No. Hiring through an Employer of Record in India does not automatically create a Permanent Establishment for a foreign company. An EOR shields you from most employer-related compliance and tax exposure by acting as the legal employer and handling payroll, withholding, statutory filings, and labor-law compliance under its own entity. However, PE risk can still arise if your company’s activities in India go beyond what is considered support or non-core functions.
PE exposure depends on how much authority your company exercises in India, the type of work the employee performs, and whether those activities resemble core, revenue-generating operations. If employees begin functioning as extensions of your company’s income-producing activities, negotiating or finalizing contracts, or operating from a space that effectively becomes your place of business, Indian tax authorities may consider this a PE.
Factors that may trigger PE risk
The employee’s role and responsibilities are one of the strongest indicators. If an EOR-hired employee is involved in essential business-generating functions or has the power to influence contract outcomes, the risk increases. PE may also arise when your company exercises too much operational control, such as managing daily activities in a way that mimics a local branch or overseeing revenue-impacting decisions directly from India.
Another area of concern is physical presence. If the employee operates out of an office or workspace that is maintained, financed, or controlled by your company rather than the EOR, tax authorities can treat that space as a fixed place of business. Similarly, a large team or long-term ongoing India presence can gradually raise the risk threshold if your activities resemble sustained operations.
How to mitigate PE risk while using an EOR?
Using an EOR significantly lowers the risk, but these measures ensure compliance remains airtight:
- Maintain strict separation between employer and client roles: Keep the EOR as the legal employer. Your involvement should focus on project outcomes rather than managerial oversight of employment functions. This separation helps show the employee is not part of a local extension of your company.
- Structure the relationship as a service engagement, not an Indian branch: Ensure documentation, communication, and contractual terms reflect that the EOR is delivering staffing and compliance services, not operating as your local office.
- Define work scope carefully: Regularly review job descriptions and activities to ensure employees are not signing contracts, negotiating deals, or running core income-producing functions that tax authorities associate with a fixed place of business.
- Rely on expert local guidance: India’s PE rules draw from domestic tax law and treaty interpretations, which vary case by case. Professional tax and legal advice helps you verify that employee activities remain safely outside PE thresholds.
From our experience supporting US companies entering India, using an EOR keeps PE risk low as long as the employee’s work stays non-core, the legal separation is maintained, and you avoid creating a physical business presence. When managed correctly, hiring through an EOR remains one of the most reliable ways to operate in India without triggering a Permanent Establishment.
How Wisemonk helps in global hiring?[toc=How Wisemonk Helps]
Wisemonk helps US companies hire compliantly in India with clear role scoping, payroll management, and strict separation of employer responsibilities to avoid PE triggers. One of our customers highlighted the confidence this structure creates:
“Working with the Wisemonk team in India has been a genuinely positive experience… I value the quality of compliance Wisemonk brings.”
– Lisa Jones, Chief People Officer at Couch Health
Need help with your global expansion in India? Contact our team to learn how we can support your global operations.