EOR vs Russian LLC: when to use an Employer of Record and when to register your own entity. Costs, PE risk, HQS permits, commercial limitations and…
Companies considering Russia operations often face an early question: hire staff through an Employer of Record (EOR) or register their own Russian LLC? The answer depends on your timeline, headcount, budget and long-term intentions. This guide compares both options across the dimensions that matter most.
An Employer of Record is a Russian legal entity that formally employs staff on behalf of a foreign company. The EOR handles Russian employment contracts, payroll, social contributions and HR compliance. The foreign company directs the work but has no Russian legal entity of its own.
EOR is sometimes called PEO (Professional Employer Organisation) or staff leasing in the Russian context. The key point: the staff are legally employed by the EOR, not by the foreign company or a Russian subsidiary.
Russian labour law (Article 56.1 Labour Code) prohibits "supplied labour" (заёмный труд) — where an organisation provides its employees to work under the effective management of a third party for commercial purposes. This restriction limits the EOR model in Russia. Legitimate EOR arrangements structure the relationship carefully to avoid being classified as prohibited supplied labour. Regulatory risk should be assessed before committing to an EOR structure long-term.
Setup time: EOR — days to weeks. Own LLC — 3–5 working days registration plus 2–3 weeks for bank account and setup.
Cost: EOR — typically 15–25% markup on total employment cost. Own LLC — fixed overhead (accounting, legal address, compliance) regardless of headcount.
Commercial activity: EOR — cannot sign contracts, issue invoices or hold assets in Russia. Own LLC — full commercial entity, can contract, invoice and own assets.
Tax registration: EOR — no Russian tax identity for the foreign company. Own LLC — full Russian taxpayer, CIT and VAT payer.
Permanent establishment risk: EOR — the foreign company may still create a PE if staff are exercising authority to conclude contracts. Own LLC — PE risk is managed through the entity itself.
HQS permits: EOR — can sponsor HQS permits for foreign staff. Own LLC — can also sponsor HQS permits.
Scalability: EOR — easy to scale up or wind down. Own LLC — wind-down requires formal liquidation (6–9 months minimum).
Testing the Russian market before committing to a permanent structure
Small headcount (1–5 people) where the overhead of a Russian LLC is disproportionate
Short-term project with defined end date
Staff needed quickly while LLC registration is in progress
No need for Russian commercial presence (no contracts, invoicing or asset holding in Russia)
Commercial activity in Russia — contracts with Russian customers, invoicing in Russia, VAT recovery
More than 5 employees — the EOR markup becomes significant at scale
Long-term presence intended — EOR costs compound over time
Regulatory or licensing requirements in Russia (customs importer, financial services, etc.)
Asset holding in Russia — property, equipment, inventory
Chinese, UAE or Turkish companies — typically register own LLCs quickly given the active treaty benefits
Under an EOR arrangement, the foreign company pays a service fee to the EOR (covering salaries, social contributions and the EOR's margin). This fee is paid to a Russian entity, so there is no outbound WHT issue. The foreign company has no Russian tax registration, no CIT or VAT obligations — but also no ability to recover Russian VAT or deduct Russian expenses.
The EOR's payroll costs follow standard Russian rules: 13%/15% PIT withheld at source, 30% social contributions. For foreign nationals on HQS permits, the EOR can structure payroll at 0% social contributions and 13% PIT from day one.
A common misconception is that using an EOR eliminates PE risk for the foreign company. It does not — if the staff employed through the EOR are regularly concluding contracts on behalf of the foreign company (acting as dependent agents), a PE may exist regardless of the formal employment arrangement. The EOR structure manages employment risk, not commercial PE risk. For companies with significant Russian commercial activity, a Russian LLC eliminates this ambiguity.
Practical support for international business in Russia.