Hiring an employee in another state may create a nexus in that state, and this may require you to file income tax in that state.

For example, if you incorporate in Delaware, and then hire someone for >$50k in Texas, you may have to file company income taxes in Texas. Not that Texas income attributed to your company (or partners) will be much, but, computing and filing is best done by hiring an accountant.

I'm not sure about EU law - but if you have a company in Denmark, and want to hire someone who works in Portugal as a permanent employee, and not a contractor, what do you need to do?

You would need further advice, but I believe you would be subject to Portuguese employment law.

At least, you would pay Portuguese taxes for that employee and you would likely need to register with Portugal as an employer.

UK advice: http://www.hmrc.gov.uk/nic/work/new-rules.htm#5

You must hire that employee according to the laws of the country in wich he/she lives. So if that person lives in Portugal, you should make a contract according to portuguese laws, and you must pay for social security in Portugal.

From the worker perspective, he'd have to file his taxes in Portugal. He'd be a resident, because he is in the country for more than 9 months every year. Strangely, however, nothing prevents him being a worker for an entity outside the country (free movement of people, goods and services in the EU market mandate on barriers here).

You'd be in a strange split-brain situation, requiring legal advice. I imagine you could file income taxes in Denmark, and these would be deducted from the worker's Portuguese due taxes under the double taxation prevention agreements.

Not sure about Portugal but suspect it's not much different than other European countries. When I did a freelance job for Nokia in Berlin I effectively worked for a Swiss company, which sent me off to Berlin. I registered myself in Switzerland, got a social security number there, and paid my income tax in Germany. As far as I understand it, Nokia paid the Swiss company, who paid their tax in Switzerland. Much as you'd expect - you (be it an organization or an individual) pay tax in the country in which you're situated.

What you've described is kind of complex. I'm asking about where someone lives and works as a permanent employee (and not a contractor!) in Portugal or Germany or whatever, for a company that is in Denmark.

As far as I know/understand the company would pay its own taxes in Denmark except for employment-related tax, they'd have to abide by portugese laws for those (e.g. social security schemes and the like) when in comes to the contract of that specific employee.

Just a small correction on the last part you said, some countries tax per citizenship and not residence. http://en.wikipedia.org/wiki/International_taxation#Citizens...

If your company is incorporated in Europe, say Denmark, then you have to pay corporate taxes in Denmark. Hiring someone, e.g. in Portugal, Switzerland, etc. Does not force you to incorporate in those countries.

However, the employee will have to pay taxes where he lives, independent for whom he works for.

But you would not have to incorporate in Texas. Which is at least one of the things the article implied.

Most states requires a Foreign Corporation registration, or something to that effect. So, if you incorporate in Delaware, but live and perform services for that corporation in say Tennessee, the corporation would need to be registered in Tennessee as a foreign corporation (i.e. one not originally incorporated there) and pay a small registration fee.

Not a lawyer, but I think that's it, outside of paying the appropriate employment taxes and fees to the employee's state of residence/operation.

I'm guessing this is what the article's author is referring to, but the way he explains it sounds like someone advised him to incorporate wholly owned subsidies in the states where he had employees, which would be both unnecessary and more expensive.

You would have to file for "operating authority" for an out-of-state corporation, which typically involves similar fees and paperwork to incorporating in-state. I think that's what the article is referring to.

We got a professional CPA and lawyers on this. In the US it is such that when you hire someone (remote work) and he lives in, e.g. Philadelphia, you have to "incorporate" in that state.

This is not the case in every state, but in some.

This is a difference in culture between Europe and the US: Most US employers won't notice that, because if they employ people across the US and not in an office, they'd hire than as contractors rather than as employees. In Europe, this form of contracting is much less prevalent.

I'm not sure what the cause and what is the result here, but it explains why Americans don't usually see this problem.

Yeah I know. We've tried to talk to some and have them on as contractors, but some did not want that (since that would have caused issues for them). Plus being from Europe, we really like to give our employees health care, vacation and all the nice benefits of an employee ;-)

For a lot of businesses isn't it a realistic option to just ignore the state governments? If the IRS says "jump" you say "how high?" But if the state of Pennsylvania starts complaining and you don't have a presence in that state, what the heck can they really do about it?

Yup, I'm skeptical of the OP's tax advice. With the right direction this should have been a very easy transition, especially with what looks like a SaaS business.