Local entity

Local entity is the direct legal employer structure where the buyer establishes its own subsidiary, branch, or representative office in a host country.

For global hiring teams, the local entity is the alternative to EOR. The buyer's own entity employs the worker directly, runs payroll through the buyer's books, and carries the full host-country employer obligations.

Entity setup typically costs $25,000-$150,000 per country depending on jurisdiction. Ongoing annual overhead runs $15,000-$45,000 per country.

The break-even versus EOR typically sits at 2-20 workers per country, depending on the jurisdiction's setup cost and annual overhead. It runs as low as 2-4 workers in Singapore and as high as 15-20 in Brazil, set against EOR pricing tier and entity-setup cost. Below the threshold, EOR usually wins on total cost. Above it, direct entity payroll pulls ahead by roughly $6,000-$8,000 per worker per year.

What does local entity mean in payroll?

In payroll, the local entity is the legal-employer structure that the buyer can establish as an alternative to EOR. Three operational features matter for the buyer.

The three main entity types

Limited liability subsidiary is the dominant form. The buyer establishes a wholly-owned company in the host country with its own legal identity, board, and corporate-tax filing. The subsidiary employs workers directly under host-country labour law.

Branch office is a non-incorporated extension of the parent company. The branch has no separate legal identity; the parent is directly liable for branch obligations. Branch offices face restricted activity scope in some jurisdictions and full PE attribution in most.

Representative office is the most restricted form, allowed only for marketing and liaison activities. Most jurisdictions prohibit revenue generation and employment beyond a handful of representative staff.

The setup-and-maintenance cost stack

Setup costs cover legal incorporation, registered office, director appointments, tax registration, bank account opening, and payroll registration. Typical range $5,000 (UK) to $150,000 (heavily regulated markets like Saudi Arabia or China).

Ongoing annual overhead covers corporate-tax filings, statutory annual reports, director-residency compliance, audited accounts above thresholds, payroll administration, and entity-accounting work. Typical $15,000-$45,000 per country per year. See the legal entity entry for the broader corporate-formation framework.

The break-even calculation against EOR

The break-even sits at the point where annualised entity overhead plus per-worker payroll cost equals EOR fee multiplied by worker count. With $30,000 annual overhead and $30/worker/month payroll, the break-even against $500/worker/month EOR lands at roughly 8-12 workers.

Below the threshold, EOR delivers lower total cost. Above it, local entity pulls ahead by $5,500-$8,000 per worker per year. The calculation also has to absorb entity-setup amortisation over an assumed 5-7 year operating period.

How do local entities compare across major host markets?

Entity setup cost and ongoing overhead vary sharply by jurisdiction. The matrix below covers the major payroll markets where EOR-vs-entity decisions typically sit.

The UAE, Singapore, and UK are the fastest setup markets at 1-4 weeks. Brazil and heavily regulated markets (Saudi, China) take 12-20+ weeks. The setup timeline determines how long the EOR has to cover hires before entity migration.

The annual overhead matters more than setup cost over a multi-year horizon. A $50,000 setup amortised over 5 years adds $10,000 to annual cost. The $30,000 annual overhead recurs every year. See the employer contributions entry for the country-by-country statutory load on top of the entity overhead.

How does the EOR vs local entity break-even work?

The break-even calculation depends on EOR pricing tier, entity-setup cost, and ongoing overhead. The matrix below assumes mid-tier EOR pricing ($500/worker/month) and country-average overhead.

The calculations exclude statutory employer contributions (flow through either model identically) and worker compensation (identical). The numbers isolate the structural cost of the legal-employer relationship.

For US, UK, and Singapore, the break-even is low because entity setup is cheap and annual overhead is moderate. For Brazil and Germany, the break-even rises because both setup and overhead run higher. The decision is per-country, not global. See the owned-entity EOR entry for the comparison architecture.

What do buyers consistently get wrong on local entity decisions?

The recurring mistakes cluster into four moves visible across multi-country expansion procurement reviews.

The first is treating entity setup as a one-time cost. The setup is one-time; the ongoing annual overhead is forever. Over a 5-year horizon, the overhead typically equals or exceeds the setup cost.

The second is missing director residency requirements. Many jurisdictions require at least one resident director (Germany, France, India, China, Brazil). The cost of hiring a local director or appointing a nominee runs $5,000-$25,000 per year per country.

The third is missing the entity dissolution cost. When the buyer exits the market, the entity has to close cleanly to avoid ongoing tax and labour-authority obligations. Closure typically costs $10,000-$50,000 and takes 6-18 months.

The fourth is missing the permanent-establishment timing question. Worker-driven activities that create dependent-agent PE attribute corporate-tax exposure to the parent regardless of whether the local entity exists. Setting up an entity does not retroactively cure pre-entity PE exposure. See the permanent establishment entry for the three PE routes.

When should the buyer choose local entity over EOR?

The local entity decision turns on five factors visible across multi-country expansion procurement reviews.

The Germany AÜG 18-month cap is the recurring forcing function. Workers on EOR beyond 18 months in Germany must transition to local entity or repatriate. Plan the entity transition by month 11.

The Singapore 2024 MOM ban on EOR for non-Singaporean nationals removes EOR as a route for expatriate hiring entirely. Singapore expatriate hires require local entity or a different jurisdiction. See the EOR compliance entry for the regulatory constraint set.

What does an EOR or local-entity setup provider handle?

An EOR provider employs workers in the host country via its own entity. A local-entity setup provider (Big Four, boutique corporate-services firm, or specialist) establishes the buyer's own entity and supports ongoing administration.

Most multi-country expansions use EOR as the bridge for the first 1-2 years while the headcount builds, then transition to local entity at the break-even point. The transition is a real termination-and-rehire event at the labour-law level.

Some EOR providers offer "EOR-to-entity" conversion services that smooth the transition. See the best global payroll providers for direct-entity payroll once the local entity is operational.

Local entity FAQs

How does the break-even between EOR and local entity work?

The break-even sits at the point where annualised entity overhead plus per-worker payroll cost equals EOR fee multiplied by worker count. With $30,000 annual overhead and $30/worker/month payroll, the break-even against $500/worker/month EOR lands at roughly 8-12 workers.

Below the threshold, EOR delivers lower total cost. Above it, local entity pulls ahead by $5,500-$8,000 per worker per year, before amortising the entity-setup cost.

What does it cost to set up a local entity?

Setup costs vary by jurisdiction. UK and US run $3,000-$15,000; Singapore runs $2,500-$8,000. Germany runs $15,000-$50,000; France runs $10,000-$30,000; UAE runs $15,000-$45,000; Brazil runs $40,000-$80,000.

Setup timelines range from 1-2 weeks (US, UK, Singapore) to 12-16 weeks (Brazil, heavily regulated markets). The timeline matters because it determines how long the EOR bridges hires before entity migration.

What is the ongoing annual overhead of a local entity?

Typical $15,000-$45,000 per country per year, covering corporate-tax filings, statutory annual reports, audited accounts above thresholds, director-residency compliance, entity-accounting work, and registered-office maintenance.

The overhead recurs every year and is independent of worker headcount. Some jurisdictions require nominee directors at $5,000-$25,000 per year (Germany, France, India, China, Brazil).

When does Germany's AÜG cap force a local entity transition?

After 18 months of EOR employment in Germany. The German Arbeitnehmerüberlassungsgesetz caps third-party labour supply at 18 months. After that, the worker must transition to a local-entity contract or repatriate or end the assignment.

Plan the entity setup by month 11 so the transition completes by month 18. The cap often formalises permanent-establishment exposure that may already exist.

Can a representative office employ workers in the host country?

Limited to a handful of representative staff in most jurisdictions. Representative offices are restricted to marketing, liaison, and market-research activities. Revenue generation is prohibited; employment beyond representative roles is prohibited.

Commercial activity through the office triggers permanent-establishment attribution. For substantive employment, the buyer needs a subsidiary or branch, not a representative office.