So, you've found an incredible full-stack developer in Brazil, a standout graphic designer in Argentina, or maybe a marketing genius in Colombia—and they’re ready to hit the ground running. Hiring remote talent in Latin America has never been more appealing. The region offers a rich pool of skilled professionals, overlapping time zones for U.S. and Canadian companies, and competitive rates that make CFOs smile. What’s not to love?
But just as you're about to send that offer letter, a question creeps in:
“Wait… do I have to pay taxes?”
The good news is you’re not alone. For companies hiring globally, especially in LATAM, the tax and compliance side of things can feel like a confusing maze—full of jargon, fine print, and unexpected “gotchas.” Whether you’re a startup founder trying to scale lean, or part of an HR team exploring international hiring, understanding your responsibilities is crucial.
In this article, we’ll go over the difference between hiring contractors and employees and give you the most practical solution for staying compliant—without stressing out.
Key Considerations Before Hiring Remotely: Know Before You Grow
Before you jump into contracts and onboarding Zoom calls, there are a few important questions to answer. Think of this as your international hiring checklist—because crossing borders means playing by a new set of rules.
Contractor or Employee?
This is the big one.
Are you hiring someone as an independent contractor or as a full-fledged employee? The distinction isn't just about job titles—it affects everything from tax obligations to legal exposure.
- Contractors are typically responsible for their own taxes, benefits, and work setup. It's a more flexible, hands-off relationship.
- Employees, on the other hand, are under your direction, working consistent hours, and maybe even repping your brand on LinkedIn. This can trigger more serious obligations for you as an employer—including tax contributions and compliance with local labor laws.
Although all of this may sound complicated, the good news is that you don't have to deal with any American labor laws or taxes when hiring full-time remote contractors through South.
Are You Doing Business in Their Country?
If you’re paying someone in a different country, does that automatically mean you’re “doing business” there? Not necessarily—but maybe.
In some cases, hiring remote employees can create what's called a “permanent establishment” in that country, which could trigger corporate tax obligations. Yikes.
Things that might lead to this:
- Opening a bank account or office in-country
- Generating revenue through a local entity
Every country defines this differently, so it’s smart to get legal advice before scaling a remote team in a specific region.
Payment Methods and Local Regulations
How you pay remote workers also matters. Are you wiring funds directly to a bank account? Using platforms like Deel, Remote, or Payoneer? Each method may have tax implications for you and your worker—and may affect how their income is reported to local authorities.
Some countries may even require tax withholding at the source (that’s you) if certain thresholds are met.
Employer Tax Obligations by Engagement Type: Contractors vs. Employees
Now that you know the difference between contractors and employees, it’s time to get into the tax side of things—aka the not-so-fun-but-totally-important part of hiring remotely in Latin America.
Let’s break it down like a choose-your-own-adventure story.
Option 1: Hiring Independent Contractors
On the surface, hiring contractors in Latin America seems like a dream:
- No payroll taxes
- No benefits
- Less paperwork
Sounds good, right? Well… mostly. When you work with independent contractors, you usually don’t have to pay local employment taxes, and your contractor is responsible for handling their own income taxes, health insurance, and social security contributions.
But there are some strings attached for both employers and workers:
- You might still be required to report payments or withhold taxes, depending on your country’s tax laws and the country where your contractor lives.
- In certain Latin American countries, the government may expect contractors to pay a value-added tax (VAT) or register for a local tax ID.
Tip: Keep contracts clear, roles well-defined, and engagement flexible. Use local legal templates or platforms that help ensure compliance.
Option 2: Hiring Employees
If you’re ready to go all-in and hire someone as a full-time employee, it’s a more official (and legally binding) relationship—and that comes with a few more responsibilities on your end.
In most Latin American countries, hiring employees means:
- Registering with local tax and labor authorities
- Contributing to social security, pension, and health insurance
- Withholding income taxes from employee paychecks
- Paying into severance funds or mandatory bonuses (like the 13th salary)
Here’s the thing: these costs can add 30–50% on top of an employee’s base salary, depending on the country. But the tradeoff is a more stable, committed relationship—great for long-term growth and retention.
Using an Employer of Record (EOR): The Easy Button for Global Hiring
Let’s face it—navigating foreign tax codes, labor laws, and payroll systems isn’t why you started your company. You're here to build something amazing, not to decode what a “contribuição previdenciária” is in Brazil.
That’s where Employer of Record (EOR) comes in. Think of them as your backstage crew—they can handle the legal, tax, and compliance chaos so your show can go on (and look good doing it).
What’s an EOR, Anyway?
An Employer of Record like South is a third-party company that legally employs your remote team member on your behalf in their home country. You still manage their day-to-day work, projects, and culture—they just handle the messy legal stuff.
With an EOR, you don’t need to:
- Open a local legal entity
- Register with tax and labor authorities
- Worry about calculating social security contributions or filing local forms
Instead, you just pay one monthly invoice, and the EOR takes care of:
- Local payroll
- Tax withholdings
- Social benefits
- Compliance with local labor laws
- Contracts and onboarding
It’s kind of like having an international HR department… without having to build one.
The Takeaway
Hiring remote talent in Latin America can be a total game-changer. You get access to world-class professionals, culturally aligned teams, and time zones that actually make sense—no more 3 a.m. Slack messages (we’re looking at you, Southeast Asia). But with great talent comes great responsibility… especially regarding taxes.
Whether you’re hiring contractors or full-time employees, the secret is in how you structure the relationship, stay compliant with local laws, and—when in doubt—lean on the right tools and experts. EORs like South and international legal advisors exist for a reason (so you don’t have to moonlight as a tax consultant).
At the end of the day, expanding your team across borders is exciting—and if you do it right, it can supercharge your company’s growth.
So, if you’re ready to take the next step, schedule a free call with us and make that hire in Mexico, Brazil, or Colombia hassle-free while staying 100% compliant.
