Most foreign companies entering India follow the same script. Set up a private limited subsidiary. Open an office in Mumbai or Bengaluru. Invest a million dollars in equity. Hire a local CFO. Engage a large compliance firm.
In a fair share of cases, that script is the right answer. In many, it is not — and the cost of running the wrong one for two years is steep. This article walks through the five decisions that actually matter, in the order they need to be made.
Do You Need a Full India Entity Yet?
The default: "We are expanding to India, so we need an India entity from day one."
Not necessarily. Two lighter-touch alternatives often work better in the early phase.
Employer of Record (EOR) — a third-party Indian entity becomes the legal employer of your Indian hires, handling payroll and statutory compliance. You retain full control over the day-to-day work. An EOR-based India team can be operational in 1 to 2 weeks. The trade-off is a markup of up to USD 600 per employee per month on fully-loaded salary. EOR makes sense up to roughly 5 to 8 India employees; beyond that, the own-entity case becomes clear.
Special Non-Resident Rupee (SNRR) Account — for foreign companies with Indian service contracts but no people on the ground, an SNRR account allows invoicing and disbursement in INR without an entity. Useful for time-bound consulting and project engagements.
Own entity becomes the right answer once you cross meaningful headcount, regulated industries, or any commercial activity requiring a local contracting party.
Which Entity Structure
The default: Private Limited Company subsidiary, because it is the most common path.
Five structures exist; the right one depends on what you intend to do:
- Private Limited Company — full operational flexibility, highest compliance burden; right for long-term India commitment.
- LLP — simpler compliance, but FDI restrictions and limits on downstream investment.
- Branch Office — permitted commercial activities; requires RBI approval; right for foreign banks, airlines, R&D services.
- Liaison Office — no commercial activity, only marketing and coordination; right for genuine market sensing.
- Project Office — time-bound; standard for infrastructure and EPC engagements.
Common mistake: a company that needed a Liaison Office incorporates a Private Limited subsidiary on default advice, then carries the full compliance burden of an entity doing nothing it actually needed.
Where to Set Up
The default: Mumbai or Bengaluru, because those are the cities people have heard of.
The honest counsel: three factors should drive the location decision.
- Local talent availability — Bengaluru and Hyderabad lead for technology, product engineering, and global capability centres. Mumbai for BFSI and capital markets. Pune for engineering and automotive. Chennai for IT services and manufacturing. Ahmedabad and Hyderabad for pharma.
- Relevant economic cluster — proximity to your industry's ecosystem matters more than people expect. Finance benefits from being in Mumbai or GIFT City. Manufacturing benefits from Gujarat or Tamil Nadu industrial corridors. A wrong cluster choice raises hiring, vendor, and partnership friction over years.
- Social and lifestyle environment — quality of life, expatriate community, schooling options, healthcare infrastructure, and daily working culture differ materially between cities. For senior hires and visiting executives, this is a real factor in retention.
Real estate cost is the fourth consideration — material over a typical five-year lease, but it should follow the first three, not lead them.
Capital and Funding Structure
The default: "We will fund the Indian subsidiary with USD 1 million in equity."
Two questions matter. First, how much — there is no minimum capitalisation requirement, but adequate capitalisation matters for working capital, banking credit, and transfer pricing defensibility. Under-capitalised subsidiaries attract tax department scrutiny.
Second, how — equity is not the only route. External Commercial Borrowings (ECB) from the parent allow easier interest repatriation. Intercompany trade credit, within FEMA limits, provides working capital without formal equity injection.
The pattern that works: equity sufficient for 12 to 18 months of working capital, plus an ECB facility from the parent for longer-term needs.
Who Owns Day-to-Day Compliance
The default: "We will hire a local CFO who will manage compliance."
Most foreign companies underestimate this cost. A senior local CFO plus a finance team represents a significant annual run-rate. A specialist team from one of the large compliance firms costs significantly more — much of which reflects infrastructure overhead and brand premium rather than the underlying compliance work itself.
For most foreign companies in their first 24 to 36 months in India, the right model is outsourced compliance — a specialist firm handles corporate income tax, GST, TDS, ROC filings, FEMA/RBI reporting, transfer pricing documentation, and statutory audit coordination, for a fixed annual fee. An internal CFO becomes a sensible hire later, when scale genuinely demands it.
The Pattern in These Five
These decisions compound. Get Decision 1 wrong and Decisions 2 to 5 are spent on something you did not need. Get Decision 2 or 3 wrong and the cost of correction is years of operating expense. The early-stage advisory phase, before any incorporation document is signed, is the highest-leverage moment in an India entry.