Short version - do it where or near where the bulk of your 1) customers 2) investors 3) leadership team are likely to be located, that also is not an administrative hassle. Stay out of continental Europe and tax havens that you’re never going to step foot in.

From a practical standpoint all small companies are out of compliance with tons of laws, they just fly below the radar, and do their best (not from a desire to be non-compliant, but that the laws are impossible to comply with without armies of accountants and attorneys) So do the best you can and move on with your life. You’re going to have the same employment problems with your German employee regardless of whether his employer is in the Isle of Man or Australia, so just suck it up and hire a an accounting firm to do the personal tax returns for the team and focus on your business.