Offshore Development Pricing: Factors & Taxes

February 16, 2024

What would you do if, halfway through your project, you discovered that your team lacks specific skills and knowledge that are essential for completing the project? Some time ago, a situation like this would be a disaster. You'd have to call off the project and then start the entire recruitment process for hiring developers with those skills.

Thankfully, with the emergence of offshore development, you don't need to go through all that. Even if you don’t have a unique situation like this, you’ll find that offshore development is a cheaper choice.

Do you want to know how offshore development prices are formed?  Here at Cloud Employee, we’ve helped many companies successfully hire professional offshore developers in the Philippines. In this article, we’ll share all you need to know about offshore development pricing.

Factors that makeup software development cost

It’s no news that hiring offshore developers is much cheaper than employing in-house developers. But before you take the step of contacting an outsourcing company, you need to gather some more information about the cost of hiring an offshore developer. The truth is, there's no way to get a definitive price for offshore development. The expense you will incur depends on the scope and length of your project, as well as the country you’re hiring from.

You can expect to pay more if you're hiring from America compared to hiring from the Philippines, Ukraine or Poland. Despite the vast room for variation, all offshore development companies consider specific factors in determining hiring costs. What are these factors?

  • Office space

The cost of setting up and maintaining office space contributes to the total cost of software development. Even though most offshore development companies work with remote teams, they still need a central office space to coordinate their teams and clients. Setting up and maintaining office space includes paying rent, buying furniture, purchasing technical equipment, and stocking office supplies.

This may not look like much, but anyone who has ever set up an office before knows how the bills can quickly pile up. Therefore, offshore development companies factor in the cost of office space to determine the value of their services.

  • Hiring or recruitment teams

Another factor that offshore companies consider is the cost of employing permanent, in-house recruiters. Offshore companies work by connecting clients to skilled freelance developers. Some clients may need only one or two developers at a time, while others require several people to make up a large development team.

Whatever the case, an offshore company can only be successful if they have access to a large talent pool of developers. That's where recruiters come in. It's their job to continually hunt for new talent to add to the company's database. That's not all. Recruiters also handle the multiple stages of gathering development teams for clients.

It's also their responsibility to find out what kind of specialists a client needs, how many people they want on their team, and the specific skills they require developers to have. After this, recruiters conduct several multiple-level interviews to create the perfect team of developers. As you can tell, they have a lot on their plate. So, when you pay for offshore development, you’re also paying for the cost of employing these all-important recruiters.  

  • Vacations

Offshore companies also consider the cost of vacations for their staff. Just as it is in other organizations, offshore company employees have off day. Legally, offshore companies must allow their employees to take days off. This includes national or state holidays, annual vacations, and sick leaves. Clients pay for what it costs an offshore company to give holidays to its staff.

  1. Education and training

Software development is a continually evolving industry; new trends and technologies are emerging all the time. Any offshore company that wants to remain relevant must ensure that its developers are abreast of time and in touch with the latest technology. Many companies invest in their employees by paying for on-the-job training in mentorship programs and internal lectures.

It's also common to find companies sponsoring their employees to take courses or acquire higher qualifications. Also, some offshore companies may have to enroll their employees in language classes. Most offshore companies are located in countries that do not speak English as a native language. The most popular outsourcing countries are Poland, Ukraine, Russia, Vietnam, India, and the Philippines.

To compete on the market, offshore companies must ensure that their employees and developers can communicate in English. Without this, they will be limited to a tiny circle of clients.

  • Taxes

Offshore companies have to pay taxes just like everyone else. Depending on the country, the tax rates may be high or low. Whatever the case, tax is a factor that contributes to the total cost of offshore development. But many clients don't mind paying for this, considering that they would probably have to pay more in taxes if they had an in-house team of the same size.

  • Non-tech employees

We have already mentioned that offshore companies need to employ recruiters to operate successfully. Apart from recruiters, other non-tech employees contribute to the running of the organization; from project managers to accountants, to office managers, and even cleaning staff. All of these people have to be employed and paid on a full-time basis. This is another factor that makes up the cost of hiring offshore software developers.

  • Accounting

Accounting is a crucial aspect of every organization. Without a proper accounting system and qualified accountants, your company could collapse before your very eyes. However, small business owners often have to handle their own accounting because they cannot afford to hire someone for that at that particular point in time. The problem is, you can get so distracted by accounting and administrative work that it affects your business.

Plus, if you're not a professional accountant, there's a lot of room for error. When you hire offshore developers, the offshore company handles all the accounting work for you; you don't have to think about salaries, taxes, or other accounting matters. This also counts as a factor that influences the price of offshore software development.

Why cost shouldn’t be your primary driver

No matter what you do, outsourcing work to an offshore company is definitely more affordable than employing an in-house team of developers. But among offshore companies, there are levels; some are even more affordable than other offshore companies. Many times, clients are tempted to choose the cheapest option; after all, the purpose of offshoring is to cut costs, right? That's true, but you still need to exercise caution because cheaper doesn't always mean better.

Most times, cheap equals lousy quality. Consider this example: suppose you went to a shoe store and saw a pair of nice shoes selling at less than half the price you'd typically pay for them. Immediately, your brain's natural alarm bells will begin to ring. You'll probably be thinking that there must be a catch somewhere or that the shoes are low quality. And no matter how nice they are, you’re probably not going to buy them.

A lot of people have developed this type of wariness in their personal lives, but it's essential to translate that into their business lives as well. When you're trying to decide which offshore development company to work with, you should be wary of companies with suspiciously low prices. That doesn't mean that all affordable offshore companies are scams. What we mean is that affordability is not a guarantee of good quality. And the opposite is also true; an expensive company isn’t necessarily the best company. In short, cost should not be the basis of your choice.

So, what should you do? Apart from pricing, you should examine other factors to help you select the best offshore development company for your project. Here are some things to consider in an offshore company.

  • The Management team:

Try to find out as much as possible about the offshore company's leadership. Please find out how much experience and exposure they have in the industry and whether it's enough to meet your requirements.

  • The level of flexibility:

The best offshore partnerships are those that offer maximum flexibility. You want to choose a company that is flexible in its approach so that you can feel free to make changes as you go along.

  • Trained resources:

Does the company have enough qualified and experienced developers to handle your project? Do they have enough developers with expertise in different IT fields? You don't want to have to hire developers from multiple offshore companies; you should try to find one company that can provide all the resources you need.


To sum it all up, offshore software development is beneficial to most organizations; it’s an excellent way to access the best software talents at an affordable rate. But before you partner with any offshore company, you should know what it’s going to cost you. Of course, you can get a price quote from the company, but to ensure that you’re getting value for your money, you might want to know what factors make up the cost of offshore development. Even though cost is important, you should never make a business decision based on affordability alone.

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