You've found the perfect candidate in Germany. Your competitor just opened an office in Singapore. The board is pushing for international expansion.
So, you start researching what it takes to set up a legal entity abroad — and at first glance, it looks manageable. A few government forms, some registration fees, maybe a local attorney. Just paperwork, right?
Not quite. Opening a foreign entity is a significant legal, financial, and operational investment that catches many companies off guard.
Requirements vary significantly from country to country, and timelines can stretch from a few weeks to well over a year, depending on local regulations and bureaucratic processes.
What starts as a straightforward expansion plan can quickly become a resource-draining endeavor that pulls focus from your core business objectives.
Before committing to a local entity setup, companies need to understand the whole picture — including costs that rarely appear in the initial budget, such as legal fees, tax obligations, payroll infrastructure, banking requirements, ongoing compliance, and the eventual expense of shutting it all down if things don't work out.
Here's what you need to know before you dedicate resources to establishing a foreign subsidiary.
Key takeaways:
- Initial setup costs typically range from USD 20,000 to USD 150,000 initially, with significant ongoing annual maintenance expenses depending on the country and industry.
- Dissolving a foreign entity often takes longer and costs more than establishing one, with mandatory waiting periods of one year (or more) in some jurisdictions.
- Every additional country multiplies complexity due to separate tax systems, filing calendars, payroll processes, and compliance requirements.
Legal Registration Costs and Incorporation Complexity
The incorporation process alone involves far more than filing a few forms. Different countries might require:
- Local incorporation filings
- Notarized documents
- Certified translations
- Government authentication
Each step carries its own fees (generally ranging from USD 20,000 to USD 150,000) and processing times.
Depending on the jurisdiction, you may also need to meet minimum capital requirements, which can range from nominal amounts to substantial sums that must be deposited into a local bank account before your entity can legally operate.
Then there are the professionals you'll need to hire, such as:
- Local attorneys to navigate unfamiliar legal frameworks
- Corporate secretaries to maintain statutory records
- Legal representatives, if required by law
In many markets, foreign-owned entities are required to appoint a local resident director — a requirement that comes with annual retainers, liability insurance costs, and ongoing salary obligations that many companies don't anticipate when budgeting for their expansion.
These director requirements exist to ensure accountability under local laws, but they add a significant layer of cost and complexity to your operations.
Licensing, Permits, and Regulatory Fees
Incorporation is just the beginning. Many countries require additional sector-specific permits before you can actually operate, as well as:
- Data protection registrations
- Import/export licenses
- Industry certifications
- Professional registrations
The list varies by jurisdiction and business type, but the costs add up quickly.
Some industries face particularly stringent requirements, with financial services, healthcare, and technology companies often navigating the most complex regulatory landscapes.
These permits aren't one-time expenses, either. Expect recurring costs for:
- Renewals
- Periodic inspections
- Compliance audits
- Notarized filings
And here's the part that really stings: delays at this stage are common, often stretching timelines by months.
If you already have a candidate waiting to start, there's a real chance they won't still be available by the time you've cleared all the regulatory hurdles. Top talent doesn't wait indefinitely, and lengthy approval processes can mean starting your hiring search all over again.
Tax Registration and Ongoing Reporting Obligations
Operating a foreign entity involves registering for multiple tax systems, including:
- Corporate income tax
- VAT or GST
- Payroll tax
- Social Security contributions
Each comes with its own registration process, compliance requirements, and, crucially, its own filing schedule.
Tax compliance complexity varies dramatically across economies, with some requiring monthly or quarterly filings. Missing deadlines can result in penalties, interest charges, and increased scrutiny from tax authorities.
Managing all of this requires local expertise. You'll likely need tax advisors, accountants, and possibly auditors who understand the specific codes and regulations of your target market.
These aren't optional expenses — they're the true cost of staying compliant. And as tax laws evolve, which they frequently do, you'll need advisors who stay up to date with changes that could affect your obligations.
Payroll Setup, Statutory Benefits, and Social Contributions
Every country has its own requirements regarding payroll, including pay frequencies and mandatory benefit contributions. Some of these can come as a genuine shock to companies expanding for the first time.
For example, in many countries, employees are legally entitled to 13th-month salary, mandatory bonuses, generous leave entitlements, and government insurance schemes that significantly increase total employment costs beyond the base salary.
Getting this right typically requires country-specific support — from local payroll experts to employee benefits brokers and compliance tools tailored to each jurisdiction.
Get it wrong — especially when it comes to statutory benefits — and you're looking at serious employer liabilities, including back payments, penalties, and potential legal action from both employees and government agencies.
The complexity increases when you consider that employment laws change regularly, necessitating ongoing monitoring and adjustment.
Banking and Financial Operations Requirements
Most countries require a local corporate bank account before you can run payroll or collect revenue. That sounds simple enough until you encounter the reality of international banking requirements and the documentation banks demand from foreign companies.
Hidden costs include local signatory requirements, extensive Know Your Customer (KYC) and anti-money laundering documentation, and — particularly common in APAC and LATAM — in-person identity verification that may require executives to travel to the new location multiple times.
Add in banking fees, unfavorable foreign exchange rates, and transaction thresholds, and the expenses mount quickly.
Worse, bank account approval can take months, delaying your entire hiring timeline and potentially causing you to lose candidates who can't wait for your administrative processes to catch up.
Hiring Local Specialists and Ongoing Administrative Staff
By now, you've probably noticed a pattern: operating a foreign entity requires local expertise at every turn, including:
- Accountants
- Payroll administrators
- HR managers
- Corporate secretaries
- Legal counsel
The list of specialists you'll need to either hire directly or contract with third parties is substantial. Each of these professionals commands market-rate compensation in their jurisdiction, which may differ significantly from what you're accustomed to paying.
And these aren't one-time consulting engagements. Maintaining an entity requires ongoing support, whether through direct hires or service providers. That's a recurring cost that you need to factor into your long-term budget, not just your initial expansion plan.
Many companies underestimate this ongoing administrative burden, only to find themselves scrambling to build internal capacity or outsource critical functions after launch.
Corporate Governance, Annual Maintenance, and Compliance Costs
Setting up a legal entity entails ongoing governance and compliance expenses, even if the entity is small or not in active operation. Most countries require annual filings, including:
- Audited financial statements
- Corporate reports
- Shareholder or board documentation
There are also government fees, renewal charges, and penalties to contend with if any documents are filed late or inaccurately.
You'll also need to maintain accurate entity records, manage registered agents, and keep corporate information up to date — all of which require time, administrative support, or local legal assistance.
Many jurisdictions also mandate employer-related insurance such as workers' compensation, employer liability coverage, or director and officer insurance, adding both cost and compliance steps to your annual obligations.
Cost of Entity Closure or Non-Use
Here's the part nobody thinks about during the excitement of expansion: what happens when you need to close a location.
Dissolving an entity is often much slower and more expensive than opening one. In Germany, for example, the liquidation process includes a mandatory one-year waiting period, during which creditors can submit claims.
In Portugal, dissolution can take up to three years to complete. Even in jurisdictions with faster processes, expect the closure to take a minimum of three to six months.
Closure typically involves:
- Fees for legal dissolution
- Tax clearance certificates
- Employee offboarding
- Mandatory government audits
And while you sort out all the details, dormant entities still incur annual fees, filing requirements, and compliance obligations.
The Compounding Cost of Expanding Into Multiple Countries
If the costs above seem manageable for one country, consider what happens when you expand into three, five, or even 10 markets. The total investment multiplies — not just proportionally, but exponentially in terms of complexity and administrative overhead.
You're now managing multiple tax systems, dozens of filing calendars, parallel payroll processes, and significantly increased internal overhead for HR, finance, and legal teams.
This complexity isn't easily scalable for startups or mid-size companies and becomes unwieldy fast as global hiring expands. The administrative burden can quickly consume resources that could be better spent on growth, product development, and serving customers.
How EORs Help Companies Scale Without the Extra Expense
An Employer of Record (EOR) eliminates the need for entity setup entirely by acting as the legal employer for your international hires. This means:
- No incorporation or licensing fees
- No payroll, tax, or benefits setup
- No audits, reporting, or annual maintenance fees
- No need for local directors, legal representatives, or corporate secretaries
- No entity shutdown costs if you need to exit a market
And, companies retain complete operational control over their employees’ day-to-day work.
The EOR simply handles compliance, onboarding, global payroll, and legal employment responsibilities. This supports faster increases in headcount, easier expansion into new markets, and significantly lower risk. Partnering with an EOR is also more cost-effective, as it comes without the capital outlay and ongoing administrative burden of maintaining foreign entities.
Grow Your Business Internationally With RemoFirst
RemoFirst helps companies grow and scale quickly while staying fully compliant, without the time, cost, and complexity of opening legal entities.
Our platform enables you to hire global employees in 185+ countries and manage contractors in 150+ countries, all from a single platform with transparent pricing.
Whether you're hiring your first international employee or building distributed teams across multiple continents, RemoFirst handles the legal, tax, and payroll complexities so you can focus on what matters: finding great talent and growing your business.
Book a demo to see how RemoFirst can simplify your global expansion.
