Mexico Global Payroll & Tax Information Guide

November 11, 2020 | Yana Todorova 5 Mins read

Do you need assistance with global payroll services in Mexico? We are a global payroll technology partner who can introduce you to a payroll services provider from our global payroll network.  We specialize in technology for Global Payroll Management and assist companies who require global payroll services as they scale into new countries.

We help multinational employers to

    • Standardize their global payroll process,
    • Integrate and consolidate global payroll data,
    • Centrally manage their payroll with visibility & control.

Payslip would be delighted to partner with you to ensure compliant and accurate global payroll management.

2020 Updates

Due to covid-19, the following measures were taken by the Mexican authorities

    • Employers can defer payments of worker-employer social security contributions up to 48 months.
    • Mexican government announced that it will be granted one million loans of MXN 25,000 each 500,000 for the informal economy and 500,000 for the formal economy.

Global Payroll Mexico

Our partner J.A. Del Rio has put together a short video explaining Mexico’s payment regulations and laws. Watch Alejandra Campero from the Client Success Department at J.A. Del Rio presenting the top 5 new features of the CFDI in Mexico.

Basic facts on payroll in Mexico

Employers in Mexico are responsible for federal income tax withholding and remittances, Social Security withholding and contributions, and state payroll tax payments.

Foreign workers in Mexico are offered the same protections and legally-mandated benefits as resident workers. Mexican employers are required to have a workforce in which at least 90 percent of the workers are Mexican citizens.

Mexico provides special treatment for businesses that qualify as maquiladoras. Maquiladoras are foreign-owned companies in Mexico that are able to import machinery and materials duty free, export finished products around the world and avoid permanent-establishment status for tax purposes.

Employers must keep accounting documents on record for five years after they were emitted. The tax year runs from 1st January to 31st December.

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

Corporate Tax

The Corporate Tax Rate in Mexico stands at 30 percent.

Income Tax 2020

Residents of Mexico are assessed income taxes on their global income although any double taxation should be offset through bilateral foreign tax agreements. Both resident and foreign workers are assessed income tax at the same rates.

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.

Social Tax

    • Employee Social Security

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

    • Employer Social Security

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

Compensation and Benefits

Labor and benefit requirements, such as minimum wage and overtime, and are governed by Mexican law even if an employment contract was signed outside of Mexico. Employers have an obligation to contribute to private retirement and old age insurance accounts of employees. In addition, profit sharing is required for most employers.

Minimum Wage

From Jan. 1st, 2020, the national standard daily minimum wage is $123.22 pesos.

Overtime

Overtime is limited to three hours per day and cannot be worked more than three times per week. Workers are paid at twice their regular hourly wage for the first nine hours of overtime in a week and at three times their regular wage thereafter.

Hours of Work

Eight hours is the regular workday and 48 hours are a regular workweek. Employees have one day of rest per week with full pay guaranteed. Most employers adopt a 40 hour workweek.

Holidays

Workers who are required to work on a legal holiday are entitled to double pay in addition to their regular pay.

Leave

Annual/ Vacation leave: After one year of employment with a company, employers must provide employees with six paid annual vacation days, increasing by two days each subsequent year until the entitlement reaches 12 days after the fourth year of service.

Sick leave: There is no state law requiring private sector employers to provide employees with paid or unpaid sick leave.

Paid parental leave: Pregnant employees are entitled to six weeks of paid maternity leave prior to giving birth and six weeks after, paid by IMSS. In most cases, mothers may opt to transfer up to four weeks of leave from before the pregnancy to after it.

Wage Payment

Wages must be paid every week to employees in positions of manual labor and every 15 days for all other employees. Wages generally are paid on a Saturday.

Foreign workers in Mexico

For tax purposes, nonresidents pay taxes as Mexican citizens except in the case of those working under the maquiladora tax regime.

The following people are considered to be residents in Mexico:

    •  individuals that have their house in Mexico,
    •  individuals obtaining more than 50 percent of their annual income in Mexico,
    •  individuals whose center of professional activities is located in Mexico, or
    •  people who are Civil servants or Mexican workers, even when the main base of its business is abroad.

Residents in Mexico, despite having foreign nationality, will pay taxes as any other national resident individual in Mexico.

Visas

Non-Mexican citizens seeking to work legally in Mexico must obtain a temporary or permanent resident visa. Foreign nationals must obtain one of the following visas in order to work in Mexico:

    • Temporary visitor with permission to engage in lucrative activities visa:

This visa allows foreign nationals to live and work in Mexico and receive a local salary for up to one year.

    • Temporary visitor border worker visa:

This visa authorizes citizens of countries bordering Mexico to the south to live and work in Mexican border regions for up to one year.

    • Temporary resident visa:

This visa authorizes foreign nationals to live and work in Mexico for up to four years.

    • Permanent resident visa:

This visa authorizes foreign nationals to live and work in Mexico indefinitely.

 

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