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Payroll & Tax in Mexico

Mexico payroll & taxation

Mexican legislation on taxes for foreign employees are not as stringent, although are typically higher given the high levels of social security in the Mexican tax system. Salary earned abroad is exempt from tax in Mexico if the Mexican resident works continuously abroad for at least six months, while non-resident employees are only subject to income taxes from Mexican sources. There are some notable consideration with Mexican tax laws that foreign employers must be aware of, such as the different social security contributions, the VAT and withholding tax.

Your Payroll Options in Mexico

Remote Payroll

A remote payroll in Mexico is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Mexico. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Mexico is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Mexico under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

PLC

Larger companies with a commitment to Mexico may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Mexican payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Mexican employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Mexico to a GEO, like Shield GEO. This is possible for both foreign workers and Mexican nationals. This is the easiest, fastest and safest way to payroll staff in Mexico.

Shield GEO manages all aspects of payroll for workers in Mexico, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with pay slips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Mexico

Information Explanation
Currency ?

Mexican peso (MXN)

Tax Figures

Information Explanation
Corporate Income Tax ?

The corporate tax rate is 30%.

Income Tax Rate ?
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%
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.

Employee Social Security (EE SS)

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.

Employer Social Security (ER SS)

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.

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