India Entity vs EOR Comparison
Compare Total Cost — Entity vs EOR
Enter your planned headcount, salary level, and time horizon. The tool computes 36-month TCO for both routes, identifies breakeven, and produces a side-by-side comparison.
| Criterion | Indian Entity | EOR |
|---|---|---|
| Setup Time | 10-16 weeks (operational) | 1-3 days |
| Setup Cost | ₹2-5 lakh (incorporation, FDI, registrations) | ₹0 (or ₹4K-40K one-time) |
| Monthly Compliance Fee | ₹30K-60K per month | Included in EOR fee |
| Per-Employee EOR Fee | N/A | ₹8K-60K/employee/month |
| Statutory Burden | 15-22% on top of gross salary | 15-22% on top of gross salary |
| Compliance Burden | Owned in-house or by retained CA | Fully managed by EOR |
| Permanent Establishment Risk | Yes — direct PE | Generally No if structured |
| Customer Billing in INR | Yes — GST registration possible | No — cannot raise customer invoices |
| Visa Sponsorship for Foreign Nationals | Yes | No (Indian residents only) |
| Direct Banking Access (INR) | Yes — own current account | No |
| Equity Grants to India Team | Direct via parent ESOP / RSU | Indirect through phantom equity / cash |
| IP Ownership | Direct via employment + parent agreement | Indirect via EOR contract assignment |
| Termination Flexibility | Per Shops & Establishments + ID Code 2020 | Per EOR contract — typically flexible |
| Long-Term Scalability | Excellent — fixed cost dilutes | Linear — cost scales with headcount |
| Labour Code Readiness (Nov 2025) | Owned compliance project | Provider-managed |
Market Entry Routes — Entity Options
Foreign companies hiring in India typically evaluate three categories of vehicles. Two are entity-based (with ownership and direct legal employer status); the third is contractual (EOR / staff augmentation).
Wholly-Owned Subsidiary (WOS)
A private limited company under the Companies Act 2013, with the foreign parent holding 100 percent shares. Most common vehicle for foreign companies. Allows automatic 100 percent FDI in most sectors per the consolidated FDI Policy (2020 onwards), administered by the Ministry of Corporate Affairs. Subject to Indian corporate tax at 25.17 percent (with surcharge and cess for new manufacturing companies; 30 percent base rate for others). Requires statutory audit, transfer pricing study if related-party transactions exceed ₹1 crore, annual ROC filings, and FDI compliance through Form FC-GPR with the Reserve Bank of India.
Limited Liability Partnership (LLP)
Governed by the LLP Act 2008. Lower compliance burden than WOS, no minimum capital, partner-level liability. FDI allowed via automatic route subject to sector caps. LLPs are taxed at 30 percent flat. Restricted partner structure makes WOS preferred for most operating businesses. LLP works for advisory firms, professional services, and JV holding structures.
Branch Office / Liaison Office / Project Office
Branch Office permits trading and consultancy with RBI approval. Liaison Office is a representative role only — cannot engage in revenue-earning activity. Project Office is for specific project execution. All three require RBI approval under FEMA and have restricted scope. Most foreign companies prefer WOS for full operational flexibility.
Employer of Record (EOR)
A contractual arrangement, not an entity. The EOR is a separate Indian company that legally employs your team. You direct the work; the EOR handles employment law, payroll, and statutory compliance. Setup is 1-3 days with no capital requirement. EOR is suitable for offshore-only operations (no Indian customers, no INR billing). India-focused EORs charge $99-200 per employee per month; mid-market global EORs charge $300-500; enterprise EORs charge $488-700+.
Hybrid path. Many foreign companies start with EOR for the first 1-15 employees during market validation, then transition to WOS once headcount and India-specific operational complexity justify the entity infrastructure. Patron's transition team handles end-to-end conversion with no service interruption.
Cost Framework — What Drives the Numbers
Statutory Employer Burden (Identical Across Both Routes)
| Component | Rate / Basis | Notes |
|---|---|---|
| Provident Fund (Employer) | 12% of basic wages | Mandatory if basic ≤ ₹15,000; voluntary above |
| Employee State Insurance | 3.25% of gross | For employees earning ≤ ₹21,000/month gross |
| Gratuity Accrual | ~4.81% of basic | Payment of Gratuity Act 1972 |
| Statutory Bonus | 8.33% to 20% of basic | Payment of Bonus Act 1965, scaled by profit |
| Professional Tax | State-specific | ₹200/mo most states; up to ₹2,500/mo Maharashtra |
| Group Health Insurance | ₹5K-15K/year per employee | Voluntary but standard market practice |
Total statutory burden typically lands at 15-22% on top of gross salary. The exact figure varies by salary structure (basic vs allowances split), state of employment, and benefits package — see CBIC guidance for tax-side and EPFO rates for the social-security side.
Entity Setup & Compliance Costs
| Cost Component | Range (INR) | Frequency |
|---|---|---|
| Incorporation (MCA) | ₹50,000 - ₹1,00,000 | One-time |
| FDI Reporting (RBI) | ₹50,000 - ₹1,00,000 | One-time + annual FLA |
| Tax Registrations (GST, IT, PAN, TAN) | ₹30,000 - ₹50,000 | One-time |
| Bank Account Opening (Foreign-Owned) | ₹50,000 - ₹1,00,000 advisory | One-time, 6-10 weeks |
| Office Lease + Set-up | ₹2,00,000+ (varies by city) | One-time + ongoing |
| Monthly Compliance (Payroll, GST, ROC, Audit) | ₹30,000 - ₹60,000 | Monthly |
| Annual Statutory Audit | ₹50,000 - ₹2,00,000 | Annual |
| Transfer Pricing Study + Form 3CEB | ₹50,000 - ₹3,00,000 | Annual if RPT > ₹1 Cr |
EOR Pricing Tiers
| Tier | Per-Employee Per-Month | Examples |
|---|---|---|
| India-Focused Budget | $99-200 (₹8,000-15,000) | Wisemonk, Kaamwork, Paybooks |
| Global Mid-Market | $300-500 (₹25,000-40,000) | Multiplier, Skuad, Remote People |
| Enterprise White-Glove | $488-700+ (₹40,000-60,000+) | Deel, Oyster, AYP Group, Atlas HXM |
Watch for hidden EOR costs. Most providers add 4-10 line items below the headline fee — setup, security deposit (1-2 months total cost, refundable), FX markup (1-3% on currency conversion), off-cycle payroll, termination fees, benefits broker markup, equipment shipping. Get a sample invoice before signing and confirm scope.
Considering India entity setup or EOR transition?
Patron's cross-border team has supported 200+ foreign companies entering India — incorporation, FDI compliance, payroll, transfer pricing, EOR-to-WOS transitions. Fixed-fee, transparent pricing.
The Four New Labour Codes (Effective 21 November 2025)
The labour law of India consolidated 29 legacy laws into four streamlined codes, effective 21 November 2025. Both entities and EORs must comply — this is a compliance update, not a structural shift between routes. The codes were long-pending after parliamentary passage in 2019-2020 and were eventually notified after extensive central and state-level rule preparation.
1. Code on Wages, 2019
Consolidates four laws: Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, and Equal Remuneration Act. Universalises minimum wage coverage to all employees regardless of wage threshold. Standardises the definition of "wages" across statutes. Significant implication for salary structuring — basic salary must be at least 50 percent of total CTC, affecting PF and gratuity computation upward for many employees.
2. Industrial Relations Code, 2020
Consolidates three laws: Industrial Disputes Act, Trade Unions Act, and Industrial Employment (Standing Orders) Act. Raises the threshold for prior government approval for retrenchment and closure to 300 workers (from 100). Introduces fixed-term employment formally. Establishes a streamlined dispute resolution mechanism. Important for CFOs — flexibility on workforce restructuring at sub-300 headcount has improved.
3. Code on Social Security, 2020
Consolidates nine laws including EPF Act, ESI Act, Payment of Gratuity Act, and Maternity Benefit Act. Extends EPF and ESI to gig and platform workers in phased manner. Reduces gratuity continuous-service requirement for fixed-term employees from five years to one. Consolidates benefit administration. Both entities and EORs must update payroll systems and contribution computations to align with new code provisions.
4. Occupational Safety, Health and Working Conditions Code, 2020
Consolidates 13 laws including Factories Act, Contract Labour Act, and Inter-State Migrant Workmen Act. Introduces a single licence and registration regime. Mandates appointment letters for all employees. Sets standard working hours and overtime provisions. Important for entities with manufacturing operations, but relevant compliance updates also affect office-based employers.
Compliance readiness check. Both routes — entity and EOR — must demonstrate Labour Code readiness. For entities, this means salary structure recalibration and policy updates. For EOR users, ask the provider for their Labour Code transition plan and statutory contribution recomputation evidence.
Decision Factors Beyond Cost
Customer-Facing Operations
If you plan to invoice Indian customers in INR or operate retail / B2B sales in India, an entity is required. EORs cannot raise GST invoices on the foreign company's behalf. The need to issue India-side invoices is the single most decisive factor pushing companies to entity over EOR.
Visa Sponsorship
If you plan to bring foreign nationals to work in India (not just Indian residents), an entity is generally required. Employment visa sponsorship requires the legal employer to be the sponsoring entity with established Indian presence and visa quota authorisation. EORs typically cannot sponsor employment visas — they handle Indian residents only.
Equity Compensation
Granting parent-company equity (ESOP / RSU / stock options) is cleaner through an entity — the Indian subsidiary employs the team and equity assignments flow through standard cross-border ESOP frameworks. Through EOR, equity grants are often structured as phantom equity or cash bonuses linked to parent-stock value, which has different tax and accounting treatment.
IP-Critical Operations
For core product development with high-value IP, entity ownership is generally preferred. The subsidiary directly employs developers, IP assignment flows from employee to subsidiary to parent through inter-company agreements. Reputable EORs offer IP assignment through their contracts, but the legal pathway is one step longer. For most operations IP through EOR works well; for the most sensitive IP, entity is preferred despite higher cost.
Permanent Establishment Risk
EOR arrangements are generally structured to avoid creating PE under Indian tax treaties. Sustained operations, decision-making authority residing with India-based personnel, or contract execution in India can create dependent-agent PE — even with EOR. Obtain a tax opinion from an ICAI-empanelled CA if your India team has commercial decision authority. Entity formally creates PE but is preferable to inadvertent dependent-agent PE risk.
Long-Term Scalability
Beyond 20-30 employees, entity costs become essentially fixed (compliance fees do not scale linearly), while EOR costs continue to scale per-employee. The entity gradually amortises its setup and compliance overhead as headcount grows. Plan the breakeven analysis based on your 36-month headcount forecast, not the year-1 number.
Exit Flexibility
Closing an Indian entity takes 6-18 months — strike-off via Form STK-2 if simple, voluntary winding-up if complex, with capital repatriation and tax clearances. EOR exit is contract-based — typically 30-90 day notice. For uncertain market entry where you may exit if pilot fails, EOR's quick-exit profile is operationally valuable.