Expanding your company to India is an exciting step, and Employer of Record (EOR) services can be a great way to get started. But there comes a time when transitioning to your own legal entity makes more sense. This blog will help you navigate that decision.

EORs: A Bridge, Not a Destination

EORs act as your legal employer for a small team in India, handling payroll, benefits, and HR tasks. This is ideal for initial market testing or limited operations. However, EORs aren't meant for long-term use.

Signs It's Time to Switch

Several factors indicate a shift from EOR to entity is wise:

• Local Time Limits: India doesn't have a set limit, but prolonged EOR use can raise eyebrows.

• Number of Employees and Activities: A handful of employees doing low-level sales is generally ok. However, a larger team or those engaging in core business activities might trigger a Permanent Establishment (PE) designation, requiring a legal entity for tax purposes.

• Economic Value of Activities: Authorities focus on the economic impact of employee actions, not just headcount. High-value activities like generating leads or fulfilling contracts suggest a PE.

Don't Ignore the Risks

Companies disregarding these factors risk double taxation and penalties. An EOR doesn't eliminate PE risk completely.

Making the Transition Smoothly

• Monitor Regularly: Review your India operations every six months to assess PE risk.

• Plan Ahead: Setting up a legal entity can take time. Start planning well in advance.

Entity: Long-Term Stability

While establishing a legal entity requires more effort, it offers significant benefits:

• Cost-Effectiveness: For a larger team, an entity becomes more economical than an EOR.

• Scalability: An entity allows you to grow your India presence without worrying about PE status.

• Peace of Mind: A legal entity provides a stable foundation for your long-term India operations.

The Right Choice for Your Company

There's no one-size-fits-all answer. EORs are a great starting point, but some companies might need an entity from the beginning. Carefully consider your specific situation and goals for India.

Ready to Discuss Your Options?

We can help you determine the best approach for entering the Indian market. Contact us today!