Expanding your business into new markets is an exciting growth opportunity. However, setting up an entity abroad can be complex, time-consuming, and expensive if you don’t know where to start. From legal compliance and taxation to payroll and hiring, each country comes with its own set of rules and challenges.
In this guide, we’ll break down how to set up an entity abroad, common pitfalls to avoid, and a smarter alternative to entering international markets without the administrative burden.
Why Businesses Set up Entities Abroad
Companies typically establish a legal entity abroad when they want to:
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Hire local employees directly in another country.
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Sell products or services in a new market.
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Access new customer bases and diversify operations.
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Strengthen brand presence with a local office.
While setting up an entity offers long-term benefits, it also comes with significant responsibilities and costs. That’s why careful planning is essential.
Steps to Set up an Entity Abroad
1. Choose the Right Market
Not every country is equally business-friendly. Before expanding, research:
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Local labor laws
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Tax policies
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Cost of incorporation
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Political and economic stability
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Talent availability
Conducting thorough market analysis helps you prioritize countries that align with your business goals.
2. Decide on the Legal Structure
Each country offers multiple entity types, such as:
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Subsidiary – Independent from the parent company, with limited liability.
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Branch Office – Operates as an extension of the parent company.
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Representative Office – Non-revenue-generating entity, often for research or liaison.
Your choice affects taxation, compliance, and operational flexibility.
3. Register the Entity
The registration process usually involves:
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Filing incorporation documents with local authorities
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Securing a registered office address
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Appointing directors or local representatives
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Paying registration fees
Timelines vary—some countries allow incorporation in a few weeks, while others may take months.
4. Open a Business Bank Account
To operate locally, you’ll need a corporate bank account in the host country. Banks typically require:
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Incorporation documents
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Tax identification numbers
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Proof of address
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Identity documents of directors
5. Comply with Tax and Accounting Regulations
Entities abroad must follow local tax rules, which may include:
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Corporate income tax
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Value-added tax (VAT) or sales tax
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Payroll taxes for employees
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Annual audits and reporting
Non-compliance can lead to penalties or even business closure.
6. Handle Payroll and Employment Compliance
Hiring employees abroad means complying with:
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Local labor laws
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Employment contracts in the local language
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Social security contributions
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Employee benefits and protections
Each country has unique rules around termination, leave policies, and working hours.
7. Maintain Ongoing Compliance
After setup, you’ll need to manage ongoing obligations like:
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Annual tax filings
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Renewing business licenses
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Updating corporate records
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Meeting local employment standards
This requires continuous monitoring and expert knowledge of local regulations.
Challenges of Setting up Entities Abroad
While setting up an entity is often necessary for long-term expansion, businesses face challenges such as:
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High Costs: Incorporation fees, legal support, and compliance costs add up.
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Time-Consuming Processes: Entity setup can take months, delaying expansion.
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Legal Complexity: Navigating different labor, tax, and corporate laws is difficult without local expertise.
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Hidden Risks: Non-compliance risks fines, reputation damage, or forced business closure.
A Smarter Alternative: Hire Abroad Without an Entity
If your goal is to hire talent or test a market, setting up a local entity may not be the most efficient route. Instead, you can partner with a Global Employer of Record (EOR) like WorkMotion.
An EOR enables you to:
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Hire employees abroad legally without establishing a local entity.
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Handle payroll, taxes, and compliance in line with local regulations.
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Onboard talent quickly in over 160 countries.
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Focus on growth while the EOR manages administrative tasks.
This approach reduces costs, speeds up market entry, and eliminates compliance headaches.
Expanding internationally is a natural step for companies seeking growth. But before hiring employees, signing contracts, or launching products abroad, many organizations ask the same question: “Do we need to set up a legal entity abroad?”
In most cases, the answer is yes—but with important considerations. Setting up an entity abroad provides credibility, local presence, and compliance, but it also comes with complexity and cost.
This article walks you through everything you need to know about how to set up an entity abroad—including the steps, challenges, and a smarter alternative that can help you expand faster.
Why Set Up an Entity Abroad?
Establishing a legal entity abroad isn’t just a box-ticking exercise. It can unlock multiple opportunities for your business, such as:
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Hiring Local Talent: Build a team in a new country without relying solely on contractors.
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Market Entry: Operate legally and sell directly to customers in the new region.
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Tax Advantages: In some countries, establishing a subsidiary can help optimize tax strategies.
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Brand Credibility: A registered office signals commitment to local customers and partners.
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Investor Confidence: International presence often increases valuation and investor interest.
However, the process requires significant planning and resources.
Step-by-Step: How to Set Up an Entity Abroad
Here’s a detailed roadmap for setting up an international entity:
1. Research Target Markets Thoroughly
Before you pick a country, evaluate:
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Business Climate – Is it startup-friendly, or does bureaucracy slow things down?
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Talent Pool – Does the country have the skills your company needs?
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Regulations – Labor, tax, and data compliance laws vary widely.
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Costs of Incorporation – Some countries charge thousands in fees, while others are low-cost.
Final Thoughts
Setting up an entity abroad is a major step in a company’s global journey. While it offers growth opportunities, it also demands careful planning, legal expertise, and ongoing compliance. For companies looking for a faster, more flexible solution, partnering with a trusted EOR like WorkMotion allows you to hire globally without the hassle of entity setup.
Whether you’re ready to establish a permanent presence or just want to hire top talent abroad, WorkMotion helps you scale globally with confidence.
