EOR vs subsidiary in India: the real cost breakeven
If you are comparing an EOR vs subsidiary in India, you have likely read that the switch makes financial sense at around 20 to 30 employees. That figure is wrong, and it is wrong for a reason worth understanding.
Nearly every comparison ranking for this query is published by an Employer of Record provider. Those articles put Indian incorporation at USD 16,000 to 25,000, with annual compliance of USD 20,000 to 36,000 on top — a year-one total of USD 40,000 to 65,000. Start from numbers like those and a 25-employee breakeven follows naturally.
Those are not the numbers. We have incorporated more than 1,300 companies for clients across 27 countries since 2013. Here is what an Indian subsidiary actually costs, what an EOR actually costs, and where the two lines cross.
A wholly owned Indian subsidiary costs USD 7,000 in year one and USD 4,000 per year thereafter, covering a team of up to ten. An Employer of Record costs USD 1,800 per employee per year. The two are equal at four employees. Below four, an EOR is cheaper. At five or more, your own subsidiary is cheaper from the first year — and the gap widens every year after.
- Indian incorporation costs USD 2,000, not the USD 16,000–25,000 quoted across most comparison articles.
- Subsidiary compliance is USD 4,000 per year for a team of up to ten, then USD 20 per extra employee per month. EOR cost scales linearly from the first hire.
- The cost crossover is four employees. We recommend five as a working rule, to leave margin for variation.
- For a team of ten, a subsidiary saves roughly USD 39,000 over three years.
- EOR still wins below four people, for pilots under twelve months, and where you may exit quickly.
- Contracting authority, ESOPs, IP ownership and permanent establishment risk can justify an entity at any headcount.
What actually differs between the two models
The distinction is who legally employs your team in India, and who carries the obligations that follow.
Under an Employer of Record, a third-party Indian company employs your staff. It issues the contracts, runs payroll, deducts and deposits tax, and files provident fund and state insurance returns. You direct the work. You are a client of the EOR, not an employer in India.
With your own subsidiary — almost always a private limited company under the Companies Act, 2013 — your Indian entity is the employer. You hold the contracts, own the intellectual property directly, and carry every statutory obligation.
| Factor | Employer of Record | Own subsidiary |
|---|---|---|
| Legal employer | The EOR's Indian entity | Your Indian company |
| Time to first hire | 1–2 weeks | 6–8 weeks |
| Sign customer contracts | No | Yes |
| Invoice Indian customers | No | Yes |
| IP assignment | Via a third party | Direct to your entity |
| Direct ESOP grants | Complicated | Straightforward |
| Cost behaviour | USD 150 per employee, per month | Flat to 10 staff, then USD 20 per employee |
| Exit | Days to weeks | 6–12 months |
What an Indian subsidiary really costs
These are our published rates, not industry estimates.
| Item | Type | Cost |
|---|---|---|
| Incorporation — name approval, DSC, DIN, MoA & AoA, SPICe+ filing, PAN, TAN | One-time | 2,000 |
| Legal — employment contracts, HR policies, inter-company agreements | One-time | 1,000 |
| Payroll, bookkeeping, GST & TDS filings, statutory audit, ROC annual filings — team of up to 10 | Per year | 4,000 |
| Each employee beyond 10 | Per month | 20 |
| Year one total, up to 10 staff | 7,000 | |
| Year two onward, up to 10 staff | 4,000 |
A resident director, if you need one, is quoted separately. Companies with related-party transactions also require transfer pricing documentation and a Form 3CEB filing.
Why there is no minimum capital
India has no minimum paid-up capital requirement for a private limited company. You can incorporate with USD 100 of share capital. This surprises most first-time entrants, and it is one reason the USD 16,000+ estimates circulating online are so far off — they appear to assume a capitalisation requirement that does not exist.
The filing runs through the Ministry of Corporate Affairs' SPICe+ system, which bundles name reservation, incorporation, PAN, TAN and EPFO/ESIC registration into a single application.
The resident director requirement
Section 149(3) of the Companies Act, 2013 requires at least one director who has stayed in India for 182 days or more in the financial year. Most incoming companies have no such person and appoint a professional. See resident director services in India.
The point that decides everything
Subsidiary compliance cost barely moves with headcount. Running payroll and filings for two employees costs the same as for ten, and each employee after that adds only USD 240 a year. An EOR charges USD 1,800 a year for every single person, from the first. That difference in shape — flat versus linear — is why a breakeven point exists at all. Full detail in our guide to compliances for running a subsidiary company in India.
What an Employer of Record really costs
EOR pricing is per employee per month, and it scales linearly. Every hire adds the full fee again.
| Provider type | Per month | Per year |
|---|---|---|
| Global platforms (Deel, Remote, Velocity Global) | 499–699 | 5,988–8,388 |
| India-specialist providers | 99–200 | 1,188–2,400 |
| BusinessSetup.in EOR | 150 | 1,800 |
The comparison below uses our own USD 150 rate, plus a USD 300 one-time setup fee for salary structuring and contract drafting. We use our own rate deliberately — it is among the lowest in the market, which makes the case for a subsidiary harder, not easier. If you are paying a global platform USD 499 or more, the crossover arrives at roughly one employee.
Salary and statutory employer contributions — provident fund at 12%, state insurance where applicable — are payable identically under both models. They cancel out and are excluded throughout.
The breakeven table, one to eight employees
Year one, USD, excluding salaries and statutory contributions.
| Employees | EOR | Subsidiary | Cheaper | Difference |
|---|---|---|---|---|
| 1 | 2,100 | 7,000 | EOR | 4,900 |
| 2 | 3,900 | 7,000 | EOR | 3,100 |
| 3 | 5,700 | 7,000 | EOR | 1,300 |
| 4 | 7,500 | 7,000 | Subsidiary | 500 |
| 5 | 9,300 | 7,000 | Subsidiary | 2,300 |
| 6 | 11,100 | 7,000 | Subsidiary | 4,100 |
| 8 | 14,700 | 7,000 | Subsidiary | 7,700 |
EOR: USD 300 setup plus USD 150 per employee per month for twelve months. Subsidiary: USD 2,000 incorporation plus USD 1,000 legal plus USD 4,000 annual compliance, which covers a team of up to ten.
The crossover is at four. We recommend five as the working rule, because at four the difference is only USD 500 — inside the margin where a slightly complex setup or an extra state registration could tip it either way. At five the subsidiary is unambiguously cheaper.
Year two changes the picture again
From year two the subsidiary carries no incorporation or legal cost — only the USD 4,000 annual compliance. The EOR fee recurs in full, every year, for every person.
| Employees | EOR per year | Subsidiary per year | Annual saving |
|---|---|---|---|
| 3 | 5,400 | 4,000 | 1,400 |
| 5 | 9,000 | 4,000 | 5,000 |
| 8 | 14,400 | 4,000 | 10,400 |
In steady state the breakeven falls to roughly two and a half employees. A three-person team that expects to stay three years is already better off incorporating.
The maths for a team of ten
Ten is where the difference stops being a rounding error.
| Period | Employer of Record | Own subsidiary |
|---|---|---|
| Year 1 | 18,300 | 7,000 |
| Year 2 | 18,000 | 4,000 |
| Year 3 | 18,000 | 4,000 |
| Three-year total | 54,300 | 15,000 |
A difference of USD 39,300 — enough to fund a senior engineer in India for a year, or to cover the entire India entry cost several times over.
Scaling past ten
Above ten employees a subsidiary is no longer perfectly flat, but it stays close. Each additional person adds USD 20 per month — USD 240 a year. The same person on an EOR costs USD 1,800 a year.
| Model | Per extra employee, per year |
|---|---|
| Employer of Record | 1,800 |
| Own subsidiary, beyond 10 staff | 240 |
Every hire past ten is seven and a half times cheaper in your own entity. At twenty employees a subsidiary costs USD 9,400 in year one against USD 36,300 on an EOR. At twenty-five, USD 10,600 against USD 45,300.
This is the part the 25-employee rule gets exactly backwards. By the time a company reaches the headcount those articles recommend switching at, it has usually already overpaid by more than the entire cost of incorporating.
At this headcount the question usually stops being financial. Ten people is typically the point at which a company also wants to sign local contracts, grant options and hold its IP directly — all of which point the same way.
Five reasons to incorporate at any headcount
Cost is the easiest factor to model and rarely the one that decides. These apply even at two or three people.
1. You need to sign contracts or invoice in India
EOR employees cannot bind your company or raise invoices to Indian customers. If your India operation is meant to generate local revenue rather than serve as a cost centre, you need an entity from day one. No headcount threshold changes this.
2. Permanent establishment risk
An EOR reduces PE exposure but does not remove it. If your India-based staff negotiate deals, conclude contracts or present themselves as your authorised representatives, tax authorities can assert that a permanent establishment exists — and assessments can reach back several years. The exposure follows what people do, not whose payslip they receive. Where your India team performs core commercial functions, an entity with proper transfer pricing documentation is the cleaner structure.
3. Intellectual property ownership
Under an EOR, IP created by your team reaches you through a chain that passes via the EOR's entity. The assignment is usually valid, but acquirers' lawyers examine it closely. If IP is central to your valuation, direct employment produces documentation that survives due diligence without argument.
4. Employee stock options
Granting options to EOR-employed staff means granting to people employed by another company. It can be structured, but it complicates cap tables and invites questions during fundraising. Direct employment makes ESOP grants straightforward.
5. Hiring and retention
Senior Indian candidates read the offer letter. An offer from an unfamiliar third-party employer is a harder sell than one carrying your own company's name — particularly for leadership roles where the candidate is weighing long-term commitment.
When an EOR is genuinely the better call
We provide EOR services in India alongside incorporation, so we have no reason to push you toward an entity that does not fit. There are clear cases where EOR wins.
- One to three employees with no near-term plan to grow. The arithmetic favours EOR and the administrative simplicity has value.
- A pilot under twelve months. If you are testing whether India works at all, do not incorporate to find out.
- You need someone hired next week. EOR onboarding runs one to two weeks; incorporation plus bank account runs six to eight.
- Genuine uncertainty about exit. Closing an Indian company takes six to twelve months. Exiting an EOR takes days.
- A single specialist hire — one country manager, one senior engineer — with no supporting team planned.
What we would push back on is treating 25 employees as your decision rule. It comes from cost assumptions that do not reflect Indian incorporation, and following it can mean paying an EOR for years past the point it made sense.
Moving from EOR to your own entity
Starting on EOR and transferring later is a sound strategy. It is also where most companies hit friction. Four things to plan for.
Continuity of service. Gratuity accrues to employees with five or more years of continuous service. Resigning from the EOR and joining your subsidiary resets that clock unless continuity is expressly recognised in the new contracts. Handle it in writing before the transfer.
Provident fund transfer. Balances follow the employee via their Universal Account Number, but the transfer must be initiated correctly through EPFO. Employees notice when this goes wrong.
Intellectual property. IP created during the EOR period sits with the EOR's entity under its assignment clauses and must be assigned onward to your subsidiary explicitly. This is the item most often missed, and it surfaces during acquisition diligence years later.
Timing. Begin incorporation about two months before you intend to transfer, so the entity, bank account and payroll registrations are live before the first payslip falls due.
Our EOR is built with this in mind. For teams above ten we set up a dedicated entity from the outset, transferable to you in full whenever you choose — no resignations, no re-hiring, no PF transfers, no IP reassignment. You simply take ownership of the company that already employs your team.
Frequently asked questions
At how many employees should I switch from EOR to a subsidiary in India?
On cost alone the crossover is four employees. A subsidiary costs a flat USD 7,000 in year one, while an Employer of Record at USD 150 per employee per month costs USD 7,500 for four people. Below four, EOR is cheaper. At five or more, a subsidiary saves money from the first year. Comparisons that place the breakeven at 25 employees rely on incorporation estimates of USD 16,000 to 25,000, which do not reflect actual Indian incorporation costs.
How much does it cost to set up a subsidiary in India in 2026?
A wholly owned Indian subsidiary costs USD 2,000 to incorporate, plus USD 1,000 one-time for employment contract and policy drafting, plus USD 4,000 per year for payroll, bookkeeping, statutory audit and annual compliance. Year one totals USD 7,000 and year two onward is USD 4,000, both covering a team of up to ten. Beyond ten employees, add USD 20 per employee per month. There is no minimum capital requirement, so a company can be incorporated with as little as USD 100 in share capital.
Is a subsidiary cheaper than an EOR for a team of 10 in India?
Substantially. Ten employees on an Employer of Record cost roughly USD 18,000 per year in service fees alone. The same team in your own subsidiary costs USD 4,000 per year in compliance, because compliance cost is fixed for teams of up to ten. Over three years the difference exceeds USD 39,000. Beyond ten employees, each additional person adds only USD 20 per month to a subsidiary, against USD 150 per month on an EOR.
How long does it take to set up a subsidiary in India?
Incorporation takes 10 to 15 working days once complete apostilled documents are received. The bank account is the longer step, typically 20 to 25 days for a foreign-owned entity because of enhanced KYC. A realistic end-to-end timeline from first call to first compliant payslip is six to eight weeks.
Do I need an Indian resident director to set up a subsidiary?
Yes. Section 149(3) of the Companies Act 2013 requires every Indian company to have at least one director who has stayed in India for at least 182 days in the financial year. Foreign companies without a suitable candidate appoint a professional resident director, which is a recurring annual cost quoted separately.
Does an EOR remove permanent establishment risk in India?
It reduces permanent establishment risk but does not eliminate it. If employees hired through an EOR negotiate contracts, conclude deals or act as your authorised representatives in India, tax authorities can still assert that a permanent establishment exists. The exposure attaches to what the people actually do, not to which entity issues their payslip.
Can an EOR employee sign contracts or raise invoices in India?
No. EOR employees cannot bind your company contractually or invoice Indian customers on your behalf. If your India operation needs to earn local revenue, sign customer agreements or import goods, you need your own legal entity regardless of headcount.
Can employees be transferred from an EOR to my own subsidiary later?
Yes. Employees resign from the EOR entity and are re-employed by your subsidiary on fresh contracts. Provident fund balances follow the employee through their Universal Account Number. The points to manage are continuity of service for gratuity purposes, notice periods, and explicit assignment of intellectual property created during the EOR period.
Not sure which side of the line you are on?
Tell us your headcount plan for the next twelve months and what your India team will actually do. We will run both numbers for you — including the case for staying on EOR, if that is what the arithmetic says.
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