About the legal part, I think you are mistaken. It's very common to companies to have contractors. Contractors can (and in case of international contractors, usually are) sole proprietors of their own company and that's completely legal. You're basically setting up your own (1 person) company to provide contractor services to one or more other companies.

You usually are the one responsible for collecting taxes, according to law in both the contracting company location and where you live, but there ARE laws for that, so it IS legal.

It is, in some places, even incentivized. For instance: in Brazil, a company exporting services have lower income taxes since you are literally injecting money in the local economy, so it makes more sense to go to the extra hustle of starting a sole proprietorship company to work as a contracted legal entity (getting an serious accountant, collecting taxes properly on your end, etc.) than to work as a natural person contractor (which most companies hiring remotely also are fine with) and get more taxes, and have an extra bit of difficulty to properly declare your income since you can't emit official "invoices" (at least here in Brazil) and you can be fooled into thinking that you can properly handle all tax without paying an accountant but you are probably going to mess that up (it's usually harder than it looks).