If You’re Expanding to India, This Is the First Decision You Must Get Right
When foreign companies enter India, they usually choose between:
- Setting up a subsidiary company
- Hiring through an Employer of Record (EOR)
On the surface, both let you hire employees in India.
But in reality:
👉 They are completely different in control, cost, compliance, and long-term impact
Choose wrong, and you’ll:
- overpay taxes
- face compliance risks
- or block your India scale
This guide breaks it down clearly.
What Is an Employer of Record (EOR) in India?
An EOR is a third-party company that:
- legally employs staff on your behalf
- runs payroll, taxes, compliance
- lets you operate without setting up an entity in India
👉 You control the work
👉 They handle the legal employment
What Is a Subsidiary Company in India?
A subsidiary is your own company in India:
- separate legal entity
- owned by your foreign parent
- you directly hire employees
- you manage compliance and operations
👉 Full control
👉 Full responsibility
EOR vs Subsidiary: Quick Comparison
| Factor | EOR | Subsidiary |
|---|---|---|
| Setup time | 3 days | 4–6 weeks |
| Legal entity required | ❌ No | ✅ Yes |
| Control over employees | almost full | Full |
| Compliance responsibility | EOR handles | You handle |
| Cost (short term) | Higher per employee | Lower per employee |
| Cost (long term) | Expensive | Scalable |
| Ideal for | Testing India | Long-term presence |
When Should You Use an EOR in India
EOR is not a long-term strategy. It’s a speed tool.
Use EOR when:
1. You want to test India
- hiring 1–5 employees
- unsure about long-term commitment
2. You need to hire immediately
- no time for incorporation
- urgent hiring needs
3. You want zero compliance headache
- no entity
- no filings
- no local setup
👉 EOR = fast entry, low commitment
When Should You Set Up a Subsidiary in India
If you’re serious about India, EOR becomes inefficient very quickly.
Set up a subsidiary when:
1. You are scaling hiring
- more than 5–10 employees
- growing team
2. You want full control
- contracts
- ESOPs
- management structure
3. You want to optimise cost
EOR margins add up fast.
4. You need credibility
- clients
- vendors
- investors
👉 Subsidiary = long-term, scalable structure
Cost Comparison: EOR vs Subsidiary in India
EOR Cost
Typically:
- fixed fee per employee ($200–$250/month)
👉 Hidden reality:
- becomes very expensive beyond 5–10 employees
Subsidiary Cost
One-time setup:
- ₹120000 – ₹2,00,000 (approx)
Ongoing annual cost:
- ₹4–9 lakhs depending on scale
👉 Per employee cost drops significantly as you grow
Tax Differences You Must Understand
This is where most founders get it wrong.
EOR Model
- you pay service fees to EOR
- no direct corporate tax exposure in India (initially)
Subsidiary Model
- Indian company pays:
- 22%–25% corporate tax
- full compliance under Indian laws
👉 Clear, structured, predictable taxation
Control & Risk: The Hidden Factor
EOR Limitations
- employees are NOT legally yours
- limited control on:
- contracts
- ESOPs
- termination
👉 Risk increases as team grows
Subsidiary Advantage
- direct employment
- full legal control
- easier to scale operations
👉 This is critical for serious businesses
EOR vs Subsidiary: Decision Framework
Use this:
👉 Choose EOR if:
- hiring < 5 employees
- testing market
- short-term presence (< 12 months)
👉 Choose Subsidiary if:
- hiring 5+ employees
- long-term India strategy
- need control + cost efficiency
Common Mistake Foreign Companies Make
They start with EOR (correct)…
but stay too long.
Result:
- high costs
- compliance exposure
- messy transition later
👉 Smart approach:
Start with EOR → quickly transition to subsidiary
How to Transition from EOR to Subsidiary
- incorporate Indian entity
- transfer employees
- restructure contracts
- align payroll and compliance
👉 Plan this early. Don’t delay.
Final Verdict
- EOR is a temporary shortcut
- Subsidiary is a real business structure
If India is strategic for you:
👉 you will eventually need a subsidiary
Need Help Choosing the Right Structure?
Every company is different:
- team size
- business model
- tax exposure
👉 The right decision depends on your exact situation
Talk to us to:
- evaluate EOR vs subsidiary
- estimate real cost
- plan India entry properly
Rohit Lohade is a Chartered Accountant and India entry specialist at KRPR & Associates. With 15+ years of experience, he has assisted 200+ international companies — including global brands — incorporate and operate in India. He currently serves as Resident Director for multiple foreign-owned Indian subsidiaries.