At some point, most European startup founders hit the same wall. You’ve found a great developer in India — the skills are right, the rate works, and they’re ready to start. Then someone asks: how are we actually going to pay them?
Wiring money to a foreign individual sounds simple until you realise the legal and tax implications on both sides. Get it wrong and you’re looking at misclassification risk, unexpected tax exposure, or compliance issues that take months to unwind. The good news: there are three legitimate paths, and the right one depends on your stage and how you want to work.
Option 1: Hire as an Independent Contractor
This is the fastest and most common starting point. You sign a services agreement directly with the individual, pay them as a contractor, and they handle their own taxes in India.
It works well when the relationship is genuinely project-based — defined deliverables, no fixed hours, no management control on your side. The risk is when it starts to look like employment: set hours, ongoing work, one main client (you), and tools and equipment you provide.
Under Indian labour law, a contractor who functions like an employee can be deemed one — which brings statutory obligations you weren’t expecting. Several European jurisdictions have similar rules. This isn’t a reason to avoid contractors, but it is a reason to structure the relationship properly from day one.
Option 2: Employer of Record (EOR)
An Employer of Record is a third-party company that legally employs your developer in India on your behalf. You manage the work; they handle the employment contract, payroll, tax withholding, Provident Fund contributions, and local compliance.
EOR is the cleanest option if you want someone who is genuinely employed — not a contractor — but you’re not ready to set up an Indian entity. It’s fast, you can have someone onboarded in a week or two, and it puts the compliance burden on people who do this every day.
The trade-off is cost. EOR providers typically charge a monthly fee on top of the employee’s salary, often somewhere between €300 and €700 per person depending on seniority and provider. For one or two people, this is usually worth it. For a larger team, you’ll start doing the maths on Option 3.
Option 3: Set Up an Indian Entity
A Private Limited Company in India gives you full control — your own legal employer, your own payroll, your own HR. It’s the right move if you’re building a team of five or more and planning to stay in India for the long term.
The downsides are real: registration takes two to four months, there are ongoing compliance requirements (annual filings, audits, GST registration), and you’ll need local support to manage it. Most early-stage teams aren’t ready for that overhead until they know India is a long-term part of their structure.
The Deemed Employee Risk You Need to Know About
One thing that catches founders off guard: even with a contractor agreement in place, Indian authorities can reclassify a working relationship as employment if it has the characteristics of one. Key triggers include exclusivity, supervision and control over how work is done, integration into your team’s regular workflow, and long-term duration.
This doesn’t mean you can’t use contractors — it means the contract should reflect reality. If someone is working with your team full-time, long-term, on your tools, under daily direction from your team lead, a contractor agreement isn’t the right structure.
What You Actually Need to Get Started
Regardless of which path you choose, the basics are the same:
- A written agreement (services contract or employment contract) that reflects the actual working relationship
- Clarity on who is responsible for tax withholding — you or them
- A payment method that works across borders without punishing fees (Wise Business, Deel, or bank transfer via SWIFT are common choices)
- A brief check with your accountant on Permanent Establishment risk
Which Path Is Right for You?
If you’re hiring one or two people and want to move fast with minimal overhead, start with a well-structured contractor agreement or an EOR. If you’re thinking about five or more people and India as a long-term part of your team, start planning the entity now so it’s ready when you need it.
The biggest mistake is not thinking about this until you’ve already made a hire and wired three months of payments with no structure in place. That’s fixable, but it’s easier to get right from the start.
Not sure which structure fits your situation? We work with European startups to get their India team setup right from day one — get in touch and we’ll help you figure it out.