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Employing in Mexico

At a glance

Employment in Mexico

Employment in Mexico is regulated by the Federal Labor Law (FLL), which outlines the appropriate rights and obligations of both employees and employers. The labor laws pursue a “stability principle” which seeks to find balance between the employee and employer. There is greater emphasis on the employee, emphasizing on permanency and continuity of the employment relationship. Additionally, the Federal Social Security Law along with the FLL governs the primary issues of employment in Mexico.

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Payroll & Tax in Mexico

Complying with local payroll and tax requirements is essential for a company doing business in Mexico. Issues such as tax rates and withholding and social security are all essential in ensuring a seamless human resources operation. Many companies will consider outsourcing these administrative tasks to a GEO (Global Employment Organization).

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Immigration / Work Permits in Mexico

Mexican immigration law does not permit any non-resident worker from engaging in business in Mexico without a valid visa, so compliance with these requirements must be ensured before hiring foreign workers. The foreign national may enter Mexico, typically on a temporary basis, and must holds an authorized visa, although the Mexican immigration authorities have substantial discretion in applying immigration law and regulations. Immigration agents currently have formal authority to carry out an inspection review to request information from foreigners entering Mexico, such as an invitation letter from a Mexican company.

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Incorporation

Foreign companies investing in Mexico may use different structures as investment vehicles to incorporate. Under the Foreign Investment Law of 1993 and the North American Free Trade Agreement (NAFTA), a majority of economic activities in Mexico are 100% open for foreign investor participation. Most notably are the infrastructure and financial services sectors which have traditionally been reserved for Mexican investors and the government.

The primary types of companies utilized are:

  • Limited Liability Stock Corporation (Sociedad Anónima, S.A.)
  • Limited Liability Company (Sociedad de Responsabilidad Limitada, S.R.L.)
  • Branch succursal
  • Representation Office
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GEO Solutions or DIY Employment in Mexico?

Companies entering Mexico must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities.  A GEO or Mexican Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Mexican entity established that can run payroll.

A DIY approach will typically be delayed until there is a properly incorporated company ready to run payroll and may be a costly option.  Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Using Shield GEO Employer of Record Services in Mexico

Payroll Mexico
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please contact us for a quote

Notes

Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.

 
Grossed income Tax Rate (%)
$0 - $5,952.84 pesos 1.92
$5,952.85 - $50,524.92 pesos 6.40
$50,524.93 - $88,792.04 pesos 10.88
$88,793.05 - $103,218.00 pesos 16.00
$103,218.01 - $123,580.20pesos 17.92
$123,580.21 - $249,243.48 pesos 21.36
$249,243.49 - $392,841.96 pesos 23.52
$392,841.97 - $750,000.00 pesos 30.00
$750,000.01 - $1,000,000.00 pesos 32.00
$1,000,000.01 - $3,000,000.00 pesos 34.00
$3,000,000.01+ pesos 35.00

The above tax rate is applicable to resident individuals, which is progressive up to 35%.

Nonresident employees on temporary assignments of less than 183 days hired by nonresident foreign firms are exempt from income taxes, while those who have worked for longer than a year are subject to the following tax:

  • MXP 0 – 125,900: 0%
  • MXP 125,901 – 1,000,000: 15%
  • MXP 1,000,001+: 30%
Tax Returns Supplied

Yes

Employers Social Security and statutory contributions

The Social Security Rate levied on employers is 7.58%. This is composed of retirement pensions, healthy and maternity insurance, occupational risk, day-care, disability and life insurance, and unemployment and old age insurance.

Employees Social Security and statutory contributions

The Social Security Rate levied on employees is 1.65%. This comprises of contributions to disability and life insurance and contributions to unemployment and old age.

Corporate Income Tax Rate

The corporate tax rate is 30%.

Payroll Tax

There is payroll tax in Mexico which is levied at the state level. The rate ranges between 1% and 3% of salaries and is withheld by the employer.

Sales Tax

There is payroll tax in Mexico which is levied at the state level. The rate ranges between 1% and 3% of salaries and is withheld by the employer.

Withholding Tax

Mexico imposes withholding tax (WHT) on certain classes of income paid to non-residents:

  • Dividends: 10%
  • Interest: 4.9 – 40%
  • Royalties: 5%/25%/35%
  • Branch remittance tax: 10%

Mexico has entered into double tax treaties with many countries that may reduce the tax liability on foreign-source income generated by foreigners.

Other Tax

Tax on production and services: Manufacturers and wholesalers of certain goods are charged a tax on production and services, such as alcoholic beverages and tobacco. The rates vary by product.

Real property tax: Ownership of real property is taxed at the municipal level.

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