US to India · Hiring and entity choice
EOR vs Subsidiary in India: A Guide for US Companies
If your US business wants to hire people in India, you do not always need to incorporate a subsidiary before making the first hire. An Employer of Record (EOR) may be suitable for an early-stage team, while an Indian subsidiary may fit a longer-term operation that needs its own legal and commercial presence. The right choice depends on what the team will do, how long you expect to operate and how much control your business needs.
Quick answer
Should a US company use an EOR or set up an Indian subsidiary?
An EOR can help a US company hire through an existing Indian employer without first incorporating its own company. A subsidiary gives the group a separate Indian legal entity that can employ staff and conduct permitted business in its own name. Compare the actual work, customer and contract needs, expected team size, recurring fees, compliance responsibilities and long-term plans before deciding.
1. What is an Employer of Record?
An Employer of Record is a third-party provider that becomes the legal employer of a worker in India under an agreed arrangement. The provider generally manages the employment contract, payroll and specified statutory employer responsibilities. The US company usually directs the day-to-day work within the agreed arrangement and pays the provider under a service contract.
Confirm the provider's actual responsibilities in writing. Ask who handles payroll calculations, tax withholding, statutory contributions, leave and benefits, employee records, workplace policies, termination procedures and any state-specific requirements. Do not assume every provider includes the same services or assumes every liability.
2. What is an Indian subsidiary?
An Indian subsidiary is a separate company incorporated in India. A US parent may hold some or all of its shares where the relevant foreign-investment rules permit. The subsidiary can employ people directly and may enter into contracts, invoice customers and carry on permitted activities in its own name, subject to the relevant registrations, licences, tax rules and sector conditions.
Incorporation also brings continuing responsibilities. These may include company-law filings, accounting, audit, tax and GST compliance where applicable, payroll, foreign-investment reporting and transfer-pricing work for relevant cross-border transactions. Our company registration guide for US businesses explains the main setup stages.
3. EOR vs subsidiary: key differences
| Question | EOR arrangement | Indian subsidiary |
|---|---|---|
| Who employs the worker? | The EOR provider, under the agreed arrangement | The Indian subsidiary |
| Initial setup | Usually less entity-formation work for the client | Incorporation, documentation and operational setup are needed |
| Ongoing cost | Provider fees plus the agreed employment costs | Entity administration, payroll and professional compliance costs |
| Local contracts and invoicing | Not automatically provided by an employment arrangement | May be possible through the subsidiary for permitted activities |
| Control over employment framework | Subject to the provider's employment framework and contract | The subsidiary manages its employment framework within Indian law |
| Compliance responsibilities | Shared according to law and the EOR contract; review the details | The subsidiary has its own statutory and operational obligations |
| Long-term presence | Can suit a limited or evolving hiring plan | Can suit a sustained operation with its own legal presence |
4. When might an EOR be a better fit?
An EOR may be worth considering when your immediate goal is to hire one or a small number of people, test a business plan or avoid setting up an entity before the long-term plan is clear. It can also help when the role is primarily part of a US-led team and the business does not yet need an Indian company to contract with customers or operate locally.
- You need to make an initial hire while assessing the market.
- You want a provider to administer employment and payroll under a defined service scope.
- Your India plans may change and you want to keep the initial structure flexible.
- You have checked the tax, employment, data and intellectual-property implications of the arrangement.
Before signing, ask for a clear breakdown of monthly fees, setup charges, employment costs, benefits, termination costs, currency or exchange-rate treatment, service levels and what happens if you later move the employee to your own entity.
5. When might a subsidiary be a better fit?
A subsidiary may be more suitable when India is becoming a core operating market rather than just a place to hire a small team. It can provide a direct local entity for permitted customer contracts, vendor relationships, hiring, local registrations and group operations. It may also give the business a clearer framework for local management and intercompany arrangements.
- You expect a sustained team or a wider operating presence in India.
- You need the Indian entity to enter into local contracts or invoice customers, where permitted.
- You want the subsidiary to hold assets, licences or intellectual property where appropriate.
- You need a direct entity for investment, group reporting or future expansion plans.
- You are ready to manage or outsource the subsidiary's recurring corporate, tax and employment compliance.
There is no universal employee-count threshold at which every business should switch. Compare your own headcount plan, provider pricing, operating needs and compliance costs instead of relying on a single rule of thumb.
6. An EOR does not automatically remove tax or permanent-establishment risk
The employment model is only one part of the analysis. Depending on the facts, activities carried out in India may raise questions about taxable presence, permanent establishment, contract authority, business profits, GST, transfer pricing or other obligations. An EOR contract does not decide those questions by itself.
Review the role and actual conduct of the India-based team, including whether people negotiate or conclude contracts, represent the US business to customers, use premises, or perform activities that are central to the business. See our guide to permanent-establishment risk for US companies in India. Obtain case-specific advice before relying on an EOR arrangement as a tax-risk solution.
7. If you move from an EOR to a subsidiary
Some companies begin with an EOR and later establish a subsidiary. Treat the transition as a separate project rather than an automatic transfer. Plan the employment arrangement, employee communications and consent where required, payroll cutover, benefits, accrued leave, records, confidentiality, intellectual-property assignment, data access and any tax or regulatory implications.
At the same time, prepare the subsidiary's incorporation documents, banking and capital plan, payroll and accounting setup, and applicable post-incorporation compliance calendar. Our post-incorporation checklist outlines the areas to organise after formation.
8. Questions to answer before choosing
- How many people do you expect to hire in the next 12–24 months?
- Will they perform internal support work, develop products, serve Indian customers or negotiate contracts?
- Does the business need to invoice Indian customers or hold local registrations?
- What are the full EOR fees compared with entity setup and recurring compliance costs?
- Who will own work product, data, equipment and intellectual property?
- Have tax, permanent-establishment and employment risks been reviewed for the actual arrangement?
- If the business grows, how would staff move to a subsidiary and what would that involve?
Frequently asked questions
Can a US company hire employees in India without incorporating a subsidiary?
A US company may use an Employer of Record (EOR) arrangement in which an India-based provider is the legal employer and handles agreed employment and payroll responsibilities. The contract, work arrangement and applicable Indian requirements should be reviewed before hiring.
Is an EOR the same as an Indian subsidiary?
No. Under an EOR arrangement, the provider employs the worker under its employment structure while the client directs the work as agreed. A subsidiary is a separate Indian company owned by its shareholder or parent and can employ staff directly once its required setup is complete.
Does using an EOR remove permanent establishment risk in India?
No. An EOR arrangement does not automatically remove Indian tax or permanent-establishment risk. The actual activities, authority exercised by people in India, contracts, premises and relevant treaty provisions may matter. Review the facts with a cross-border tax adviser.
Is an EOR always cheaper than setting up a subsidiary?
Not necessarily. An EOR may reduce initial setup work, but its recurring fees and scope should be compared with the costs of operating a subsidiary. The result depends on headcount, duration, service fees, internal administration and the work the Indian team will perform.
Can an EOR help a US company sell to Indian customers?
An EOR is an employment arrangement, not a substitute for assessing the right commercial structure. If the business needs to contract with Indian customers, invoice locally, obtain licences or hold assets in India, review whether a subsidiary or another permitted structure is needed.
Can a company start with an EOR and later establish a subsidiary?
Yes, some companies use an EOR while testing their hiring plans and later establish an Indian entity. The transition needs planning for employment contracts, employee consent where required, payroll, benefits, data, intellectual property and any applicable tax or regulatory matters.
How AU Corporate can help with India entity planning
We help US businesses compare India entry structures, plan subsidiary incorporation and understand the corporate, tax and compliance work that may follow. If an EOR is being considered, the goal is to assess how it fits your actual hiring and operating plans—not to assume that every business needs to incorporate immediately.
For an overview of incorporation support, visit our India company registration page for US businesses or explore the US-to-India entry guides.
Sources and further reading
- Ministry of Corporate Affairs — company incorporation and corporate-law resources.
- Reserve Bank of India — foreign-investment and foreign-exchange framework.
- Income Tax Department — Indian tax resources.