Compliance

EOR vs Setting Up a Legal Entity in India — Cost Comparison

July 3, 20265 min read

When expanding your engineering team to India, the strategic decision of how to employ your developers is critical. Many leaders face the choice: should we register a local Private Limited subsidiary (entity setup) or hire developers via an Employer of Record (EOR) service?

While setting up an entity is often presented as the standard corporate route, the administrative overhead, legal requirements, and hidden fees can shock foreign operators. In this post, we compare the cost, time, and compliance burdens of both models using real numbers.

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Cost Element 1: Initial Setup Fees

Setting up an entity in India requires renting a physical office (poboxes are not allowed for corporate registration), hiring corporate lawyers, submitting incorporation forms to the Ministry of Corporate Affairs, and opening local commercial bank accounts.

  • Subsidiary Entity Cost: $10,000 to $15,000 in administrative and legal fees.
  • EOR Cost: $0 setup fee. You only pay the monthly fee per employee once the employee begins working.

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    Cost Element 2: Monthly Administrative Overhead

    A subsidiary requires ongoing maintenance. In India, corporate compliance is strict. You are required to:

  • Hire a company secretary (retainer: $500/month).
  • Run monthly accounting and payroll administration ($800/month).
  • Submit monthly GST filings, quarterly TDS tax filings, and yearly audits ($2,000/year).
  • Maintain statutory registrations for PF (Provident Fund) and ESI (Employee State Insurance).
  • Subsidiary Entity Cost: $1,500 to $2,500/month in compliance retainer costs, regardless of whether you have 1 employee or 10.
  • EOR Cost: A flat rate of $299/employee/month. For 3 engineers, your monthly administration cost is under $900, with all accounting, legal, and compliance filings covered.

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    Cost Element 3: Capital Deposit and Banking Delays

    To incorporate, you must deposit capital (minimum share capital) into an Indian bank account. Setting up corporate accounts for foreign-owned entities takes 8 to 12 weeks of background checks and documentation verifications.

  • Subsidiary Entity Delay: 3 to 6 months from initial filing to onboarding your first employee.
  • EOR Delay: 2 to 3 days. The legal employment framework is already established. We issue compliant offer letters and local contracts immediately.

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    Cost Element 4: Exit and Liquidation Expenses

    What happens if you pivot, raise your next round, or decide to consolidate operations? Closing a Private Limited company in India is a complicated regulatory process. You must secure tax clearances, pay off outstanding liabilities, and obtain regulatory clearances.

  • Subsidiary Entity Exit: 12+ months and $5,000+ in closure fees.
  • EOR Exit: Notice-aligned exit. Since the developer is hosted under our EOR, you simply trigger the notice period clause (typically 30 to 60 days) in our agreement. There is zero corporate liquidation required.

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    Summary Cost Table

    Cost Category
    Subsidiary (Private Limited)
    EOR (KraftNext)
    **Upfront Setup Cost**
    $10,000 - $15,000
    $0
    **Time to Launch**
    3 - 6 Months
    2 - 3 Days
    **Admin Overhead (1-5 devs)**
    $2,000+/month
    $299/dev/month
    **IP Protection**
    In-house legal
    Compliant transfer built in
    **Regulatory Risk**
    100% on you
    100% on EOR
    **Exit Cost & Time**
    $5,000+ and 12+ months
    $0 and 30-day notice

    For companies hiring fewer than 25 developers, establishing an entity in India rarely pays for itself. The administration, accounting, and compliance burdens distract you from your core task: shipping product.

    By utilizing KraftNext's EOR service, you get compliance, payroll, local employment contracts, and statutory tax filings for a flat monthly fee. Explore our EOR rates and terms [here](/eor-india) or book a consultation [here](/contact).

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