China–India EOR: Expand Without Entity

Why Chinese Companies Are Building Teams in India

India is an increasingly important market and operational base for Chinese companies across electronics, manufacturing support, consumer technology, and digital services. Hiring locally allows Chinese businesses to serve Indian customers, build region-specific product teams, and access a vast pool of English-proficient engineering and operations talent. The challenge is regulatory: India employment law is detailed and contract-governed, and running payroll without an Indian entity is not permitted. An Employer of Record resolves this by making TMS the legal employer of record in India while the Chinese company directs the employee’s work. Establishing a wholly owned subsidiary in India is also slower and more sensitive for Chinese investors than for many other nationalities, which makes the EOR route especially attractive as a compliant, fast entry mechanism. With operations established in 2006 and more than 20 years of compliance experience, TMS enables Chinese companies to hire in India in weeks rather than months.

India Employment Law Essentials for Chinese Employers

Indian labour law is contract-based and differs markedly from PRC Labour Contract Law practice. Chinese employers should plan for the following statutory obligations, each administered by TMS as the legal employer:

• Employees’ Provident Fund (EPF): The employer contributes 12% of basic wages to the EPF, matched by a 12% employee contribution — a mandatory retirement-savings scheme distinct from China’s social insurance system.
• Employees’ State Insurance (ESIC): For employees within the prescribed wage threshold, employer and employee contribute to ESIC, which provides medical and cash sickness benefits.
• Professional Tax & Gratuity: Professional Tax is a state-level levy deducted where applicable, and the Payment of Gratuity Act 1972 entitles an employee to a lump-sum gratuity after five years of continuous service.
• Maternity Leave: The Maternity Benefit Act 1961, as amended, provides 26 weeks of paid maternity leave for eligible employees, funded entirely by the employer.
• Notice & Non-Competes: Notice periods of 30–90 days are typical depending on seniority, and post-employment non-compete clauses are largely unenforceable under Section 27 of the Indian Contract Act 1872, regardless of clauses customary in Chinese employment agreements.

Tax, DTAA & Remittance

Salary earned by an India-resident employee for work performed in India is taxable in India, and the India-China Double Taxation Avoidance Agreement, in force since 1994, prevents that income being taxed twice. TMS deducts India TDS monthly under Section 192 of the Income Tax Act and files quarterly Form 24Q returns. Chinese investors should note a separate regulatory point: under FDI Press Note 3 of 2020, foreign direct investment from countries that share a land border with India — which includes China — requires prior government approval. This is relevant if a Chinese parent later decides to set up its own Indian entity; the EOR structure avoids that approval pathway entirely for the hiring stage, because no FDI is made and TMS is the employer. All cross-border movement of funds is made through FEMA-compliant banking channels. Chinese companies should also consider Permanent Establishment exposure — under Section 9 of the Income Tax Act, if India-based staff habitually conclude contracts for the Chinese entity, the tax authorities may assert a PE. Because TMS is the sole legal employer under the EOR structure, this PE risk is contained.

How TMS Manages India EOR for Chinese Companies

1. Onboarding & Statutory Registration: TMS issues an India-law-compliant employment contract, collects statutory documents (PAN, Aadhaar, bank details), and registers the employee under EPF, ESIC where applicable, and Professional Tax.
2. CTC Structuring in INR: TMS designs a cost-to-company structure in Indian Rupees (Basic, HRA, allowances) aligned with the compensation level approved by the Chinese company and optimised for India tax efficiency.
3. Monthly Payroll & Compliance: TMS processes payroll, deposits EPF and ESIC contributions, deducts and deposits TDS, files quarterly Form 24Q returns, and issues compliant payslips.
4. EOR-to-Entity Transition: Should the Chinese company later incorporate an India subsidiary, TMS manages the employment transfer, including EPF UAN portability and gratuity continuity, so the team moves across without disruption.

Frequently Asked Questions