies widely by country. Some countries tax options when they're granted, others when they're exercised or sold. Get local tax advice and check that your plan documents cover international grants.
What happens if I want to convert an EOR employee to my own entity?
Your EOR ends the employment, and your entity rehires the employee, ideally with continuity of service and benefits. Plan it 3–6 months ahead and check your EOR contract for any transfer fees.
The bottom line
You don't need a legal entity to build a global team in 2026. Use contractors for genuinely independent work, an Employer of Record for full-time employees, and your own entity once a country becomes a core market.
What has changed is the margin for error. With tighter contractor enforcement, new pay transparency rules and updated OECD guidance on permanent establishment, compliance is now the main reason to choose your hiring model carefully.
