How Much SMBs Can Save by Choosing EOR Over Owned Entities

Imagine a bootstrapped business like yours looking to explore a new, foreign market.

This business likely operates with limited resources—in terms of time, money, and staff—and doesn’t have the bandwidth to set up an owned entity in the target country. There are too many hurdles to jump over:

• Local regulatory compliance that the business isn’t familiar with (including ongoing payroll and tax compliance obligations)
• High upfront costs, such as registration fees and other administrative expenses
• Lack of a network of local contacts and partnerships that would facilitate incorporation

Does this scenario sound familiar? Luckily, you don’t need to give up on your plans to unlock a new customer base or hire talent located outside of your jurisdiction just because you don’t own a legal entity in the new country.

Hiring through an EOR provider can open the door to global expansion without breaking your budget—and help establish a reliable strategic partnership for future growth.

1. Initial registration and incorporation fees

Incorporating a company in the United States can cost anywhere from $500 to $2000 in filing fees alone, depending on the state of incorporation (~$750 only for a foreign LLC registration fee in Texas).

Legal fees for drafting incorporation documents, obtaining tax identification numbers, and other related services can range from $1000 to $5000 or more, depending on the complexity of the local legal requirements and whether you need to hire a legal counsel.

Compliance costs can vary widely depending on the industry and regulatory environment of your host country. For instance, obtaining a business license in the EU may cost several hundred to several thousand euros, depending on the type of business and local regulations.

For instance, in Spain, you can’t even begin with business registration unless you have a $3,000 capital deposited in your Spain bank account. Incorporation fees can reach several thousand dollars as well. The situation is similar in Germany, where commercial registration fees, notary fees, and other company incorporation services may cost you between $2,000 and $3,000.

💡 Read more: Doing Business in Europe: A Comprehensive Guide

2. Ongoing costs

Annually, SMBs can expect to spend tens to hundreds of thousands of dollars on ongoing maintenance and operational expenses for their foreign entity, depending on how many international employees they choose to hire in a specific location.

The ongoing expenses may include the following:

• Rent and utilities for office space (ranging from a few hundred to a few thousand dollars monthly)
• Staffing costs (salaries, employee benefits, payroll taxes, and potentially additional perks such as private health insurance for local employees)
• Insurance premiums (coverage for the office premises, liability insurance, and other relevant policies)
• Legal and accounting fees (retaining legal counsel and accounting services to ensure ongoing compliance with local employment laws)
• Regulatory fees (various fees imposed by regulatory authorities for permits, licenses, and compliance filings)
• Business taxes (payment of corporate income taxes, value-added taxes (VAT), and other applicable taxes)
• Ongoing global payroll costs (calculating salaries, withholding taxes, issuing payslips, managing deductions, invoicing for contractors)
• Ongoing HR costs (international employment contracts, worker classification for every new hire, onboarding process, terminations, documentation management, work authorizations, benefits administration)

3. Exit costs

An underrated cost that some businesses overlook is connected to closing down an entity abroad in case a specific location turns out to be unprofitable. But penetrating a new market always comes with a risk, and with global business failure rates ranging from 20-40%, the exit cost is definitely worth considering.

Just imagine needing to tear down your foreign entity after so many months of navigating the setup process and spending $60-120k to start operating, only to face the fact that, for example, it takes at least three months to dissolve a company in the UK, not including any preparatory work, plus additional costs of £4,000 or more.

Understanding EOR services

An employer of record (EOR) acts as the legal employer for its client companies’ international employees in countries where these clients don’t have a registered business entity.

The EOR essentially assumes the role of a middleman and has complete legal responsibility regarding employment, such as contracts, salaries, benefits, and taxes. Its main task is to ensure that the clients can hire from different countries in full compliance with local labor and tax laws.

Today, EORs represent a cost-effective alternative to business entity registration because they provide high speed to market, protect you from the risks of entering a new market, and can help streamline the employee experience while consolidating your business operations around the world.

Why an EOR is a better expansion solution for small businesses and startups

Comparing resource allocation between using an EOR service and establishing an own entity highlights significant differences in both direct and indirect savings for SMBs.

When outsourcing global hiring activities to an EOR, resources that would otherwise be allocated to legal and administrative tasks associated with establishing and maintaining a local entity can be redirected toward revenue-generating activities. This includes savings in legal fees, compliance costs, staffing expenses, and time spent on administrative tasks.

Moreover, the scalability and flexibility offered by EOR services enable SMBs to expand or contract their international operations in response to market demands without the need for extensive resource reallocation. This agility allows SMBs to adapt quickly to changing business environments and leverage growth opportunities without incurring additional overhead costs associated with establishing and managing their own entities.

Read more: 8 Employer of Record Myths & Misconceptions

Legal compliance and risk mitigation

Using an EOR can save resources for SMBs by reducing legal risks and compliance burdens associated with navigating foreign labor laws.

EORs specialize in ensuring compliance with local regulations, staying abreast of changes in labor legislation, and mitigating legal and financial risks for their clients. By leveraging the expertise of the EOR, SMBs can minimize the likelihood of costly penalties, fines, or legal disputes stemming from non-compliance with employment laws and regulations in foreign jurisdictions.

Scalability and flexibility benefits

One of the key advantages of partnering with an EOR is the scalability and flexibility it offers SMBs.

EOR services can be tailored to meet the specific needs and preferences of SMBs, allowing them to easily test new markets and scale their international workforce up or down as needed without the constraints of establishing and managing their own entities. This flexibility enables SMBs to optimize their resource allocation, respond quickly to market dynamics, and capitalize on emerging opportunities for expansion.

Reallocation of internal resources

The resources saved by using an EOR can be reinvested into core business activities, driving growth and innovation for SMBs.

With the administrative burdens of international expansion lifted, SMBs can allocate their financial and human resources toward strategic initiatives such as product development, market expansion, customer acquisition, and talent retention. This can contribute to a more agile and competitive business environment, enabling SMBs to achieve their growth objectives more effectively and efficiently.

Success stories: How SMBs leverage Deel’s services to grow globally

Deel has already helped thousands of businesses like yours expand their teams beyond their country's borders and save precious resources while doing so.

For example, EasyBroker was able to offer more competitive compensation to attract talent across Latin America thanks to the favorable conditions for global hiring they have with Deel.

“Before working with Deel_, we only hired in Mexico. Now, we open roles to any country in Latin America and we have reduced the recruitment time by almost 50%. It also helped us offer more competitive salaries and better benefits.” —Sandra Rodríguez León, Operations and People Coordinator at EasyBroker_

Similarly, Planhat, with founders from the US and Sweden who embraced remote work from the beginning, used Deel to hire over 50 full-time employees and contractors across 14 locations, which wouldn’t have been possible without a global employer of record.

“Deel gives us access to hiring people in a compliant way, anywhere. Those are people that we wouldn’t have been able to hire without Deel, as we wouldn’t be able to open an entity in every country where we wanted to hire someone. It also enables us to be close to our customers; they are all over the world, so we need to be there too. ” —Sanna Westman, Head of People at Planhat

Check out more case studies from our library for more stories like these.

💡See also: 5 Countries with Deel-Owned Entities to Hire from

Choose the best employer of record services for global teams

Deel is the only complete people platform designed by a global team for global teams.

We know the value of having a reliable, all-in-one tool where you can centralize workforce management for all your workers in all your locations, regardless of their employment type and country of residence.

With Deel, you can:

• Hire employees and contractors in compliance with local labor laws in 150+ countries
• Ensure tailored global employment contracts are regularly reviewed by our in-house legal team
• Run global payroll for all your locations under one roof
• Count on timely and accurate tax filings with records kept safely on the platform
• Automate onboarding and offboarding for all worker types and locations
• Store and manage employee data in a global-friendly HRIS
• Offer competitive benefits packages to your team members around the globe
• Protect your intellectual property anywhere you hire
• Use dozens of integrations with the most popular HR and finance tools
• Run background checks, order and send equipment, and offer access to coworking spaces

And much more, with 24/7 help of our multi-channel customer support available through the platform, live chat, e-mail, via phone, and more.

To see what our global HR, compliance, and payroll services look like in practice, schedule a call with our expert team and ask away!