Expanding into Latin America presents exciting opportunities but also significant challenges. In a recent webinar titled “Lost in LATAM? Common Expansion Pitfalls & Fixes,” Felix Fualefac, Director of Global HR Consulting at HSP Group, shared key insights into some of the most pressing expansion hurdles in Mexico, Brazil, Costa Rica, and Colombia. Below, we explore his answers to critical questions that businesses must consider when expanding into these markets.
Limitations of Employer of Record (EoR) in Mexico
Another crucial consideration is Permanent Establishment (PE). If a company relies on an EoR for an extended period, Mexican tax authorities may determine that a PE exists, which could lead to corporate tax obligations. If PE is triggered, businesses may be required to establish a legal presence in Mexico, which can add complexity and costs.
Finally, while an EoR can be cost-effective for small teams, outsourcing HR and compliance functions can become more expensive than establishing a local entity as the business scales. Weighing operational size and long-term aspirations is essential when deciding whether to continue with an EoR or transition to a local subsidiary.
Challenges of Collective Bargaining Agreements (CBAs) in Brazil
Brazil’s complex labor landscape is largely shaped by unions and Collective Bargaining Agreements (CBAs), which are legally binding contracts that outline employment terms, including wages, benefits, and working conditions. Unlike many other countries, nearly all employees in Brazil are covered by a union, making CBAs an unavoidable factor for businesses operating there.
A key challenge is the variability of CBAs across industries and regions, making compliance difficult for foreign companies unfamiliar with local labor laws. Additionally, CBAs often enforce strict regulations on working hours, wages, and termination policies, leaving little flexibility for companies to align operations with global policies.
CBAs can also increase employer costs, as they may impose additional mandatory benefits beyond statutory requirements, such as meal vouchers or private healthcare coverage. Furthermore, any changes to employment conditions, even those benefiting employees, require union approval, adding another layer of complexity. To navigate these challenges, businesses should engage local labor consultants or employment lawyers to ensure compliance and cost-effective workforce management.
Incorporation Challenges in Colombia and When to Use an EoR
Colombia offers a promising business environment but presents significant bureaucratic hurdles for foreign companies establishing a local entity. One of the main challenges is the lengthy registration process. Setting up a subsidiary, obtaining a tax identification number, and registering for social security can take between two to four months—far longer than in countries with more streamlined processes, such as the UK.
Additionally, Colombia has one of the highest corporate tax rates in Latin America, making compliance a financial burden. Companies must navigate complex tax regulations and high social security contributions, which can impact profitability.
For businesses that need to enter the market quickly or test the waters, an EoR can be a viable solution. By leveraging an EoR, companies can legally hire employees without undergoing the lengthy incorporation process, enabling faster market entry while ensuring compliance with local labor laws. However, as operations scale, businesses may find it more cost-effective to transition to a fully incorporated entity.
Hidden Costs of Employment in Costa Rica
Costa Rica provides a stable business environment, but employers should be aware of hidden employment costs that go beyond base salary and standard benefits. These costs can add up quickly if not factored into your workforce planning.
In addition to social security contributions, employers must account for the Aguinaldo, a mandatory 13th-month salary paid annually in December. Other statutory costs include payments to the Instituto Nacional de Aprendizaje (INA) and Banco Popular, as well as contributions for health insurance, pensions, and labor risk insurance.
Termination costs can also be high. Employers are required to pay out accrued vacation and, in many cases, severance—even when the separation is not due to misconduct. These obligations can impact budgets significantly, especially if layoffs or reorganizations occur.
To avoid unexpected expenses, companies should complete a full employment cost analysis before hiring. Partnering with local HR experts or advisors can ensure compliance and help you make informed decisions about your hiring and compensation strategy in Costa Rica.
How HSP Group Can Help You Expand Confidently in LATAM
Expanding into Latin America requires more than just local knowledge—it demands a strategic partner who can help you navigate complex labor laws, mitigate compliance risks, and build scalable operations across diverse markets.
At HSP Group, we specialize in helping companies launch and grow their presence in LATAM with confidence. Whether you’re evaluating Employer of Record (EoR) options, facing union challenges in Brazil, dealing with incorporation delays in Colombia, or managing employment costs in Costa Rica, our team of global expansion experts can guide you through every stage of the process.
Here’s how we can support your journey:
- Entity setup and local compliance in LATAM’s most complex jurisdictions
- Employment cost modeling to avoid budget surprises
- Risk assessments for EoR, permanent establishment, and local tax exposure
- Ongoing HR and payroll support tailored to your workforce strategy
- Advisory services for collective bargaining and local labor law compliance
Let’s turn complexity into clarity—contact us to discuss your LATAM strategy or schedule a personalized consultation with our team.
