EOR or your own Indian subsidiary: when to stop paying per head

An employer of record charges a flat fee for each person it employs for you in India. That suits one hire, or three. At some point the fees for a growing team cost more than running your own Indian company would, and the question becomes where that point is.

This guide prices the second option properly: what an Indian subsidiary involves every year, how transfer pricing works and what it costs in tax, and the headcount at which it starts to pay for itself. If you're still choosing between contractors, an EOR and a subsidiary for your first hires, start with our guide to hiring developers in India from a US company.

What the EOR costs, and why it only goes up

Deel and Remote both list their employer of record service from $599 per employee a month.^⁠[1],[2] That's $7,188 a year per person, on top of salary and the statutory employer costs, which you pay under either route.

The fee is the same for your tenth hire as your first. That's its appeal early on and its weakness later. Five people cost $35,940 a year in EOR fees, and ten cost $71,880. Your own company has the opposite shape: a cost you pay whether you have two people or twenty, and a much smaller cost for each extra person.

Once you have your own company, you still need someone to run payroll. Remote, for example, lists payroll for your own entity from $29 per employee a month,^⁠[2] and an Indian payroll provider or your accountant can do the same.

What an Indian subsidiary involves each year

A US company hiring in India usually sets up a private limited company, owned by the US parent. Here's what comes with it.

Two shareholders and two directors. A private company needs at least two members and at least two directors. At least one director must stay in India for 182 days or more in the financial year, a rule applied in proportion in the year the company is formed.^⁠[3] A US parent usually holds almost all the shares, with a second shareholder holding one. For the resident director, companies often appoint a senior local hire or a professional director.

Board meetings and an audit. The Companies Act asks for at least four board meetings a year and an audit of the accounts by a chartered accountant every year, however small the company.^⁠[3]

Annual filings with the Ministry of Corporate Affairs. The company files its financial statements in Form AOC-4 and its annual return in Form MGT-7. Small companies can use the shorter Form MGT-7A, but a subsidiary can't, because a holding or subsidiary company doesn't count as a small company for this purpose.^⁠[4] The lighter rules for small companies elsewhere in the Act don't apply either, so budget for full compliance from the first year.

Reporting to the Reserve Bank of India. Most services businesses can take 100% foreign ownership without government approval.^⁠[5] When the US parent sends money for shares, the Indian company has to issue them within 60 days of receiving it, or send it back.^⁠[5] It then reports the issue in Form FC-GPR within 30 days, and files an annual return on foreign liabilities and assets with the RBI by July 15 every year.^⁠[6]

Income tax. A domestic company can opt for a 22% rate. With a 10% surcharge and 4% cess on top, that comes to about 25.17% of taxable profit.^⁠[7]

A transfer pricing report. Every year, a chartered accountant reports on the company's transactions with its US parent.^⁠[8] It's due a month before the company's tax return.^⁠[7] The next section explains why it exists.

Payroll registrations and GST. Your company registers as an employer, deducts tax from salaries and pays statutory contributions, the work your EOR does today. Invoices to your US parent usually count as an export of services, which our guide to getting paid by US clients in India covers, including the letter of undertaking that lets you invoice without GST.

US reporting. A US corporation that owns a foreign company files Form 5471 with its return. Missing it costs $10,000 for each foreign company and each year, with more if it isn't fixed after the IRS sends a notice.^⁠[10]

Transfer pricing in plain words

Your Indian company's team works for your US company, so the US company pays the Indian company for that work. Transfer pricing is the question of how much.

Indian tax law expects the price to be what two unrelated companies would agree. For a team doing software or IT work for its parent, the usual answer is cost plus a margin: the Indian company adds up its salaries, rent and other costs, adds a percentage, and invoices the total. It then pays Indian tax on that margin.

The budget for 2026-27 made this simpler for IT companies. It put software development, IT-enabled services, knowledge process outsourcing and software R&D into one category with a single safe harbor margin of 15.5%, raised the turnover limit for using it from ₹300 crore to ₹2,000 crore, and let a company keep the same safe harbor for five years once approved.^⁠[9] A safe harbor is a margin the tax department accepts without arguing about it. Ask your chartered accountant whether to elect it.

What it costs. At a 15.5% margin and a 25.17% tax rate, the Indian tax comes to about 3.9% of the Indian company's costs. On a developer who costs $30,000 a year, that's about $1,170.

Two things soften that. First, your US company pays the margin to a company you own, so the money stays in the group. Second, a profitable US company deducts what it pays, which offsets much of the Indian tax. While your US company is still making losses, though, treat the Indian tax as a real cost.

The break-even headcount

Here's a worked example. The fixed running costs are illustrative, so put your own quotes in their place.

Per person, each year:

• EOR fee: $7,188
• Your own payroll provider at $29 a month: $348
• Indian tax on the margin, for someone costing $30,000 a year: about $1,170

Each person you employ yourself instead of through an EOR saves about $5,670 a year: $7,188, less $348 and $1,170.

Fixed costs. Add up a year of accounting, audit, company secretarial work, the transfer pricing report and your US preparer's fee for Form 5471. The Indian company also adds its margin to the costs it pays itself, which adds about 3.9% in tax. The table assumes all of it is paid in India. Divide the result by $5,670.

Then add the one-off cost of forming the company, spread over the years you expect to keep it. A team you plan to keep for three years carries a third of it each year.

Two more costs don't fit a formula. The first is your time, as someone has to sign documents, approve accounts and answer the auditor. The second is commitment: an Indian company takes time to close, so don't form one for a team you might wind down next year.

When a subsidiary doesn't fit

You live in India and control the US company. India's overseas investment rules can limit whether a foreign company that a resident Indian controls may own a subsidiary back in India. Have a CA who handles FEMA work confirm how they apply to you before you plan an Indian subsidiary under your US company.

The team is small or uncertain. Below the break-even, the EOR is cheaper and easier to leave.

You need people in India next month. Forming the company, opening a bank account, receiving the share money and registering as an employer takes time. An EOR can usually employ someone within weeks.

Moving staff from the EOR to your company

When your company is ready, each person leaves the EOR's Indian entity and joins yours on a new contract. These steps keep the move smooth.

1. Read your EOR agreement first. Check the notice it needs to end each employment, any fee for ending early or converting employees, and the deposit it holds and when it's returned.
2. Match or improve the package. Offer the same salary and benefits, so nobody loses out on the move. Agree how leave balances are settled.
3. Decide on past service. Gratuity builds up over years of continuous service with one employer. Decide with your chartered accountant whether your company will recognize time served through the EOR, and put it in the offer letter.
4. Line up dates. The EOR's last day and your first day should meet, so there's no gap in pay or insurance. Month ends are easiest for payroll.
5. Move everyone together where you can. One switch is easier to explain and run than five.

Tell the team early. To an employee, the change of employer name is the only visible difference, and it goes better when they hear the reasons from you.

How to decide

• Under three people, or unsure about India long term: stay with the EOR. Our comparison of Deel and Remote helps you choose one.
• Heading past five people and planning to stay: get quotes for a subsidiary now. Formation takes time, and the EOR covers you meanwhile.
• Past your break-even already: start the subsidiary, then move people across in one planned switch.

Whichever way you go, a chartered accountant in India and a CPA in the US should look at the structure before you form the company. It's far cheaper to set up correctly than to fix later.