A Global Team Without the Chaos: How to Structure Employment Across Multiple Jurisdictions

Why This Matters More Than It Seems

You hire a developer in Armenia, a sales manager in Spain, a CFO in Cyprus, and a designer in Serbia. Each works for your company and leaves a distinct legal and tax footprint in their jurisdiction. Most international teams take the path of least resistance: the contract is signed, the person works, and tax questions are deferred. The problems surface later: during a tax audit, at the point of a company sale, or in a dispute with an employee.

Every employee in a foreign jurisdiction generates three risks simultaneously: a tax risk for the employee, a corporate risk for the company, and an employment risk in the event of a dispute. Structured engagement eliminates all three. Unstructured engagement multiplies them.

I. Executive Summary

Structuring employment across multiple jurisdictions is an architectural challenge, not merely an administrative one. The choice of engagement format determines the tax burden, the employee's labour rights, the risk of creating a permanent establishment (PE), and the complexity of terminating the engagement.

There are four principal engagement formats for international employees: a local employment contract through a local entity, a contract with a self-employed individual or sole trader, an employer of record (EOR) arrangement, and a civil law contract with an individual. Each format carries its own cost, risks, and limitations.

Three diagnostic questions structure the analysis:

Who is the legal employer: your company, a local entity, or an external provider?

What tax regime applies: who pays the social contributions, at what rate, and to which authority?

What risk does this employee create for the corporate structure: is a permanent establishment being created, and are there any signs of reclassification risk?

The bottom line: the engagement format determines not only the employee's tax status but also the company's corporate structure. A decision made in haste proves costly at the first serious audit.

II. Three Key Areas

Below are the three principal aspects of structuring an international team systematically, and the most common mistakes associated with each.

1. Engagement Formats: What to Choose in Each Jurisdiction

The choice of engagement format depends on three parameters: the regularity and nature of the work, the tax and administrative burden in the employee's jurisdiction, and the presence or absence of a local legal entity.

Local employment contract: the format that offers the strongest employee protections and the highest employer cost. The company must have a registered legal entity in the employee's jurisdiction. The employer bears full responsibility for paying social contributions, complying with labour law, and paying severance upon termination. Employer social contribution rates vary substantially across jurisdictions: France approximately 45% on top of gross salary, Spain approximately 30%, Germany approximately 20%, Cyprus approximately 11.5%, and the UAE 0% for foreign employees.

Self-employed or sole trader contract: a popular format for technical and project-based specialists. The individual pays their own taxes and contributions; the company bears no employer social contributions. The principal risk is reclassification of the relationship as employment. If the tax authority determines that the self-employed individual is in practice working as a staff employee (fixed schedule, single client, instructions from the company), it may issue a retrospective assessment of all social contributions for the period, with penalties and interest, typically covering the past three years.

Employer of record (EOR): an external organisation acts as the formal employer of the employee in their jurisdiction, assumes all employer obligations, and the company pays for the service. The cost typically amounts to 15–25% of the employee's gross salary plus a fixed monthly fee to the provider. EOR is well suited for hiring in jurisdictions where the company has no local legal entity and where establishing one is not commercially justified. For senior roles with decision-making authority, the company must conduct additional PE analysis: such an employee may create a permanent establishment even where an EOR is used.

Civil law contract with an individual: used for one-off or project-based work. The most flexible format from a documentation standpoint, and the most vulnerable to reclassification. In most EU jurisdictions, regular engagement with one individual over a period of three months or more gives rise to a presumption of an employment relationship, regardless of the contractual form.

Self-assessment, Section 1:

– What format is used for each team member in each jurisdiction, and was that decision made deliberately?

– Do any external contractors show indicators of an employment relationship: a single client, a fixed schedule, regular payments?

– If the tax authority were to review the relationship with a self-employed individual tomorrow, what is the likelihood of reclassification?

If the engagement format was selected on the basis of convenience rather than legal analysis, reclassification risk already exists.

2. Tax Burden and Social Contributions: Who Pays and How Much

The true cost of an employee to the company extends beyond their gross salary to include mandatory employer contributions to social insurance, pension, and healthcare systems. This parameter varies substantially across jurisdictions and directly affects hiring decisions.

High burden (above 30% on top of gross): France, Belgium, Italy, Austria. These jurisdictions offer well-developed social protection systems but make employment contracts substantially more expensive. Companies hiring in France without understanding this burden frequently find that the actual cost of an employee exceeds the budgeted figure by 40–50%.

Medium burden (15–30%): Germany, Spain, the Netherlands, Poland. Contributions are split between the employer and the employee, which requires accurate calculation from day one.

Low burden (below 15%): Cyprus, Malta, UAE (for foreign employees), Georgia (outside the EU). Cyprus: employer contributions to the social insurance system amount to approximately 11.5% of gross salary, making it an attractive jurisdiction for structuring an EU-based team. UAE: mandatory contributions apply only to UAE nationals and citizens of certain Gulf states; for foreign employees, the employer social burden is zero.

A note on withholding tax: when paying remuneration to an individual, companies in a number of jurisdictions are required to withhold tax at source even under a civil law contract. Rates and obligations vary substantially, so every payment to a non-resident requires a prior review of withholding tax obligations.

Self-assessment, Section 2:

– Do you know the actual cost of each employee to the company, including all mandatory employer contributions?

– Has the employer social burden been factored into the team budget?

– Has the withholding tax obligation been reviewed for payments to non-residents?

A team budget calculated on gross salaries alone, without accounting for employer contributions, will inevitably fall short.

3. Permanent Establishment: When an Employee Creates a Tax Risk for the Company

The least obvious but most costly risk in international teams is this: an employee in a foreign jurisdiction can create a permanent establishment (PE) for the company, even where the company has neither an office nor a legal entity there. A PE gives rise to an obligation for the company to pay corporate tax in that jurisdiction on the portion of income attributable to the PE's activities.

Two principal scenarios in which an employee creates a PE. First: the employee regularly concludes contracts or conducts negotiations on behalf of the company with authority to bind it (a dependent agent under the OECD Model Tax Convention). Second: the employee works from a fixed place (a home office or rented workspace) on a sustained basis over a period of several months.

BEPS Action 7 (incorporated into the MLI in 2017) expanded the PE criteria: an intermediary or agent acting exclusively or almost exclusively on behalf of one company may now create a PE even without formal authority to conclude contracts. In practice, this means that a sales representative or account manager working from Spain for a Cypriot company will in all likelihood create a PE in Spain.

The consequences of an unplanned PE: an obligation to file tax returns in the PE jurisdiction, pay corporate tax on the attributable income, and face penalties for failure to report for prior periods. In a number of cases, VAT or equivalent indirect tax registration obligations may also be triggered.

Self-assessment, Section 3:

– Are there team members who regularly conduct negotiations or conclude contracts on behalf of the company from a foreign jurisdiction?

– Is any team member working from a home office in a country where the company has no registered legal entity, on a sustained basis?

– Has PE risk been analysed for each key hire?

An unplanned PE is identified during a tax audit. By that point, the accumulated obligations typically dwarf the cost of preventive structuring.

Next Step

Structuring an international team systematically follows a clear sequence. First, the optimal engagement format is determined for each jurisdiction, taking into account the employee's function and the presence of a local legal entity. Then the actual cost of each team member is calculated, inclusive of all mandatory contributions. After that, PE risk is analysed for key roles. Each step follows from the previous one.

Companies with properly structured teams pass tax audits without retrospective assessments, attract investors without employment risks surfacing in due diligence, and resolve separations without litigation. Those who build their teams without a systematic approach find themselves resolving accumulated problems at the worst possible moment.

If your team includes employees across multiple jurisdictions and you are uncertain whether the current arrangements are correct, an initial consultation will map the existing arrangements and identify the priority steps for bringing them into order.