When you employ someone abroad, what are your two routes?

Your own legal entity in that country, or an employer of record (EOR) that employs the person on your behalf. An entity gives the most control and the lowest per-head cost once it exists, but it is a standing commitment with filings that continue every period. An EOR is the fastest way to a real employee where you have no entity, at a fee per head each month. If the person genuinely runs their own business rather than working as your employee, that is a contractor, a separate route covered in the contractor guide.

When should we open our own entity instead of using an EOR?

When the headcount in a market justifies the standing cost of running an entity there, and when you intend to stay. An EOR charges per head every month, so its total cost rises with the team while an entity's administrative cost is roughly fixed. The usual pattern is to start with an EOR to test a market, then incorporate once the team is large enough or permanent enough that the entity is cheaper and gives you the control you now need.

What does an EOR take off your plate, and what does it cost?

An EOR becomes the legal employer, so it runs local payroll, withholds taxes and statutory contributions, provides statutory benefits, and carries local employment compliance, while you still direct the work. The trade is margin and control: you pay the employment costs plus a fee per head, and you work through the EOR's contracts rather than your own. That fee rises with the team, which is why an entity tends to win once headcount in a country is high enough.

What is the risk of employing someone abroad without an entity or an EOR?

Permanent establishment. The way a person works in a country can create a taxable presence for your company there, bringing corporate tax and filing obligations you never intended, and paying someone locally without a compliant employment structure can also leave statutory contributions and protections unmet. An entity or an EOR exists partly to avoid creating that exposure by accident. Confirm the position for your specific case with a tax adviser in the country involved.

Hiring employees internationally: entity or EOR

The moment a startup wants to employ someone in another country, it hits a question it has usually never had to ask at home: not who to hire, but how to employ them at all. You can employ the person directly through your own legal entity in that country, or through an employer of record (EOR) that employs them on your behalf and invoices you. The two routes cost different amounts, move at different speeds, give you different control, and carry different obligations. Choosing badly is expensive in a way that surfaces months later, during an audit or due diligence.

This guide is the map for that employee decision. If the person is genuinely an independent business rather than your employee, you are not making this choice at all: that is contracting, and the guide to hiring global contractors covers when it fits and how to do it well. For a real employee, read on.

It stays deliberately jurisdiction-neutral, because the specifics belong in the country guides that sit under it and change from place to place. What travels across borders is the shape of the choice, the trade-offs, and where each route fits. Read this first, then read the country guide for wherever you are hiring, because the structure is the durable part and the local detail is what you confirm with an adviser.

Two ways to employ someone abroad

Almost every cross-border hire of an employee resolves to one of two structures, and it helps to name them plainly before weighing them.

Your own legal entity. You incorporate a company in the country, register as an employer, and employ the person directly. You carry payroll, statutory contributions, and local compliance yourself, usually through a local payroll provider or accountant.

An employer of record (EOR). A third party that already has an entity in the country employs the person on your behalf. They hold the employment relationship, run the local payroll and obligations, and invoice you. You direct the work day to day; they are the legal employer.

The rest of this guide is about when each is right, and the risk that sits under both.

Your own entity

An entity is the end state most companies reach in a market they are serious about, and the wrong place to start in one they are testing.

The case for it is control and unit cost. Once the entity exists, you employ people directly, on your own terms, with no per-head margin paid to an intermediary. You own the relationship, the contracts, and the data. For a team of any size in one country, an entity is almost always the cheapest way to employ them.

The case against it is that it is a standing commitment, not a transaction. Incorporating brings registrations, an accountant, a registered address, tax and statutory filings that continue every period whether or not you have hired anyone yet, and a wind-down cost if you later leave the market. The administrative weight is roughly fixed, which is exactly why it pays off at scale and punishes you at a headcount of one. Setting one up also takes time, often weeks or months, which is time your first hire spends waiting.

Open an entity when the headcount in a market, or your commitment to staying, has grown past the point where the fixed cost is worth it. Not before.

An employer of record

An EOR is the fastest route to a genuine employee in a country where you have no entity, and you pay for that speed.

What you get is a real employee, with local employment rights, working for you day to day, without your having to incorporate. The EOR already has the entity, the payroll, and the compliance machinery in the country, so a hire that would otherwise wait on incorporation can start in days. For a first hire or two in a new market, or for a market you are not yet sure you will stay in, this is often the right answer.

What you give up is margin and some control. The EOR charges a fee per head every month on top of the true cost of employment, so the arrangement gets more expensive as the team grows, which is the mirror image of the entity’s economics. You also work through the EOR’s contracts and processes rather than your own, and you are one step removed from the employment relationship. The employer of record guide sets out in full what an EOR does, what it does not solve, and how to weigh a provider.

Capstan does not provide EOR services. If this is the route you need, you engage an EOR provider directly, and Capstan holds the resulting records alongside the rest of your team.

The risk that sits under the decision

One risk sits underneath employing someone abroad, and understanding it is most of what keeps you out of trouble.

Permanent establishment. The way a person operates in a country can create a taxable presence, a permanent establishment, for your company there, exposing you to corporate tax and filing obligations you never intended. Someone concluding contracts in your name, or a fixed place of business in the country, can trip it. Employing through your own entity or an EOR is partly about not creating that presence by accident, which is why the “just pay them and sort it out later” approach is dangerous. Confirm the position for your specific case with a tax adviser in the country involved.

There is a second risk, misclassification, but it belongs to a decision that comes before this one: whether the person is an employee at all, or a genuine contractor. Once you have settled that they are an employee, an entity or an EOR is the lawful way to engage them. If you are not yet sure, settle that question first, because it turns on the facts of the relationship rather than the label on the contract.

How to choose, and how it changes

There is a sequence that works for most companies, because it matches cost and commitment to how sure you are about a market.

Start with an EOR. For the first employee or two in a new country, when you are still learning whether the market is worth it, an EOR gets someone working compliantly without a standing commitment, while the per-head fee is still less than the fixed cost of incorporating.
Incorporate when the maths turns. Once the team in a country is large enough or permanent enough that a fixed entity cost beats the rising EOR fees, and you want direct control, open your own entity and employ people through it.

The sequencing post walks through the same order in more detail. The point is that the right structure is not a permanent decision. It is the cheapest, lowest-risk way to employ the people you have in a market right now, and it is meant to change as that market grows.

Start here, then read the country guide

The decision above is jurisdiction-neutral on purpose. What each route actually involves, the registrations, the statutory contributions, the notice and probation rules, and the local data-protection regime, is set by the country, and that is where the country guides come in. Each follows the same shape, so once you have read one the rest are quick.

Read this overview for the decision, then the country guide for the detail. Neither is legal advice, and the classification and tax position of any specific person is a decision to confirm with a qualified professional in the country involved.

Where Capstan fits

Capstan is not an employer of record and does not run payroll. It operates no payroll scheme in any country, holds no tax tables, and files nothing with any authority. What it does is hold the record around whichever structure you choose, so a workforce spread across your own entities and EOR arrangements is still one directory rather than several.

For employees, Capstan is the system of inputs to payroll: records, pay structures, joiners and leavers, leave, attendance, and adjustments, compiled into a documented export for your local payroll provider, whose computed results come back onto the employee record. It runs from one self-contained EU region, with data resident in Frankfurt (eu-central-1) and compute in Amsterdam (eu-west-1); a market it serves is served from there, not from a separate deployment.

Whether someone is employed under your own entity or placed through an EOR, Capstan gives a company hiring across borders one place that holds the whole picture. When your people sit across more than one entity, you are effectively running HR across multiple entities, and the pillar guide on HR software for startups covers what to expect from that system of record in the first place.