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Setting up a Foreign Subsidiary in India |
Professional Employer Organization |
Set-Up and Operation Costs in a New Geography |
Setting up a new entity in India can take somewhere around USD 7,000-10,000 and exit takes, even more, ~ USD 10,000-20,000. |
Third party payroll services or PEO on the other hand comes with one-sixth of the costs involved in setting up an entity in India. When the companies are just planning to test the waters, they want to do it with a limited budget. Since setting up entities involves heavy investments, MNCs are more comfortable with the PEO/EOR route. PEO facilitates the best services on a limited budget. |
Maintenance Cost and Effort |
Maintaining a full-fledged entity would not be ideal for companies that do not plan to have big operations initially or hire more than 10 employees. |
Hiring a PEO saves a considerable amount of time and money on running an entity that involves bookkeeping and compliance management (withholding, payroll taxes, transfer pricing, board meetings, audit to name a few). |
Banking |
To register a subsidiary in a new country, you must open a bank account. However, rigorous Know Your Customer (KYC) regulations have complicated the process of opening and operating a foreign bank account. Further, you are required to disclose financial information, leading to a time- and resource-consuming process. |
PEOs manage these banking needs for all their clients. |
Local Director |
When foreign entities are setting up a company in India, they also need a full-time Local Director. Trusting a local director would act as a trusted advisor in the interest of the company can be difficult. Also, companies may not want to disclose confidential information to the local director.
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With a PEO, you don’t have to reveal confidential information and can ensure the security of your company. |
Scaling-up |
Scaling operations in a new location in India need months of planning, approval, and execution. |
PEO/EOR facilitates Extremely fast Set up/Scale-up. Post signing the agreement, the first round of onboarding takes 2-3 days and then just a day for any number of employees in any location for the same client. |
Exit |
Exiting an entity in India is neither quick nor easy. There are several compliances that need to be adhered to before getting a NOC.
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PEO/EOR promotes flexibility as there is an easy exit. In simple words hiring a PEO can always be put on plug-in plug-off mode in case the services are not required at any point in time. |
Compliance Management |
The leadership must get involved in the management of the entity and see that the entity Is fully compliant. Lack of compliance can attract heavy penalties. In addition to this, the tax compliance in India keeps changing and companies need to be updated and prepared to ensure that they are not missing anything
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Companies hiring PEO/EOR are not worried about compliance as PEO takes call of all the tax and legal compliance |