# EOR vs setting up an entity > Machine-readable page from EOR Overview (https://eoroverview.com/), an independent research platform for Employer of Record services. > Canonical page: https://eoroverview.com/glossary/eor-vs-setting-up-an-entity/ > Methodology: how providers are researched, scored and compared is documented at https://eoroverview.com/methodology/. > Disclosure: EOR Overview is free to use. We may earn a referral fee from some providers; this never affects a rating or ranking position (https://eoroverview.com/disclosure/). Hiring in a new country comes down to two paths: engage an Employer of Record to hire the person on your behalf, or register a legal entity and employ them directly. The right choice depends on headcount, how long the presence needs to last, and how much control over local employment terms actually matters. ## Explanation The decision in one paragraph Use an Employer of Record when the hire needs to start soon, the headcount in that country is small, or the market itself is still unproven. Set up a foreign subsidiary when headcount is large enough to justify fixed costs, the presence is permanent, or the business needs direct control over benefits design, equity plans, or a local banking relationship. Everything else in this comparison is detail supporting that one trade-off. What setting up an entity involves Setting up an entity means registering a legal presence in the target country and taking on every employer obligation directly, with no intermediary standing between the company and the local authorities. The company becomes the employer of record in the literal sense, filing and paying as a local business regardless of how many people it employs there. The process typically includes: - Company registration: incorporating a local entity (a subsidiary, branch, or representative office, depending on the country and the activity planned). - Bank account setup: opening a local corporate bank account, which often requires a local director or resident signatory depending on the jurisdiction. - Payroll setup: setting up or contracting local payroll processing, tax withholding, and social contributions in the local currency and on the local schedule. - Tax registration: registering for corporate tax, payroll tax, and any local equivalents of VAT or social insurance. - Ongoing filings: annual returns, statutory audits where required, local employment law compliance, and renewal of registrations, all of which continue whether the entity employs one person or a hundred. - Time: incorporation and full operational readiness typically take weeks to months, and this varies substantially by country. Some markets allow fast registration; others require multiple government approvals in sequence. None of this is a one-time cost. Filings, audits, and local compliance recur every year the entity exists, independent of hiring activity. A country with a fast, low-cost registration process and light annual filing requirements pushes the break-even point toward a lower headcount. A country with a slow registration process, mandatory statutory audits, and a resident-director requirement pushes it higher, sometimes high enough that an EOR remains the cheaper option even at a few dozen employees. This varies by country, and the specific filing and audit requirements should be checked against the local rule before committing to either path. What does an Employer of Record actually do? An Employer of Record already holds a legal entity in the target country and uses it to employ a worker on a client's behalf. The EOR issues the local contract, runs payroll, withholds tax, remits social contributions, and carries the compliance risk for that employment relationship, while the client directs the person's day-to-day work. This converts a fixed setup cost into a recurring per-employee fee. Onboarding a hire through an EOR is typically a matter of days once documentation is in place, since no registration, bank account, or local tax setup is required on the client's side. The trade-off is reduced control: benefits plans, employment contract terms, and some HR policies are constrained by what the EOR's local entity already supports. Pricing on EOR Overview varies by provider. Among the 147 EOR providers listed, 35 publish an entry price, ranging from $49.99 to $699 per employee per month with a median of $349. The rest quote only after a sales conversation. How do EOR and entity setup compare side by side? The table below lines up the two paths on the factors that actually drive the decision: speed, cost shape, who carries the ongoing obligation, control, and how each path unwinds. Factor Employer of Record Own entity Time to first hire Typically days once paperwork is submitted Weeks to months, varies by country Upfront cost type None beyond the first monthly or per-employee fee Registration, legal, and setup fees paid before any hire Ongoing obligations Carried by the EOR; client pays a recurring service fee Carried directly: filings, audits, payroll tax, renewals Control Limited to what the EOR's local entity and policies support Full control over contracts, benefits design, and policy Exit Cancel the service agreement; offboarding follows local termination rules either way Formal entity wind-down, which can take as long as setup Best for Testing a market, small headcount, time-sensitive hires Established headcount, permanent presence, direct control needs When does headcount justify setting up an entity instead of using an EOR? An entity becomes the cheaper option once its fixed costs, spread across enough employees, fall below the total that an EOR's per-employee fee would add up to at that same headcount. Below that point, the EOR's variable, pay-as-you-go fee is lower; above it, the entity's fixed cost wins on a per-head basis. An entity carries fixed costs that do not scale down: registration, annual filings, and audits cost roughly the same whether one person or twenty are employed there. An EOR carries a variable, per-employee fee that scales up directly with headcount. At low headcount, the EOR's variable cost sits below the entity's fixed cost. As headcount rises, the lines cross, and beyond that point the entity becomes cheaper per head. Headcount stage EOR cost pattern Entity cost pattern Typical lean One to a few hires, market unproven Small, fully variable, scales with headcount Full fixed cost due regardless of headcount EOR usually cheaper and faster Growing team, market validated Variable cost keeps climbing with each hire Fixed cost already spent, marginal cost per hire is lower Crossover zone; depends on local filing and audit cost Established team, long-term presence Variable cost now exceeds what the entity would have cost Fixed cost spread across many employees, low marginal cost Entity usually cheaper per head Where the crossover falls depends on the country (filing and audit requirements vary widely and should be checked against the local rule), the EOR's fee structure, and how long the company expects to keep hiring there. A market entry expected to last a year or two rarely earns back the cost of incorporation. A market where the company plans to build a team of dozens over several years usually does. Permanence matters as much as headcount. A single senior hire in a country the company intends to operate in for the long term might still justify an entity, if the plan is to hire many more people there soon. Conversely, ten short-term contractors in a market the company is only testing rarely justify incorporation, even though the headcount is not trivial. Control is the third variable and it is not always about cost. Some benefits structures, equity compensation plans, or industry-specific licensing requirements are only available through a directly owned entity. If the business needs one of these, the entity may be the only option regardless of headcount or cost curve. Can a company move from an EOR to its own entity, or back again? Yes. Companies commonly start with an EOR to validate a market, then transition to their own entity once headcount and commitment justify it. Moving in the other direction, from an established entity back to an EOR, happens less often but is also a normal step when winding down a market. The forward transition involves incorporating the entity, then transferring each employee's contract from the EOR to the new local entity. This is a formal step in most countries and requires the employee's consent, continuity of tenure and benefits, and coordination on the exact handover date to avoid a payroll gap. The reverse move happens when a company reduces headcount below the point where the entity makes sense, or exits a country entirely, and transfers remaining employees to an EOR rather than closing the entity immediately, or as a step toward closing it. Entity wind-down itself is a formal process and can take as long as the original setup. Some companies run both models at once, using an entity in a core market and an EOR in markets with smaller or newer teams. This is a normal, permanent setup rather than a transition. Comparing EOR against a Professional Employer Organization is a related but distinct decision, covered separately: see EOR vs PEO. For a broader look at what an EOR fee actually includes, see Employer of Record cost. Frequently asked questions Is it always cheaper to use an EOR for a small team? Usually yes in the first year or two, because there is no registration or audit cost to recover. Over a longer horizon with rising headcount, an entity can become cheaper per employee, since its fixed costs get spread across more people. Can a company use an EOR and an entity in different countries at the same time? Yes. Many companies run an entity in their core markets and an EOR in countries where headcount is smaller or the presence is newer. There is no requirement to use the same model everywhere. Does an EOR limit what benefits a company can offer? Generally yes, to some degree. Benefits are typically structured around what the EOR's local entity already supports, so highly customized benefits or equity plans may require a directly owned entity instead. How long does it take to switch from an EOR to an owned entity? It varies by country. Incorporation itself can take weeks to months, and transferring each employee's contract from the EOR to the new entity is a separate step requiring their consent and careful timing to avoid a payroll gap. Where can I compare EOR providers directly? See the provider directory for individual entries, and the hiring guides for country-specific detail on what entity setup or EOR use involves in that market.