EOR vs Opening a Subsidiary: Cost Comparison
A detailed cost comparison of using an Employer of Record (EOR) versus setting up a local subsidiary — covering legal setup, accounting, payroll admin, timelines, and break-even analysis.
EOR vs Opening a Subsidiary: Cost Comparison
When you hire in a new country, you face a fundamental choice: use an Employer of Record (EOR) or set up your own legal entity. Both approaches let you hire compliantly, but the cost structures are completely different.
An EOR is faster and simpler. A subsidiary gives you more control. But which one is actually cheaper? The answer depends on your headcount, timeline, and how long you plan to operate in that country.
This guide breaks down the real costs of each approach so you can make an informed decision.
What Is an EOR?
An Employer of Record (EOR) is a third-party company that legally employs workers on your behalf in a foreign country. The EOR handles payroll, taxes, benefits, and compliance. Your team works for you day-to-day, but the EOR is the legal employer.
You get: compliant hiring without setting up a legal entity. You pay: a per-employee monthly fee (typically $199–$699/month per employee).
What Is a Subsidiary?
A subsidiary is a legal entity you register in the foreign country. It's a company you own that can directly employ people, sign contracts, open bank accounts, and operate locally.
You get: full control over hiring, operations, and compliance. You pay: setup costs, ongoing maintenance, local accounting, legal, and HR.
Cost Comparison: The Full Picture
One-Time Setup Costs
| Cost Item | EOR | Subsidiary |
|---|---|---|
| Legal entity registration | $0 | $2,000–$15,000 |
| Legal counsel (incorporation) | $0 | $3,000–$10,000 |
| Registered office/address | $0 | $500–$3,000/year |
| Bank account setup | $0 | $500–$2,000 |
| Tax registration | $0 | $500–$2,000 |
| Initial compliance audit | $0 | $1,000–$5,000 |
| Platform onboarding | $0–$500 | $0 |
| Total one-time | $0–$500 | $7,500–$37,000 |
Subsidiary setup costs vary enormously by country. Incorporating in the UK might cost $5,000 total; in Brazil, $20,000+.
Monthly Operating Costs (Per Employee)
| Cost Item | EOR | Subsidiary |
|---|---|---|
| EOR fee | $199–$699/employee | N/A |
| Local accounting | Included | $500–$2,000/month |
| Payroll processing | Included | $100–$300/month |
| HR compliance | Included | $200–$800/month |
| Legal counsel (ongoing) | Included | $300–$1,500/month |
| Benefits administration | Included | $100–$500/month |
| Tax filings | Included | $200–$1,000/month |
| Registered agent | Included | $50–$200/month |
| Monthly overhead | $199–$699/employee | $1,450–$6,300/month (fixed) |
The key difference: EOR costs scale linearly with headcount (per-employee fee). Subsidiary costs are mostly fixed — the accounting, legal, and compliance costs are roughly the same whether you have 2 employees or 20.
Annual Cost Comparison by Headcount
Let's model the total annual cost for different scenarios, using mid-range estimates:
Assumptions:
- EOR fee: $400/employee/month
- Subsidiary setup: $15,000 (one-time, amortized over 3 years = $5,000/year)
- Subsidiary monthly overhead: $3,000/month (fixed)
| Headcount | EOR Annual Cost | Subsidiary Annual Cost | Cheaper Option |
|---|---|---|---|
| 1 employee | $4,800 | $41,000 | EOR (88% cheaper) |
| 3 employees | $14,400 | $41,000 | EOR (65% cheaper) |
| 5 employees | $24,000 | $41,000 | EOR (41% cheaper) |
| 8 employees | $38,400 | $41,000 | EOR (6% cheaper) |
| 10 employees | $48,000 | $41,000 | Subsidiary (15% cheaper) |
| 15 employees | $72,000 | $41,000 | Subsidiary (43% cheaper) |
| 20 employees | $96,000 | $41,000 | Subsidiary (57% cheaper) |
| 50 employees | $240,000 | $41,000 | Subsidiary (83% cheaper) |
The Break-Even Point
In this model, the break-even point is around 8–10 employees in a single country. Below that, EOR is cheaper. Above that, a subsidiary becomes more cost-effective.
But this number varies significantly by country:
| Country | Subsidiary Fixed Costs | EOR Break-Even |
|---|---|---|
| UK | Low ($2,000/month) | ~5–7 employees |
| Germany | Medium ($3,500/month) | ~9–11 employees |
| Brazil | High ($5,000/month) | ~13–15 employees |
| India | Low ($1,500/month) | ~4–6 employees |
| Singapore | Medium ($2,500/month) | ~7–9 employees |
| UAE | Medium ($3,000/month) | ~8–10 employees |
Beyond Cost: Other Factors
Cost is important, but it's not the only factor. Here's what else to consider.
Speed to Hire
| Factor | EOR | Subsidiary |
|---|---|---|
| Time to first hire | 1–2 weeks | 2–6 months |
| Legal setup time | None | 4–12 weeks |
| Bank account setup | None | 2–8 weeks |
| Tax registration | None | 2–6 weeks |
If you need to hire quickly — for a project, a key candidate, or market entry — the EOR's speed advantage is worth significant money in opportunity cost.
Control and Flexibility
| Factor | EOR | Subsidiary |
|---|---|---|
| Employment contracts | EOR's templates (customizable) | Fully custom |
| Benefits design | EOR's offerings | Your choice |
| IP ownership | Typically assigned to you | Direct ownership |
| Contract termination | Through EOR process | Direct control |
| Data handling | Through EOR systems | Your systems |
Some companies start with an EOR and transition to a subsidiary once they have enough employees and a clear long-term commitment to the country.
Risk Profile
| Risk | EOR | Subsidiary |
|---|---|---|
| Compliance risk | EOR assumes primary liability | You assume full liability |
| Regulatory changes | EOR adapts | You must track and adapt |
| Provider dependency | Dependent on EOR continuing service | Independent |
| Permanent establishment risk | Minimal | You are the establishment |
| Exit costs | Low (terminate EOR agreement) | High (wind down entity) |
Exit Costs
This is often overlooked. Closing a subsidiary can cost $5,000–$25,000 and take 6–18 months depending on the country. With an EOR, you simply terminate the agreement and off-board employees.
If there's any chance you might exit a market within 2–3 years, factor exit costs into the subsidiary calculation.
Decision Framework
Use an EOR When:
- You have fewer than 8–10 employees in the country
- You need to hire within weeks, not months
- You're testing a market and might exit
- You don't have in-house legal/HR resources for international compliance
- You're hiring in multiple countries simultaneously
- The role is temporary or project-based
Open a Subsidiary When:
- You have or plan to have 10+ employees in the country
- You're making a long-term commitment (3+ years)
- You need full control over employment terms and benefits
- You want direct IP ownership without assignment agreements
- Your industry requires a local entity (e.g., regulated sectors)
- You already have internal legal/HR capacity for international operations
The Hybrid Approach
Many companies use both:
- Start with an EOR for the first 1–3 hires to validate the market
- Set up a subsidiary once headcount reaches the break-even point
- Transfer employees from the EOR to the subsidiary
- Keep the EOR for countries where you have only 1–2 people
This hybrid approach minimizes upfront risk while optimizing long-term costs.
Country-Specific Considerations
Easy to Set Up a Subsidiary
These countries have relatively straightforward incorporation:
- UK: Fast registration (1–2 weeks), low ongoing costs
- Singapore: Efficient process, business-friendly environment
- Estonia: e-Residency program simplifies setup
- Netherlands: Straightforward process, good tax treaty network
Harder to Set Up a Subsidiary
These countries have complex or expensive incorporation:
- Brazil: Complex tax system, high costs, notarization requirements
- India: Multiple registrations required, bureaucratic process
- China: Foreign investment restrictions, long timelines
- Argentina: Currency controls, complex regulatory environment
For countries in the "harder" category, the EOR break-even point shifts higher — you need more employees to justify the complexity.
Common Mistakes
Mistake 1: Comparing Only Monthly Fees
EOR fees look expensive at $400–$699/month per employee. But when you add up all subsidiary costs (accounting, legal, HR, compliance, tax filings), the subsidiary is often more expensive per employee until you reach 8–10 people.
Mistake 2: Ignoring Setup Time
A subsidiary takes months to set up. During that time, you can't hire. The opportunity cost of delayed hiring often exceeds the cost difference between EOR and subsidiary.
Mistake 3: Forgetting Exit Costs
If you need to close a subsidiary, it costs money and takes months. An EOR relationship can be terminated with standard notice periods.
Mistake 4: Not Factoring in Internal Resources
Running a subsidiary requires internal bandwidth — your legal team, your accountants, your HR people. If those resources are already stretched, the "cheaper" subsidiary might actually be more expensive in hidden internal costs.
Mistake 5: Making the Decision Too Early
You don't need to decide on Day 1. Start with an EOR, learn the market, and transition to a subsidiary when the economics justify it. Many EOR providers support this transition.
How YouGo Fits In
YouGo provides international payroll and contractor management without the complexity of an EOR or the cost of a subsidiary. For companies working with contractors across multiple countries, YouGo offers compliant payments, tax documentation, and local currency support — all without per-employee EOR fees or entity setup costs.
Compare your options in our global payroll vs EOR guide, or learn about how to pay contractors compliantly. Ready to explore? Contact us.
FAQ
The break-even point is typically 8-10 employees in a single country, but varies by country. Low-cost countries like India or the UK might break even at 5-7 employees, while complex countries like Brazil might break even at 13-15. Factor in your growth trajectory and commitment timeline.
Yes. Most EOR providers support transitions. Employees are terminated by the EOR and re-hired by your subsidiary. This typically takes 2-4 weeks per employee and may require new employment contracts with the same or better terms.
Neither, if they're genuinely independent contractors. You can pay contractors directly using a payroll platform like YouGo. EOR and subsidiary models are primarily for full-time employees. However, ensure you've correctly classified workers — see our guide on contractor misclassification.
No. A PEO (Professional Employer Organization) co-employs workers alongside your existing entity. An EOR is the sole legal employer and doesn't require you to have a local entity. For international hiring without a local entity, you need an EOR, not a PEO.
Common hidden costs include: annual audit requirements, director liability insurance, local labor law compliance updates, employee benefit mandates, annual corporate tax filings, and the internal staff time needed to manage all of this. These typically add 20-40% on top of the direct costs.