Hiring developers in Portugal: do I need a local entity?

I publish illustrative scenarios prepared by my practice. All participants and conversations are fictional. The fictional posts are not posts by real users, accounts of client experiences, or reports of actual results.
Illustrative scenario prepared by my practice.
For informational purposes only. Not legal advice.
Hypothetical question

US-based startup (Delaware C-Corp). We want to hire 2-3 full-time developers in Lisbon. They want to be proper employees with benefits, not contractors.

Options I've heard about:

1. Set up a Portuguese subsidiary (sounds expensive/complex)
2. Use an Employer of Record like Deel or Remote
3. Just hire them as contractors and hope for the best

What's the actual right way to do this?

Illustrative response

Following - dealing with a similar situation right now.