Should You Register a Local Entity for Remote Hiring

As the global workforce rapidly embraces remote hiring, companies are no longer confined to local talent pools. Businesses of all sizes can now access top-tier professionals from any part of the world. But with this flexibility comes a significant question for employers: Should you register a local entity when hiring remote employees in another country?

This decision isn't just a legal formality—it can impact everything from compliance and taxes to HR management and long-term growth. Let’s explore when it makes sense to establish a local entity, alternatives to consider, and how to make the best decision for your business.

What Is a Local Entity in the Context of Remote Hiring?

A local entity refers to a legally recognized business structure established in a specific country or jurisdiction. This could be a branch office, subsidiary, or a full legal entity such as an LLC or corporation.

When you hire remote workers internationally, you typically have two options:

• Register a local entity in the employee's country of residence.
• Use an Employer of Record (EOR) or a similar third-party service to handle employment responsibilities.

Both methods have their advantages and drawbacks. The choice depends on your hiring strategy, long-term plans, and risk appetite.

When Does Registering a Local Entity Make Sense?

Here are some common scenarios where registering a local entity could be beneficial:

1. You’re Hiring a Large Team in One Country

If you’re planning to hire five or more remote workers in a single country, it might be more cost-effective to register a local entity. The administrative and legal overheads of setting up an entity may outweigh the per-head fees of using an EOR over time.

2. You Want Full Control Over HR and Payroll

Having your own local entity means you control employment contracts, manage benefits, and can offer stock options or perks. This can be particularly valuable when hiring for senior or strategic roles.

3. Long-Term Market Expansion

If you're testing the waters in a new market and intend to build a permanent presence, setting up a local entity aligns with your growth goals. It enhances credibility with local clients and vendors and simplifies financial operations.

4. You Need to Comply With Local Labor Laws

Some countries require companies to have a local entity if they wish to employ residents full-time. Attempting to bypass this can lead to misclassification risks or legal penalties.

Downsides of Registering a Local Entity

Despite the advantages, establishing a local entity comes with considerable challenges:

• High Setup and Maintenance Costs
  From legal fees to office registration and ongoing compliance, costs can be substantial.

• Complex Regulatory Compliance
  Navigating local labor laws, tax regulations, and employee benefits requires dedicated resources or external consultants.

• Time-Consuming
  Registering a local entity may take weeks or months, delaying your hiring process significantly.

• Ongoing Administrative Burden
  Annual filings, audits, and legal maintenance take up both time and money.

According to PwC, administrative compliance can consume hundreds of hours annually for businesses, especially when operating across borders.

Alternatives to Registering a Local Entity

If setting up a local entity feels overwhelming or premature, consider the following options:

1. Employer of Record (EOR)

An EOR is a third-party service that hires employees on your behalf in their country. This model allows you to stay compliant without establishing a legal presence.

Benefits:

• Fast onboarding
• Compliance with local labor laws
• Reduced legal and administrative burden

Drawbacks:

• Less control over employee contracts
• Monthly fees can add up if you scale

2. Independent Contractor Agreements

You can hire remote professionals as contractors rather than employees, provided the local laws allow it. However, misclassification is a serious risk and can lead to fines.

Learn more about worker classification from the U.S. Department of Labor.

3. Global PEO Platforms

These platforms combine EOR services with HR tech, helping manage everything from onboarding to payroll and compliance.

Key Considerations Before Making a Decision

When weighing whether to register a local entity, ask yourself:

• How many people are we hiring in this country?
• Is this a short-term or long-term investment?
• What’s our budget for legal and administrative overhead?
• Do we need full control over employee policies and benefits?
• Are we aware of the legal implications of remote hiring in that country?
•  

Pros and Cons Summary

Final Thoughts

Remote hiring opens the door to a world of opportunity—but it also introduces a layer of complexity. Registering a local entity gives you greater control and may save costs in the long run, especially for large or strategic hires. However, for smaller teams or early-stage global hiring, using an EOR or a global PEO might offer the flexibility and compliance you need.

Ultimately, the right approach depends on your hiring scale, timeline, and growth goals. Make sure to consult with legal and HR professionals before making your decision.

Frequently Asked Questions (FAQs)

1. Is it mandatory to register a local entity for remote hiring?
Not always. In many countries, you can use an EOR or hire contractors, but local labor laws vary, and misclassification can lead to penalties.

2. What are the risks of not registering a local entity when required?
Non-compliance with labor laws can result in fines, back taxes, employee lawsuits, or even bans from operating in certain jurisdictions.

3. How long does it take to register a local entity for remote hiring?
It can take anywhere from a few weeks to several months, depending on the country and type of entity.

4. Is using an EOR a permanent solution?
It can be, but many companies use it as a short-term solution before setting up a local entity once they scale.

5. Can I offer employee benefits without a local entity?
Yes, but benefits will be managed by your EOR or through global benefits providers, and options may be limited.