Can a US Company Hire Employees in India Without a Subsidiary?

Prepared by AU Corporate's CA-led advisory team · Published 14 October 2026 · General information; review the facts before selecting an employment model.

A US company may want to hire one person in India before committing to a local entity. The main options can include direct employment where legally and operationally workable, using an employer-of-record provider, or incorporating an Indian subsidiary. The right choice depends on the work performed, who controls it, whether the employee represents or contracts for the US business, and the company’s plans for India. Payroll convenience alone does not determine tax exposure.

Quick answer

What should a US company compare before hiring in India without a subsidiary?

Compare the legal employer, local payroll and labour obligations, tax withholding, social-security and benefits requirements, permanent-establishment risk, data and IP controls, commercial authority and expected duration. An EOR can support employment administration, but it does not automatically resolve the foreign company’s tax or regulatory position.

1. Define the work the India-based employee will perform

Write down the role, reporting line, place of work, decision-making authority, customer contact, sales responsibilities, contract negotiation, access to business systems and expected duration. A developer working on internal tasks may present a different profile from a country manager who negotiates contracts, secures orders or directs the company’s Indian market activities.

2. Compare the practical employment models

Direct employment by the US company

Check whether the proposed arrangement can meet applicable Indian employment, payroll, tax and registration requirements. Determine who will operate payroll, withhold and deposit taxes, maintain records and provide statutory benefits. Do not assume that paying salary from a US bank account removes local obligations.

Employer of record (EOR)

An EOR may employ the individual locally and administer agreed employment processes under a service contract. Review the provider’s scope, fees, termination process, employee data handling, IP assignment, benefits, payroll controls and responsibility for statutory filings. The commercial relationship between the US company and the employee still matters for tax and permanent-establishment analysis.

Indian subsidiary

A subsidiary can be more suitable when the company expects a continuing team, local contracts, customer-facing activity, a management function or wider operations. It creates a separate Indian legal entity and requires incorporation, bank and tax setup, books, payroll and recurring statutory compliance. The choice should be based on the operating plan rather than a blanket preference for one model.

3. Assess permanent-establishment risk separately

Under the relevant tax treaty and domestic law, a foreign enterprise may have a taxable presence if the facts satisfy a permanent-establishment test. Review fixed-place considerations, dependent-agent activity, authority to conclude contracts, order-securing activity and any treaty-specific service provisions. The India–US treaty contains its own wording and conditions, so avoid applying a generic checklist from another country.

The Income Tax Department publishes the India–US tax treaty. The actual role, conduct and current law should be reviewed before drawing a conclusion.

4. Plan payroll, tax and employment compliance

Confirm the employer responsible for salary processing, tax withholding, payslips, leave and benefits, employment documentation, workplace policies and any applicable social-security or state-level obligations. If the employee moves between countries or remains on a US payroll, analyse the cross-border facts and avoid assuming that one country’s payroll treatment settles the other country’s obligations.

5. Protect confidential information and intellectual property

Use appropriate confidentiality, invention-assignment, information-security and acceptable-use terms. Confirm ownership of work product, access to customer data, approved equipment, cross-border data transfers and return of company assets at termination. Check whether the EOR or another intermediary’s standard documents adequately cover the US company’s needs.

6. Set a review point before the arrangement expands

Reassess when the first hire starts selling, negotiating or signing contracts; when several employees are added; when an office or coworking space becomes a regular business location; or when the company starts billing Indian customers. Those changes can alter the legal, tax and operational analysis even if the original hiring arrangement remains unchanged.

7. Use a decision checklist

Identify the legal employer and the actual day-to-day work.
Confirm local payroll, tax withholding and employment obligations.
Review treaty-based permanent-establishment risk against the facts.
Check contract authority, customer contact and order-related activities.
Review EOR scope, fees, IP rights, data handling and exit terms.
Estimate the likely duration, headcount and wider India business plan.
Set a trigger for reassessment if the role or activities expand.

Frequently asked questions

Can a US company hire an employee who works from India without incorporating there?

The possible arrangements depend on the facts, the employer’s activities and applicable Indian employment, tax and regulatory rules. Using a payroll or employer-of-record provider does not automatically remove every tax or permanent-establishment risk.

Does an employer of record eliminate permanent-establishment risk?

No. Permanent-establishment analysis depends on the treaty, the actual business activities, the place of work, authority exercised and other facts. An EOR contract alone is not conclusive.

Who handles Indian payroll and employment compliance?

Responsibilities depend on the chosen legal and contractual arrangement. Identify the legal employer and allocate payroll, tax withholding, social-security contributions where applicable, leave, benefits, employment documents and local registrations.

When might an Indian subsidiary be more suitable?

A subsidiary may be worth evaluating when the company plans a sustained local team, customer-facing activity, contracting, local revenue, material management authority or a long-term India operation. It brings its own incorporation and ongoing compliance obligations.

Can one employee create a permanent establishment in India?

There is no universal employee-count threshold that settles the question. The person’s activities, authority, place of work, duration and the applicable treaty language matter.

This guide is general information, not legal or tax advice. Obtain advice based on the employee’s duties, contract, location and the company’s activities.