Most inbound companies start in a new country with an Employer of Record. It is a smart first move. However, growth changes the math fast. At some point, you need to set up a company of your own. This guide explains when, why, and how to make the move smoothly. You will protect your team, your clients, and your runway in the process. Use it as a working playbook, not just background reading.
Why inbound companies start with an EOR
An Employer of Record lets you hire abroad without setting up a legal entity locally. You skip the paperwork altogether, the payroll setup, and most of the compliance work. Most inbound companies start here because speed matters in new markets. Therefore, the EOR model fits early entry well. You can hire one or two people in days, not months. Meanwhile, you test demand without long-term commitment. Yet costs scale with headcount, so the model becomes expensive over time.
When should you set up a company instead of using an EOR?
You should set up a company when headcount, costs, or strategy outgrow the EOR model. Most experts review the option once you reach four to five employees in one country. At that point, the fixed costs of a legal entity often beat per-employee EOR fees. Furthermore, your local presence starts to matter for clients, suppliers, and talent.
The decision is rarely only financial. Strategic control, brand identity, and employee experience all weigh in heavily. So look at the full picture before you commit either way.
The 5 signals it is time to transition
Watch for these warning signs. Each one suggests that your EOR is now holding you back rather than helping you grow.
- Your team in one country exceeds five people
- Per-employee EOR fees now exceed annual entity setup costs
- You need to offer equity, pensions, or benefits the EOR cannot support
- Local clients ask for contracts with a domestic legal entity
- You plan long-term operations, not just market testing
- You want full control over hiring, firing, and culture
If three or more apply, you should plan the transition now. Waiting rarely improves the math.
How does the cost comparison work?
EOR fees usually run between €500 and €1,500 per employee per month. By contrast, a Dutch BV costs around €500 to €2,000 to incorporate. Annual accounting, payroll, and compliance services then add €5,000 to €15,000 per year. Therefore, the breakeven point typically lands between four and seven employees. The exact figure depends on salaries and provider rates.
These figures are rough estimates only and DO NOT REPRESENT Octagon’s pricing. Actual costs depend on salaries, country, and complexity. Contact Octagon for tailored comparison for your specific situation before you decide.
Your transition checklist: from EOR to entity
A clean transition takes about three to six months end-to-end. First, you set up a company through chamber of commerce registration. Next, you register for tax and payroll locally. Then, you transfer employees from the EOR to your new entity. Finally, you cancel the EOR agreement and confirm closeout in writing. Use this practical checklist to stay on track:
- Choose the right legal form (a BV is standard in the Netherlands)
- Register with the KVK and the Dutch tax office
- Open a local business bank account
- Set up payroll, pension, and benefits administration
- Draft new employment contracts under your entity
- Coordinate the transfer date with your EOR provider
- Notify employees in writing with a clear timeline
- Confirm cancellation terms, notice periods, and final invoices
Communicate often with your team during the change. Clarity reduces anxiety and protects retention through the move.
What are the risks of waiting too long?
Waiting too long inflates costs and limits flexibility. Per-employee EOR fees compound quickly as your team grows. Moreover, employees may feel uncertain about their employer of record arrangement. Local clients sometimes hesitate to sign large contracts without a domestic legal entity. So a delayed decision can quietly cap your revenue, your retention, and your team’s confidence in the market. In short, the cost of delay is rarely visible until it bites.
How long does it take to set up a company in the Netherlands?
Setting up a Dutch BV usually takes two to four weeks. A civil-law notary handles incorporation, KVK registration, and the tax number. After that, payroll setup adds another two to three weeks. Therefore, plan a buffer of about two months before fully transitioning your team. Banking checks can add unexpected delays, so start the process early. A local advisor can also speed up substance and director arrangements.
Frequently asked questions
How much does it cost to set up a company in the Netherlands?
Setting up a BV in the Netherlands costs roughly €500 to €2,000 in notary fees. Annual accounting and payroll administration adds around €5,000 to €15,000 per year. The total first-year cost usually lands between €15,000 and €25,000. Actual numbers depend on complexity and chosen service providers.
Can I move employees directly from an EOR to my new entity?
Yes, but the transfer requires careful contract management. You sign new employment agreements under your entity. The EOR then ends its contracts with the same employees on the agreed date. Always coordinate timing carefully to avoid any gaps in payroll, benefits, or insurance coverage.
When does an EOR stop being worthwhile?
An EOR stops being worthwhile when fixed entity costs drop below your variable EOR fees. This usually happens around five employees in one country. Strategic factors also matter, including client demands, equity grants, and long-term commitment to the local market.
Do I need a local director to set up a company in the Netherlands?
No, a Dutch BV does not legally require a local director. However, banks and tax authorities often prefer a local presence on the board. A resident director can simplify banking, compliance, and substance requirements. Many companies therefore appoint one for practical reasons during the early entity life.
