How Japanese Companies Can Hire Employees in India

• Foreign Direct Investment (FDI)
• ||
• June 24, 2026

Japan and India are closer than ever before. In August 2025, Prime Ministers of both countries announced a historic ¥10 trillion (approximately USD 68 billion) investment partnership over the next decade. Japanese companies are expanding rapidly into India — not just to sell products, but to build teams, hire talent, and grow their operations right here in India.

If you are a Japanese business owner or HR decision-maker wondering how to hire employees in India, this guide is for you. We explain everything — from your legal options to compliance rules — in simple, clear language.

Why are Japanese companies looking at India for hiring?

Before we talk about how to hire, let us first understand why India is such an attractive destination for Japanese businesses.

1. Large, Young, and Skilled Workforce

India has one of the world’s youngest and largest workforces. While Japan is facing a growing labour shortage—with more than 29% of its population aged 65 or above—India has a strong demographic advantage, with nearly 65% of its population in the working-age group, i.e., below the age of 35.

This means Japanese companies can tap into a massive talent pool of more than 5 million software developers and millions of skilled professionals in IT, engineering, manufacturing, finance, AI, and data science. Finding qualified talent in India is often easier and more cost-effective compared to many developed economies.

Whether you want to build a technology team, establish a manufacturing unit, or set up a Global Capability Centre (GCC), India offers the talent, scale, and expertise needed to support long-term business growth.

2. Significant Cost Advantage

While India has a large young population, another major advantage is cost. Labour and hiring costs in India are generally much lower than in Japan, allowing businesses to build larger teams while keeping expenses under control.

In fact, studies suggest that Japanese companies can reduce hiring costs by up to 35% by building teams in India. This means the same budget can help you hire more skilled professionals, increase productivity, and scale your business faster.

For Japanese businesses looking to expand, India offers the best of both worlds — access to millions of talented professionals and a cost-efficient environment for long-term growth.

3. Strong India–Japan Business Momentum

According to a JoulestoWatts GCC Adoption Survey 2025, 72% of Japanese companies cite Japan’s domestic labor shortage as their top reason for investing in India-based operations. More than 80% of Japanese companies already in India plan to expand over the next 1–2 years. This is no longer a trend — it is a clear business strategy.

4. English-Speaking Talent Pool

India ranks among the top countries globally in English proficiency. This removes a major communication barrier that many Japanese companies worry about when working with overseas teams.

5. Time Zone Advantage

The time difference between India and Japan (approximately 3.5 hours) is small enough for smooth daily collaboration. Indian teams can also provide extended coverage hours for Japanese operations.

Ways Japanese Companies Can Hire Employees in India

Here is the key question: Do you always need to set up a company in India to hire someone there?

The short answer is No — you have multiple options. Let us walk through each one.

Option 1: Set Up a Wholly Owned Subsidiary in India

A Wholly Owned Subsidiary (WOS) is a private limited company registered in India where the foreign parent company holds 100% ownership. This is the most common route for Japanese companies that are serious about long-term operations in India.

How it works:

• Register under the Companies Act, 2013 with the Ministry of Corporate Affairs (MCA)
• Apply for FDI (Foreign Direct Investment) through the Automatic Route — no government approval needed in most sectors
• Set up payroll, hire employees directly, and operate as an Indian company

Benefits:

• Full control over operations and hiring
• Ability to generate revenue in India
• Eligible for government incentives and schemes

Best for: Companies planning to hire 10+ employees and build long-term India operations.

Option 2: Open a Liaison Office (LO) in India

A Liaison Office (also called a Representative Office) is the lightest form of presence in India. It is regulated by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA).

What it can do:

• Act as a communication bridge between your Japan headquarters and Indian clients or partners
• Conduct market research
• Promote your products and services
• Build relationships with vendors and customers

What it cannot do:

• Generate any revenue or income in India
• Sign commercial contracts independently
• Directly sell products or services

Key requirement: Your company should have a profit-making track record for the immediately preceding 3 financial years in Japan. All expenses of the LO must be covered through inward remittances from the parent company.

Best for: Japanese companies in the exploration stage, wanting to understand the Indian market before making a bigger commitment.

Option 3: Open a Branch Office (BO) in India

A Branch Office is slightly more flexible than a Liaison Office. It is also regulated by the RBI under FEMA and requires prior approval.

What it can do:

• Export and import goods
• Render professional or consultancy services
• Carry out research activities that the parent company is also engaged in
• Promote technical or financial collaborations

Note: A Branch Office is still treated as a foreign entity — not a separate Indian company — so certain restrictions apply on the activities it can conduct.

Best for: Companies with specific professional services or technical collaboration needs in India.

Option 4: Use an Employer of Record (EOR) — Hire Without a Legal Entity

This is the fastest and most popular route for Japanese companies that want to hire in India quickly, without setting up a company first.

An Employer of Record (EOR) is a third-party company that legally employs workers on your behalf in India. You manage the employee’s day-to-day work. The EOR handles everything else — employment contracts, payroll, taxes, statutory benefits, and compliance with Indian labor laws.

The EOR model is fully legal in India and is recognized by Indian authorities.

What the EOR handles for you:

• Employment contracts compliant with Indian law
• Payroll processing and salary disbursement
• Provident Fund (EPF) and Employee State Insurance (ESI) contributions
• Tax Deducted at Source (TDS) filing
• Adherence to India’s new Labor Codes (effective November 2025)
• Gratuity, maternity benefits, and other statutory requirements

Benefits for Japanese companies:

• No company registration required in India — you can onboard employees in as little as one week if you have the required documents
• No need to navigate complex Indian compliance from day one
• Lower upfront investment and risk
• Ideal for testing the market with a small team

Best for: Companies hiring 1–15 employees in India, startups, or any Japanese business that wants to start operations quickly without administrative burden.

Option 5: Use a Professional Employer Organization (PEO) — Shared HR Management

A Professional Employer Organization (PEO) is another powerful option for Japanese companies that want structured HR support in India. It works on a co-employment model — meaning both you and the PEO share the employment relationship with your Indian workers.

You retain full control over the employee’s daily tasks, performance, and business direction. The PEO, on the other hand, becomes the employer of record for HR and compliance purposes — handling payroll, statutory registrations (EPF, ESI, Professional Tax), employment contracts, and adherence to India’s new Labor Codes.

How PEO differs from EOR:

Option 7: Hire Independent Contractors or Freelancers

Some Japanese companies initially hire Indian professionals as independent contractors for specific projects. This works well for short-term assignments, project-based work, or when you need very specialized skills.

Important caution: Indian authorities look carefully at contractor arrangements. If the contractor works exclusively for your company, follows your schedule, and is managed like an employee, Indian law may treat them as a permanent employee — with all the associated legal obligations. Always ensure contractor agreements are properly drafted and reviewed.

Best for: Short-term projects or highly specialized, one-time work.

Option 8: Outsource to an Indian Service Provider

Another option is to not hire directly, but instead partner with an Indian company that provides the service you need. For example, you can outsource your IT support, back-office operations, finance, HR, or customer service to an established Indian firm.

This is different from hiring — you are contracting a business, not employing individuals. However, it gives you access to Indian talent and cost advantages without any employment responsibilities.

Best for: Non-core functions, or companies that want results without managing a team.

Understanding India’s Labor Laws in 2026 — What Japanese Companies Must Know

India has recently made a landmark change to its labor laws. On 21 November 2025, the Government of India brought into force all four new Labor Codes, which replace 29 old and fragmented labor laws with a single, simplified framework.

Here is what you need to know:

The Four New Labor Codes (Effective November 21, 2025)

Key Rules Every Japanese Employer Must Follow

• 50% Wage Rule: Under the new Code on Wages, an employee’s basic pay (excluding allowances) must be at least 50% of the total Cost to Company (CTC). This affects how you structure salaries.
• Provident Fund (EPF): Employers must contribute 12% of basic salary to the employee’s EPF account. Employees also contribute 12%.
• Employee State Insurance (ESI): Applicable for employees earning up to ₹21,000/month. Employer contribution is 3.25%.
• Gratuity: Employees who have worked for 5+ years are entitled to gratuity — 15 days’ wages for every year of service.
• Businesses have a transition period until November 20, 2026 to migrate existing registrations to the new unified compliance system.

Step-by-Step: How to Start Hiring in India as a Japanese Company

Here is a simple roadmap for Japanese businesses to get started in India:

Step 1 — Define Your Goal

Are you hiring for IT support? Back-office operations? R&D? Engineering? Define the roles and team size you need.

Step 2 — Choose Your Hiring Model

If you want speed and simplicity → EOR

If you want long-term control → Subsidiary

If you want to explore first → Liaison Office

If you want shared HR management with co-employment → PEO

Step 3 — Set Up the Structure
Work with a local expert like Mercurius  to complete the necessary registrations and approvals. Mercurius is here to make that journey easy for you. We also have an office in Japan (Tokyo), allowing us to connect with Japanese clients in their preferred language and better understand their business culture, expectations, and requirements.

Step 4 — Draft Compliant Employment Contracts
All employment contracts must comply with the new Indian Labor Codes. Ensure salary structures follow the 50% basic pay rule.

Step 5 — Register for Statutory Contributions
Register for EPF, ESI, and Professional Tax as applicable. Set up payroll processing.

Step 6 — Onboard and Manage Your Team
Begin hiring, onboarding, and managing your India team with local HR support

Final Thoughts

India is no longer just a cost-saving destination — it is a strategic partner for Japanese business growth. With a young and skilled workforce, a stable and growing economy, a supportive government, and a landmark India–Japan investment partnership backing this momentum, the opportunity for Japanese companies to hire and build in India has never been better.

Frequently Asked Questions (FAQs)

Q1. Can a Japanese company hire employees in India without registering a company there?
 Yes. Through an Employer of Record (EOR) service, you can legally hire employees in India without establishing a local entity. The EOR becomes the legal employer while you manage the work.

Q2. How long does it take to set up a subsidiary in India?
Typically 4–8 weeks, depending on the industry and approvals required.

Q3. What taxes apply when employing someone in India?
Key deductions include TDS (income tax), EPF (12% employer contribution), and ESI (3.25% employer contribution where applicable).

Q4. Is India a good destination for Japanese companies to hire IT and tech talent?
Absolutely. India produces over 1.5 million engineering graduates annually and has a thriving ecosystem for IT, AI, data science, and software development. Many major Japanese corporations already have large tech teams in India.

Q5. What is the minimum wage in India?
Minimum wages vary by state and industry. Under the new Code on Wages (effective November 2025), a National Floor Wage ensures no worker receives wages below a minimum living standard. Specific amounts are notified by the central and state governments.

How Mercurius Can Help Japanese Companies

At Mercurius, we specialize in helping foreign companies — including Japanese businesses — set up operations and hire employees in India, fully compliant with Indian laws.

We have been serving businesses for more than 17 years with a team of experienced professionals, including CAs, CSs, CPAs, tax accountants, and experts with experience at leading global consulting firms. We proudly serve clients across 60+ countries and have a presence in India, the USA, the UK, the UAE, and Japan (Tokyo). So, no matter where you are in the world, you can connect with us virtually or meet with our local partners for personalized assistance.

Here is how we can support you:

• Entity Setup Guidance: We help you choose the right structure — subsidiary, liaison office, branch office — and manage the entire registration process under the Companies Act, 2013 and RBI/FEMA guidelines
• EOR & Payroll Services: We act as your trusted partner to manage employment contracts, payroll, EPF/ESI, TDS, and all compliance under India’s new Labor Codes
• HR & Recruitment Support: We help you identify, screen, and onboard the right talent across India’s major cities — Bengaluru, Hyderabad, Mumbai, Delhi NCR, Pune, and more
• Tax & Compliance Advisory: We ensure your India operations are fully compliant with income tax, GST, transfer pricing, and FEMA requirements
• Ongoing Support: From day-to-day HR queries to annual filings and audits, our team is with you every step of the way

Whether you want to hire 2 employees or build a team of 200, we have the expertise to make it happen smoothly and legally. The key is to start with the right structure, stay compliant, and work with the right local partner.

Mercurius is here to make that journey easy for you. We also have an office in Japan (Tokyo), allowing us to connect with Japanese clients in their preferred language and better understand their business culture, expectations, and requirements.

📩 Contact us today to explore how we can help your Japanese company hire, operate, and grow in India.

Quick Connect

info@masllp.com

Client / Business Enquiries

India +91 966 777 9615

International +1 307 223 4197