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Payroll in Mexico – 2022 Updates
On September 8th, 2021, an economic package for Fiscal Year 2022 was submitted. Mexico’s Economic Proposal for 2022 (the Proposal), which includes the Revenue Law, Government spending budget and a tax reform package, focuses on increasing tax collection by eliminating loopholes in legislation where there are perceived abuses by taxpayers. The Proposal also would grant the Mexican tax authorities (SAT per its acronym in Spanish) additional collection tools and powers in the audit process to effectively challenge the substance of transactions by requiring business purpose and to look to preceding or subsequent transactions. The Proposal does not include any new taxes or rate increases.
This proposal involves amendments, additions and repeals to multiple provisions, highlighting the:
- Federal Fiscal Code
- The Income Tax Law (ITL)
- The Value Added Tax Law (VATL)
- The Special Tax on Production and Services Law (IEPS).
Our partner J.A. Del Rio recently run a webinar and put together a document with the 2022 Tax Reform Proposal Analysis.
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% 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 5 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% of salaries and is withheld by the employer.
Corporate Tax
The Corporate Tax Rate in Mexico stands at 30%.
Income Tax 2021
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: For 2022, it is proposed that the institutions that comprise the Mexican financial system will determine the tax that should be withhold to individuals considering an annual rate of 0.08% applicable on the amount of the principal that origin the payment of interest. It is important to note that the rate was 0.97 % for 2021.
Royalties: Payments in connection with technical assistance, technology transfer, or royalties paid to Mexican residents will only be deductible for specialized services or the execution of specialized works, which are not part of the corporate business purpose or the preponderant economic activity of the beneficiary of the services, in accordance with the recently enacted subcontracting/outsourcing reform.
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, 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
The new daily minimum wage of $172.87 MXP (approximately $8.06 USD) for the country and $260.34 MXN (approximately $12.14 USD) for the Free Zone of the North Border will be effective as from January 1, 2022
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
The holiday schedule features two major week-long holidays: the Spring Festival (also known as Chinese New Year) and National Day. Saturdays and Sundays are often marked as additional official work days in China to compensate for long holiday breaks.
Leaves
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 Pay: 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% 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.
For more information about how our Global Payroll Control Platform integrates with local payroll providers in Mexico, contact us today.