Overseas Employment and Local Entities
Hiring two people through an EOR is the usual first move abroad. The problem: the contract is theirs, the management is yours — and permanent establishment and joint employer risk surface two years later.
Entering a country starts with a question: in whose name?
The first decision abroad is not which country, but in whose name you trade and in whose name you employ. Those two answers determine tax residence, which labour law applies, where liability sits, and whether you can leave cleanly.
Three common routes:
Incorporate locally. A separate legal entity that can invoice, contract and employ, with the cleanest liability separation. The cost is incorporation, bookkeeping and audit, local director or registered address requirements, and a liquidation process on exit.
Use an EOR. The employee contracts with the EOR, which pays salary, withholds tax and handles social contributions, while you retain day-to-day management. Fast to start and no entity needed — but “contract with the EOR, managed by you” triggers two risks at once: joint employer and permanent establishment.
Secondment. Send staff from the Chinese entity on a local work visa. Suitable for short projects or executive rotation, but visa category, duration and local social security obligations are hard constraints.
AI companies carry one more layer: engineers crossing borders usually carry data and technology with them. The employment plan and the data export plan must be designed together, or you end up with people on site and no lawful data path — or the reverse.
What we do
- Route and entity selection: local company, branch, representative office or EOR, matched to business substance
- Incorporation execution: name reservation, constitution, registered address, local director or secretary, bank account
- EOR and PEO contracts: scope, allocation of responsibility, joint employer clauses, termination and transfer mechanics
- Secondment and visas: category selection (US L-1/H-1B, Singapore EP, German Blue Card), quotas and scoring
- Local employment law alignment: contracts, handbook, working time and leave, dismissal protection and consultation
- Employee data and privacy: cross-border HR data transfer, monitoring boundaries, local privacy rules
Typical situations
Situation 1: Two years of EOR hiring treated as a permanent establishment
Three sales staff in Germany are employed through an EOR. The contract is with the EOR, but day-to-day work, client visits and pricing decisions are directed by the China team. Two years later the tax authority finds a permanent establishment and assesses corporate income tax.
Our approach: define service boundaries and decision authority in the EOR agreement so staff do not conclude contracts in the company’s name; and where substance already creates a fixed place of business, file proactively rather than wait for an audit.
Situation 2: Entire US team on 1099, reclassified as employees
To save cost, the US team is engaged as independent contractors, yet works fixed hours, uses company email and attends internal stand-ups. The state labour authority finds an employment relationship and assesses payroll tax and penalties.
Our approach: reclassify against the control test, converting to W-2 employment or moving to an EOR; assess voluntary payment for the historical period to avoid collective action exposure.
Situation 3: Singapore EP renewal refused, delivery at risk
Two core engineers hold Employment Passes. Renewal fails because the company’s local workforce ratio and salary levels do not meet COMPASS scoring. The delivery deadline is close and the staff cannot remain.
Our approach: model the renewal score six months ahead, improve it through local hiring, salary adjustment or role restructuring, and prepare fallbacks such as local entity employment or remote arrangements.
Process and deliverables
| Stage | Work | Deliverables |
|---|---|---|
| 1 | Substance assessment, route and entity selection | Options comparison + cost model |
| 2 | Incorporation or EOR engagement | Registration documents + EOR contract review |
| 3 | Localising employment documents | Employment contract + handbook + confidentiality and non-compete |
| 4 | Secondment and visa execution | Visa checklist + secondment plan |
| Ongoing | Compliance upkeep, termination and exit | Annual compliance checklist + termination plan |
Frequently asked
Can an EOR be used long term? Technically yes, commercially not advisable. Cost accumulates, and an EOR cannot invoice, hold licences or contract independently. Once the business is real, an entity is needed.
Does using an EOR create a permanent establishment? There is risk. The test is whether staff conclude contracts in your name, under your direction, on a continuing basis. Contractual form does not override business substance.
Entity first or hire first? With committed customers and revenue, incorporate first; for market testing, an EOR is better. The dividing line is whether you are continuously operating and earning locally.
Is dismissal difficult locally? Continental Europe generally provides dismissal protection and consultation procedures. In Germany the Dismissal Protection Act applies to employers with more than ten employees, and procedural defects can invalidate a dismissal. Documentation must be maintained in ordinary course.
Legal basis
- Local company law and foreign investment access rules (Singapore Companies Act, German GmbH Act)
- Local employment law (German Dismissal Protection Act and Works Constitution Act; US state labour and wage laws)
- Work visa and foreign employment rules in each jurisdiction
- Regulations on the Administration of Foreign Labour Service Cooperation and secondment rules
- Employee personal information transfer rules under PIPL and destination regimes