# Entity-Free Hiring

> Entity-free hiring is employing people in a foreign country without setting up your own legal entity there, achieved by engaging an Employer of Record that already holds the local registration and becomes the legal employer while you direct the work.

Entity-free hiring is a way to employ workers in a country where your company has no legal presence of its own. Instead of registering a local subsidiary, you engage an Employer of Record that is already established there. The Employer of Record becomes the legal employer of your worker, while you handle their day-to-day work.

This works because most countries attach employment duties to the entity named on the contract. An Employer of Record already holds that position, so it can put your worker on a compliant local contract, run payroll, and meet tax and benefit obligations from the start, without you incorporating anything.

The main appeal is speed and reduced overhead. Setting up an entity can take weeks in some countries and many months in others, and it brings ongoing accounting, filing, and closure costs. Entity-free hiring skips that, and it is often the sensible first step in a new market, with a local entity considered later once the market is proven.

## How does entity-free hiring actually work?

You find and manage the worker, and an Employer of Record employs them for you. The Employer of Record, already registered in the country, signs a local employment contract, runs payroll in local currency, withholds taxes, and provides statutory benefits. You direct the work day to day. The legal employment relationship sits with the Employer of Record, not with your company.

## Why not just set up a local entity?

For some businesses, an entity is the right long-term answer, but it is slow and costly to establish and maintain. Registration can take months in certain countries, and an entity carries ongoing filing, accounting, and eventual closure costs. Entity-free hiring lets you start employing quickly and test a market first, then move to an entity once the volume justifies it.

## Does entity-free hiring remove permanent-establishment risk?

It reduces one path to it but does not erase the concept. Permanent establishment is a tax status that can arise when a company does enough business in a country to be taxed there. Using an Employer of Record avoids creating your own registered presence through the hire, but activities like local sales or contracting can still raise the question, so it is worth advice.

## Key facts

- **Permanent establishment definition:** A fixed place of business through which a company's business is wholly or partly carried on (Source: OECD, verified 2026-07-28)
  Under Article 5 of the OECD Model Tax Convention, a permanent establishment can create a local corporate-tax liability. Entity-free hiring through an Employer of Record avoids registering your own presence, though other local activities can still create one.

## Frequently asked questions

### Is entity-free hiring legal?

Yes, where it is done properly. Employing through an Employer of Record is an established, compliant model in most countries: the worker has a genuine local employment contract, correct payroll, and full statutory benefits. What matters is that the Employer of Record is genuinely registered and compliant in the country, and that the worker is correctly classified as an employee.

### What is the difference between entity-free hiring and using contractors?

Entity-free hiring gives you employees, with proper contracts, tax withholding, and benefits, through an Employer of Record. Using contractors avoids employment entirely, but only works where the person is genuinely independent. If you need someone to work like an employee, contractors carry misclassification risk, whereas entity-free hiring employs them correctly without you owning an entity.

### When should a company set up its own entity instead?

Usually once headcount in a country grows to the point where the fixed cost of an entity is outweighed by per-employee Employer of Record fees, or where the business wants a permanent local presence for strategic reasons. Many companies use entity-free hiring to enter and prove a market, then establish an entity when scale and commitment justify it.

### How quickly can you hire someone this way?

Because the Employer of Record already holds the local registration, hiring can often start in days or weeks rather than the months an entity setup can take. The main gating steps are a compliant local contract and confirming the worker's right to work, not building any legal infrastructure of your own in the country.

## Sources

- [The 2025 Update to the OECD Model Tax Convention](https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/11/the-2025-update-to-the-oecd-model-tax-convention_c7031e1b/5798080f-en.pdf), OECD

_Last updated 2026-07-28. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/entity-free-hiring_