Entering a new market does not always require establishing a local company at the outset. If your business needs people on the ground, you may be able to use other arrangements before incorporating. This article explores alternatives to local incorporation, their benefits and limitations, and the factors businesses should consider before choosing an approach.
Alternatives to setting up a local entity
Depending on your plans and applicable local requirements, you may be able to hire employees through an Employer of Record (EOR), engage independent contractors, or work with local partners and distributors. These models can provide market access without immediately establishing a subsidiary or branch.
Employer of Record (EOR)
Under an EOR arrangement, a third-party provider acts as the legal employer and generally handles employment contracts, payroll and statutory contributions. Your business continues to manage the employee's day-to-day work, although the responsibilities of each party will depend on local employment laws.
An EOR can be an effective solution in certain circumstances, but it may be unsuitable or unavailable in others. Typical use cases include establishing a small back-office team without immediately creating a local legal entity, or hiring a senior business development executive to conduct preliminary market-entry work before an entity is established.
EOR arrangements are not permitted on the same terms in every country. For example, employee-leasing arrangements in Germany generally require a licence and may be subject to an 18-month assignment limit, unless an exception applies. Local advice should be obtained before relying on this model.
Restrictions also vary elsewhere. In Singapore, an EOR generally cannot sponsor a work pass merely to place a foreign employee with an overseas company that has no local presence. In France, the regulated umbrella-employment framework known as portage salarial is generally limited to eligible professionals and qualifying arrangements. The precise position should be confirmed for the proposed role and circumstances.
For businesses considering an EOR, the starting point should be whether the arrangement is lawful and suitable in the target country and for the intended roles. If you expect to build a larger workforce, compare the EOR’s recurring costs and operational constraints with the costs and obligations of establishing your own entity.
Independent contractors
Independent contractors may be suitable when you need specialist services or support for a defined project rather than an employee. For example, you might engage a local consultant to conduct market research or an independent IT specialist to complete a specified assignment.
The principal consideration is whether the relationship genuinely qualifies as independent contracting under local law. A contractor agreement alone does not determine whether an individual will be treated as self-employed.
Authorities may examine the relationship in practice, including the degree of control over working hours and daily activities, the individual’s financial independence, and whether the individual is integrated into your regular team. The applicable tests and consequences vary by jurisdiction.
Independent contracting is therefore generally better suited to clearly defined services performed with genuine independence than to roles requiring ongoing supervision or integration into your workforce.
Partners and distributors
Under a distribution arrangement, a local business typically purchases your products and resells them to customers in its market. This may be suitable if you want to sell through an established distribution network.
You may also work with commercial agents or other local partners who help identify customers, promote your products or arrange sales. Unlike distributors, agents generally act on your behalf rather than purchasing products for resale.
These arrangements may reduce initial costs because you may not need to recruit a local sales team or establish your own distribution network. Distributors typically earn a margin on resale, while agents may receive commissions.
Hybrid operating models
You can also combine different arrangements according to your business needs and the requirements of each market.
For example, you could hire an employee through an EOR to support customer relationships while using a local distributor to sell your products. You might also engage independent contractors for specialist projects while working with local partners to reach customers. The approach can change as your business grows.
What are the benefits of expanding without a local entity?
One advantage of expanding without immediately establishing a local company is speed. If you need a temporary market presence, the arrangements described above may allow you to begin operating without waiting for incorporation to be completed.
Delaying incorporation can also reduce initial expenditure. Establishing a company involves registration costs and ongoing compliance obligations, which may be difficult to justify if you need only a small team or are still testing the market.
Consider a Singapore-based business looking to expand into Australia and the United Kingdom. Rather than incorporating a company in both markets immediately, it could engage a local employee through an EOR, where permitted, to support market development. This would allow the business to assess customer interest and sales opportunities before deciding whether to establish its own entities.
Operating without your own entity may also make it easier to scale back if a market does not perform as expected, subject to contractual, employment, tax and other legal obligations.
What risks and limitations should businesses consider?
However, restrictions may affect how you hire employees, conduct business and work with customers. These limitations may become more significant as your business expands internationally.
Employment and workforce considerations
Some countries restrict EOR arrangements, including the roles that may be covered and the period for which an individual may work under the arrangement.
Where EOR arrangements are permitted, clarify which employment obligations fall to your business and which are handled by the provider. These may include responsibility for employee concerns, workplace disputes, disciplinary matters and termination procedures.
Employee experience is another consideration, particularly when managing teams across several countries. Employees hired through an EOR may receive different benefits or follow different procedures from colleagues employed directly by your company. Any differences must comply with applicable employment, anti-discrimination and equal-treatment requirements.
You may also need to revisit an arrangement as a role develops. For example, if an independent contractor comes under your direct supervision or becomes integrated into your regular workforce, the classification should be reassessed under applicable local law.
Compliance and regulatory considerations
Your business may still incur local tax, registration and regulatory obligations even if it has not incorporated a company in the country.
One concern is whether your activities create a permanent establishment (PE), potentially resulting in local corporate tax and reporting obligations. For example, employees or agents who habitually conclude contracts on your behalf may create PE exposure. Depending on the applicable tax treaty and local law, risk may also arise where an individual habitually plays the principal role leading to contracts that are routinely concluded without material modification.
Selling goods or services to local customers may also trigger value added tax (VAT), sales tax or other registration and reporting requirements, even without a local company.
Certain activities may require business licences or regulatory approvals. Depending on the jurisdiction, foreign businesses may be restricted from providing particular services, importing regulated products or conducting specified activities without registration or a locally established presence.
Before entering a market, review the applicable local requirements to determine whether you can operate through third-party arrangements or need to register or establish a local company. Hawksford can provide guidance based on your proposed activities and target jurisdiction.
Commercial and operational considerations
Operating without a local entity may limit the activities you can undertake or the customers you can serve.
For example, some customers may require contracts to be signed with a locally registered company. Public-sector tenders and corporate procurement processes may also require suppliers to meet specific registration or tax documentation requirements.
Even if your existing operating arrangements are legally permitted, these conditions could affect your eligibility to bid for certain projects or secure contracts with particular customers.
There are also practical considerations when relying on third parties. Working through distributors may limit your direct relationships with customers, while using an EOR requires coordination with the provider on employment matters.
The chosen arrangement should therefore reflect the level of control you need over customer relationships, commercial activities and the management of your local workforce.
Key questions before entering a market without incorporation
Before deciding how to operate in a new market, consider the following questions when assessing whether your business can proceed without establishing a local entity:
- What is the purpose of entering the market?
- How long do you expect to operate in the market?
- How many people will you need?
- What commercial activities will take place?
- Do your customers require a local presence?
- What compliance obligations will apply?
- Are you likely to establish a local company later?
How we support international expansion strategies
If you are preparing to enter new markets, Hawksford can help you assess your options, including whether to use an EOR or establish a local entity. We can guide you through applicable employment requirements and other regulatory considerations relevant to your expansion.
If you decide to operate without incorporating, our team can assist with hiring employees through an EOR arrangement. Where incorporation is required or commercially preferable, we can support you with entity formation and ongoing company secretarial services.
Our scope of services extends across markets in Asia, the Americas and Europe, the Middle East and Africa (EMEA). Get in touch to discuss your international expansion plans and explore the options available for entering your target markets.
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