Mexico

Mexico is a North American country that shares land borders with the United States to the north, and with Guatemala and Belize to the southeast.

Mexico’s western coastline meets the Pacific Ocean while its eastern coastline meets the Gulf of Mexico and the Caribbean Sea and by extension the Atlantic Ocean.

General Information

• Full Name: United Mexican States
• Population: 127 Million (World Bank, 2022)
• Capital: Mexico City
• Major Language: Spanish
• Major Religion: Christianity
• Monetary Unit: 1 Peso = 100 Centavos
• Main Exports: Machinery and transport equipment, mineral fuels and lubricants, food and livestock
• GNI per Capita: US $11,091 (World Bank, 2022)
• Internet Domain: .mx
• International Dialling Code: +52

How Do I Say in Spanish?

• Hello: Hola
• Good Morning: Buenos días
• Good Evening: Buenas noches
• Do you speak English?: ¿Habla Inglés?
• Good Bye: Adios (despedida)
• Thank you: Gracias
• See you later: Hasta luego

Numbers and dates

Dates are usually written in the day, month and year sequence. For example, 1 July 2024 or 1/7/24.

Exquisitely positioned between the United States and Central America, Mexico offers a dynamic environment conducive to prosperous business operations.

Bathed in a rich history and cultural heritage, it is also the 15th largest economy in the world and the second-largest in Latin America. With its strategic geographic positioning, Mexico offers a gateway to markets not only in North and South America, but also in Europe and Asia.

One of the significant advantages of doing business in Mexico is access to a vast domestic market and a population of approximately 126 million people, where more than half are under the age of 29. This presents a vibrant consumer market as well as a youthful, diverse and increasingly skilled labour pool, ready to power your global growth agenda.

Integration into the global trade network is another compelling benefit businesses experience in Mexico. As a member of the United Nations, the World Trade Organisation, and the G20—among other international bodies—Mexico has also signed 12 Free Trade Agreements with 46 countries, more than any other nation, making it an international business hub.

 

Investing in Mexico opens businesses to a breadth of advantages and growth opportunities within one of the world's most dynamic economies. Mexico serves as a strategic bridge between North and South America, offering easy market accessibility to the US and Latin America. Its extensive coastlines also present ports for trade with the Asia-Pacific and Europe.

Mexico boasts a comprehensive network of airports, roads, and ports, along with modern telecommunications infrastructure—facilitating smooth logistics and communication.

With a network of 12 Free Trade Agreements with 46 nations, businesses in Mexico enjoy reduced tariff barriers and seamless access to international markets. With more than half of its population under the age of 29, Mexico presents businesses with a young, diverse, and increasingly skilled workforce.

Through responsible fiscal management, Mexico has fostered a stable macroeconomic climate, with inflation consistently under control.

Mexico’s domestic market of around 126 million consumers presents extensive demand for a variety of goods and services.

 

 

Foreign Direct Investment (FDI) landscape in Mexico continues to affirm its position as a prime destination for global investors. There is a noticeable influence of North American partnerships on Mexico's FDI dynamics. The United States leads the fray with a substantial contribution to the sum total of Mexico's FDI, followed by Spain which forms the backbone of Mexico's European connection. Canada is another significant contributor, injecting a robust percentage into the Mexican economy.

One of the components that make Mexico an attractive location for investors globally is the myriad FDI incentives it offers. High on the list are tax incentives, which include potential deductions in income tax and likely exemptions from value-added tax (VAT) on exports. Special Economic Zones (SEZs) promise reduced tax liabilities and customs advantages. The Mexican Government encourages research and development projects with suitable grants and funding, promoting innovation. Another significant incentive is trade facilitation—agreements like the United States-Mexico-Canada Agreement (USMCA) tender access to large markets, lower tariffs, and enhanced trade conditions.

Mexico's government keenly promotes varied sectors through appealing FDI incentives:

• The emerging Information Technology and Software industry benefits from a growing workforce of IT professionals encouraged by digital transformation trends
• The Renewable Energy sector is progressing, driven by government initiatives to transition to cleaner energy sources
• Real Estate is surging in demand across industrial, commercial, and residential spaces, especially in urbanised locations
• Agriculture is ripe for investment, given the country’s biodiversity and agricultural wealth

The growth and success observed in a country's FDI not only boost the host country's economic prospects, but also offer immense benefits for the investors. Capitalising on FDI in Mexico can offer opportunities to tap into a diverse and growing market, gain access to an industrious labour force and take advantage of the country's strategic geographic location that enables easy access to North American markets. The varied incentives offered by the government can also reduce the operational costs, fueling profitability. Being a part of Mexico's flourishing FDI landscape could be a strategic move for businesses aspiring to expand and thrive on global frontiers.

In Mexico it is not mandatory to make employee salary payments from an in-country bank account, provided the bank account abroad belongs to the Mexican entity.

It is mandatory to make third party authority payments from an in-country bank account.

Generally, banks operate at a national scale with plenty of branches and a widespread ATM network. Banks are open to the public on weekdays from 9:00am to 4:00pm and closed at the weekend.

Mexico offers a vibrant landscape for businesses to plant their flags. For foreign entities and individuals eyeing growth, understanding the legalities of establishing a commercial presence is crucial.

This journey begins by choosing the right structure for your enterprise, which could be in the form of a subsidiary, branch office, or representation office. It's a necessary step because having such a legal vehicle in place is a prerequisite to registering as an employer and initiating the payroll process within Mexico's vibrant economy. Here are the most common types:

Sociedad Anónima (S.A. - Corporation)

A popular choice amongst foreign investors, the S.A. provides shareholders with limited liability up to their contributed capital. This entity type requires a minimum of two shareholders, and there is no maximum limit. A key advantage is that shares can be publicly traded on the stock exchange, creating financing opportunities. The establishment process includes drafting bylaws, opening a bank account, and registering the incorporation deed.

Sociedad de Responsabilidad Limitada (S. de R.L. - Limited Liability Company)

Another favored option, the S. de R.L. allows shareholders to limit their liabilities to personal contributions. With a minimum of two and a maximum of 50 partners, it can’t issue publicly tradable shares. This provides added flexibility and simpler management, as it is governed by fewer regulatory provisions in comparison to an S.A.

Branch Office

Operating as an extension of the foreign parent company, a branch office's liabilities are borne by the parent. Although initial costs may be lower, it is subject to the same tax obligations and compliance requirements as Mexican corporations.

Representation Office

A representation office is typically established for market research, promotion, and liaison activities. It is not a separate legal entity and doesn't engage in commercial operations. The foreign parent company holds full legal and tax responsibility for the representation office's activities.

It's important to note that embarking on setting up an entity in Mexico is a meticulous process that encompasses a nuanced blend of registrations and compliance requirements. The roadmap to incorporating your business typically involves several clear steps: 

• Select the ideal entity type: The initial stage is to determine the best entity structure, taking into account factors like ease of operation, liability protection, and tax implications.
• Register with the relevant local authorities: This involves submitting the necessary documentation, including your company's core essentials, such as the name and structure.
• Obtain a tax identification number: Before starting operations, you will need to acquire a tax ID (RFC) from the Tax Administration Service (SAT).
• Appoint a legal representative: It's crucial to designate a representative for your company who is familiar with Mexican corporate law.
• Establish a fiscal domicile: Your Mexican business must have a registered address within the country.
• Enroll in social security: Ensure your entity is registered with the Mexican Social Security Institute (IMSS), safeguarding the rights of your employees.
• Register with the National Registry of Foreign Investments: To operate legally, foreign businesses must register within 40 days of incorporation

The intricacies of Mexican corporate law also dictate certain mandates such as the appointment of a legal representative and having a fiscal domicile in Mexico. The process demand attention to detail, requiring you to harmonise with local norms, including registration with the National Registry of Foreign Investments.

The timescale for laying down your business roots in Mexico oscillates between 60 to 80 business days, fluctuating with the city of incorporation. Such variability underscores the importance of working with a local guiding hand that understands the pulse and pace of the regional legal environment.

To work in Mexico, all business visitors must obtain a visa. The visa application should be made prior to travelling to Mexico. Applicants should make their request for a visa to the Mexican Consulate within their country of origin or temporary residence.

Those who enter Mexico for business activities are regulated by the Immigration law and its legal framework, consequently such foreigners can stay in Mexico under either one of the following legal conditions; (i) Visitor (ii) Temporary Resident (iii) Permanent Resident.

Such conditions confirm the legal status of foreigners in Mexico and set the visa’s classification that the Mexican grants in accordance with the activities the foreigners carry out.

Temporary Resident in Mexico

• Authorises the individual to stay in Mexico for a period of time of no longer than 4 years with the possibility to work in Mexico as long as they hold a job offer from the Visa sponsor.
• Allows the individual the right to enter and leave the country as often as desired as well as to the possibility to enter accompanied the dependents who can stay in Mexico for the period of time established for this status.

Permanent Resident in Mexico

• Individual who are residing in Mexico permanently, with the possibility to obtain a working permit in exchange for remuneration, subject to a job offer and with the right of entering and leaving the country, as many times as required.
• Must apply for the visa at the Mexican Immigration Services in Mexico or in a Mexican consulate abroad, and the visa will be delivered to the individual at a Mexican Consulate of their choosing.

Working Tourist Visa

• This can be used if the individual will be working in Mexico for no longer than 6 months

 

 

The tax year runs from 1st January to 31st December for all Mexican entities and there is no election.

Income Tax

The income tax law defines concepts such as residence and source of wealth for purposes of determining those individuals and companies subject to this tax. All individuals or companies who, according to the Federal Fiscal Code, are considered “tax residents” in Mexico, must pay Mexican income tax based on their worldwide income.

The individual income tax (ISR) for a resident is calculated at graduated progressive rates that vary from 0% to 35%. A non-resident will be subject to individual income tax rates which range from 0%, 15% and up to 30% on salary income.

Salary Range	Lower Limit	Upper Limit	Fixed Fix	Percentage
1	0.01	746.04	-	1.92
2	746.05	6,332.05	14.32	6.40
3	6,332.06	11,128.01	371.83	10.88
4	11,128.02	12,935.82	893.63	16.00
5	12,935.83	15,487.71	1,182.88	17.92
6	15,487.72	31,236.49	1,640.18	21.36
7	31,236.50	49,233.00	5,004.12	23.52
8	49,233.01	93,993.90	9,236.89	30.00
9	93,993.91	125,325.20	22,665.17	32.00
10	125,325.21	375,975.61	32,691.18	34.00
11	375,975.62	9,999,999,999.99	117,912.32	35.00

 

The following types of salary income are tax-exempt, they must be properly documented and comply with any requirements established by law:

• Insurance benefits for sickness or work-related injury
• Reimbursement of medical and funeral expenses
• Certain social security benefits
• Social security contributions (the employee and employer portions)
• Benefits received from the Workers’ Housing Fund (INFONAVIT)
• Salary received by foreigners in the following cases (when there is a reciprocal law in the country of origin that applies to Mexican nationals) as an example:
  • Diplomatic agents
  • Consular agents
  • Embassy and consular employees
  • Official delegation members

The employee’s income tax is withheld at source and must be paid to the local authorities by the 17th of the following month. A non-voluntary late payment of tax can attract a penalty as high as 50% of the amount due.

Expatriates who are resident in Mexico must file an annual tax return. Non-residents do not file annual returns. If a resident’s only source of income is from a Mexican employer and the compensation received is less than MXN$400,000.00 the employer is responsible for making annual withholding tax adjustments for the employee. They must be e-filed in April of the following year through the website of the Tax Administration Service.

Employee contributions to the Mexican Social Security Institute are withheld at source and the employer also makes contributions. Both contributions are calculated at varying rates and subject to various limits based on multiples of the minimum wage.

The Social Security Institute administers the social security system. In addition to old-age benefits, it provides full pay for 78 weeks of disability and offers permanent disability insurance. Other benefits include pensions, death benefits, daytime nurseries and paid maternity leave. The system also covers work-connected accidents and illnesses and non-occupational diseases.

Employees must pay social security and retirement contributions on their salaries at a rate of approximately 5% (with a cap).

Employers contribute to Social Security, Housing Fund and Retirement Fund. However, this is taken from the salaries of employees (based on the minimum wage), these add up to roughly 25% of the salaries.

Social Security contributions are capped to an integrated daily salary for calculation purposes.

Social Security Contributions –Employer’s contribution
Description	Name	Percentage
Retirement	CESANTIA Y VEJEZ	From 3.15% up to 5.3310%
Retirement	RETIRO	2.00%
Housing	INFONAVIT	5.00%
Social Security	RIESGO DE TRABAJO	From 0.50% and up to 7.58%
Social Security	CUOTA FIJA	20.40%
Social Security	EXC. 3 UMA PAT	1.10%
Social Security	PRESTACIONES EN DINERO	0.70%
Social Security	GASTOS MEDICOS PARA PENSIONADOS Y BENEFICIARIOS	1.05%
Social Security	INVALIDEZ Y VIDA	1.75%
Social Security	GUARDERIA	1.00%

 

Social Security Taxes – Employee contribution through withholding
Description	Name	Percentage
Social Security	EXC. 3 UMA TRAB	0.40%
Social Security	PRESTACIONES EN DINERO	0.25%
Social Security	GASTOS MEDICOS PARA PENSIONADOS Y BENEFICIARIOS	0.375%
Social Security	INVALIDEZ Y VIDA	0.625%
Retirement	CESANTIA Y VEJEZ	1.125%

Penalty for late payment of Social Security taxes is up to 40% of the amount due.

 

Both the employer and employee contribute to the Federal pension system in Mexico. The following contributions are made (reported above under “retirement” and subject to a cap);

• The employer pays 2% of the employees’ base salary as pension contributions for retirement.
• The employer pays 3.15% of employees’ base salary as pension contributions for unemployment and old age insurance.
• The employees pay 1.125% of their base salary as pension contributions for unemployment and old age insurance.

Before 1997, the Mexican Social Security Institute provided pensions to employees. Employees that became active with the old statute may claim a federal pension benefit upon retirement age and provided that at least 500 weeks of contributions are recorded.

Contributions to the Mexican Social Security Institute are not subject to income tax, likewise a portion of the pension received is exempt from income tax.

Mandatory pension rights transfer regardless of the employer.

Most Mexican states levy a tax on salaries in cash (but not on overall compensation), which is payable by the employer. Mexico City imposes a 3% payroll tax, as it is payable by the employer it constitutes a tax-deductible expense.

Social security contributions are filed and paid as follows:

Tax Returns in Mexico

• Social Security (monthly)
• Housing (bi-monthly)
• Retirement (bi-monthly)
• Local Payroll Tax/ISN (monthly)
• Employee withholding Income Tax (monthly)

Informational Returns in Mexico

• Annualised individual’s income tax calculation prior to the year end (annually in December)
• Social Security’s professional risk coverage percentage calculation (annually in February)
• The submission is electronic

The payroll provider needs to be granted with a POA for legal representation for tax filings, this will allow access to the e-filing system.

The employer and employees should register with the Instituto Mexicano del Seguro Social (IMSS).

New starters should register with the IMSS within their first five (5) days of commencing employment.

To set up a new start the following information is required:

• Employment contract
• Employee compensation package & benefits
• Employee personal information
• Employee bank details
• Copy of identification, tax ID (RFC), general population registry (CURP), social security number (NSS)
• Proof of address

Please note: If an employee has a loan from the Workers National Housing Institute (INFONAVIT), the payroll provider will require a copy of the document stating the amount to be withheld through the payroll.

For leavers, the payroll company will require an email confirming the leaving date and whether it is a resignation, or the employee requires a termination, or a severance pay.

It is legally acceptable in Mexico to provide employees with online payslips, provided that those are the official electronic payslips (CFDI or digital tax receipt) according to the regulations in force.

Reporting

Payroll records must be kept for at least 5 years.

In Mexico The Federal Labor Law (Ley Federal del Trabajo) establishes maximum regular hours work daily, the normal work week ranges from 40 to 48 hours. Employees work a maximum of six days a week and are paid for the seventh day.

It is common business practice in Mexico for a working week to last from Monday to Friday.

Labor relationship in Mexico is governed by the Federal Labor Law, which applies to all employees in Mexico regardless of nationality.

Holiday Accruals and Calculations In Mexico

In Mexico, employees are entitled to a progressive holiday allotment that increases with the length of their service. Once employees have completed a year of service, they are granted an annual period of paid vacation. This leave period can be no less than 12 working days and it increases by two working days each subsequent year, until reaching a total of 20 days.

In addition to annual leave, there are several statutory public holidays that employees are entitled to. The minimum holiday entitlement consists of at least six paid public holidays per year[2%5E].

It's important to note that this entitlement applies to all workers in Mexico including full-time and part-time employees.

Holidays are calculated and paid as normal working days.

Maternity Leave

In Mexico, maternity leave policies support expectant mothers during and after their pregnancy. The Mexican Federal Labour Law mandates that an expectant mother gets a total of 84 days of paid maternity leave. It's split into two halves: the mom-to-be can take 42 days off before the birth and the remaining 42 days after the birth. Additionally, pregnant employees have the right to transfer the last four weeks of the pre-birth period to the post-birth period, subject to medical advice.

During this period, women receive benefits from the Mexican Institute of Social Security (IMSS), equal to 100% of the daily salary based on the Social Security contribution – provided that they have made at least 30 weeks of contributions to the IMSS during the nine months prior to the birth.

If it is in the best interest of the mother, postnatal leave can be extended with a medical certificate, without this impacting the expected time off before the birth. In some cases, depending on the health of the mother, prenatal leave can also be transferred to postnatal leave.

In addition, under Mexican law, mothers are guaranteed the right to two extra paid breaks of half an hour each day to feed their newborns. This is allowed for up to six months after they have returned to work/ until the child is one years old.

Paternity Leave

Fathers in Mexico are also entitled to five days of paid paternity leave following the birth of their child.

This is paid for by the employer and is to be 100% of the daily salary.

Sickness

In Mexico, workers are entitled to sick leave under the Social Security Law. When an employee is unable to carry out their work due to a health condition, the Mexican Institute of Social Security (IMSS) provides sickness benefits.

The length and remuneration of the sick leave depend on the nature of the illness, whether it's a general illness or a work-related injury or illness.

For general illnesses, benefits begin after the fourth day of disability. During the first three days, the employer is required to pay 100% of the worker's salary. From the fourth day onwards, IMSS pays a daily disability benefit equal to 60% of the worker's salary for a maximum of 52 weeks.

For work-related injuries and illnesses, IMSS provides an incapacity benefit from the first day of disability, equivalent to 100% of the registered daily salary, for the entire duration of the disability[3%5E].

Please note that these benefits are contingent upon the employee being registered with IMSS and having made contributions to the Social Security system.

Work Injury in Mexico

In Mexico, Medical leave due to an accident or injury at work (or in transit), IMSS will pay 100% of contribution base salary (SBC) through the time that employee is not working due to this cause.

It is required to get a form number ST7 which must be filled out by an IMSS’s Doctor, this form must be delivered by employee to the company’s HR area explaining the accident.

In case of a severe disease or death, it must be signed off by the legal representative or the POA’s holder. 

National Service

National service in Mexico known as the National Military Service (Servicio Militar Nacional, or SMN). This service involves all males upon reaching the age of eighteen years.

Contrary to some countries, selection for active service in Mexico is made through a lottery system. Individuals who draw a black ball are assigned the status of "availability reservists", and aren't required to perform any active duties.

The minimum wage in Mexico for the year 2024 has seen significant alterations with an intent to keep up with the economic scenario.

As of January 1, 2024, Mexico's official daily minimum wage saw an increase of approximately 20%, influenced by the rising costs of living and economic considerations.

The general minimum wage for the majority of the country has been raised to $248.93 MXN per workday. 

The country's Northern Border Zone, a designated area covering approximately 25 kilometers into the Mexican side of the border, has a separate daily minimum wage rate. It's set at $374.89 MXN. 

There are multiple statutory holiday schedules within Mexico. Below are the statutory national holidays in Mexico for 2024.

Holiday	Weekday	Date
New Year's Day	Monday	1 January
Constitution Day	Monday	5 February
Benito Juarez's Birthday	Monday	18 March
Holy Thursday	Thursday	28 March
Good Friday	Friday	29 March
Labor Day	Wednesday	1 May
Independence Day	Monday	16 September
Government Transition (every 6 years)	Tuesday	12 October
Revolution Day	Monday	18 November
Christmas Day	Wednesday	25 December

 

Employees are paid for seven public holidays, plus an additional day in Presidential election years. Other generally recognised religious or traditional holidays are also commonly given to employees each year.

 

In general, employee benefits are deductions for corporate income tax: pension plans contributions, social security taxes, benefits granted under the same policy for all employees (capped) such as meal tickets, saving funds, medical and life insurance.

13th Month Payment

There is a Christmas bonus known commonly as a 13th month payment. While a business practice may allow for more, the statute provided a fifteen-day payment and is prorated based on the number of days worked during the year.

Cash Vacation Premium – ‘Prima Vacacional’

The mandatory cash vacation premium, known as "Prima Vacacional," is an additional cash benefit given to employees to use during their vacation. It is legally required and calculated as a minimum of 25% of the employee's daily salary multiplied by the number of vacation days. For example, if an employee's daily salary is 1000 pesos, the pay during the vacation period will be 125 pesos per day. This premium is paid in addition to the regular salary during vacation days. Some companies may offer more than the 25% minimum as part of their benefits package. The Federal Labor Law in Mexico mandates this minimum percentage for the vacation premium. Employees who have completed at least one year of service are entitled to this benefit. It is common business practice to pay up to 50% for this benefit.

Expenses

Expenses are usually treated through general expense reports and shall be supported by official invoices to be obtained by the employees, otherwise, the reimbursement of non-supported expenses would turn into an item of income for the employee and the employer shall withhold income tax and report.

In Mexico, several key regulation and legislation changes in income tax, social security, and employment law are taking effect in 2024:

Deductibility of expenses for non-qualified services and the creditability of Value Added Tax (VAT) for such payments.

Service recipients are required to verify that service providers

Social Security Tax Practices

The Mexican Social Security Institute (IMSS) has issued new guidelines effective July 8, 2023 which impact 2023 These guidelines address improper tax practices in the field of social security. They focus on issues such as the exclusion from the contribution base salary payments that exceed the maximum amount of the participation of workers in the profits of companies (PTU), advances of the same, and payments for productivity bonuses​​.

Labour Law Reform on Outsourcing Services

There are significant amendments to the labor law concerning outsourcing services. These include restrictions on the are registered with the Labour Authority as specialised service providers and to obtain detailed information about the payment of salaries and taxes on the amounts paid to the employees​​.

Profit Sharing and Specialised Services

The Reform amends the Labor Law to include a cap on the profit-sharing amount paid to each employee and introduces several reporting requirements for specialised service providers. These requirements are aimed at ensuring compliance with labor and social security obligations

Multilateral Instrument (MLI)

As a significant global player, Mexico's adoption of the Multilateral Instrument (MLI) brings forth vital changes to its tax treaty network, intended to prevent Base Erosion and Profit Shifting (BEPS). These adaptations have substantial implications for businesses operating within its borders and those engaging in cross-border transactions with Mexican entities.

• The MLI's introduction represents a modern approach to international tax norms and aims to counteract profit shifting strategies employed by multinational enterprises. It modifies the application of Mexico's existing bilateral tax treaties to incorporate the BEPS recommendations.
• For businesses, these changes signify a shift in the tax landscape they operate within. If your operations rely on benefits from Mexico's tax treaty network, it is crucial to understand how the MLI could potentially impact them.
• Impact on Tax Planning: The MLI provisions might affect several international tax planning strategies. If your organisation has arrangements based on specific interpretations of bilateral tax treaties, these may need to be reassessed, recognising any changes resulting from the MLI.
• Restrictions on Treaty Benefits: The MLI may limit certain tax treaty benefits to prevent treaty abuse. Ensure to review your enterprise's current tax positions to understand how these changes may impact eligibility for treaty benefits.
• Dispute Resolution: The MLI introduces improved mechanisms for resolving disputes, which could reduce uncertainty and provide more predictability for cross-border businesses.

 

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.