It is not only the lower wages compare to the US or Canada that makes Mexico attractive to the investors, but also bilingual high qualified professionals in different areas, for example, accounting, finance, Software development, and support, among others.
Also, Mexico has a strategic location and shares almost the same time zone with Canada and the US. Among others, Mexico have is part of several commercials’ agreement like T-MEC were the US and Canada are also part of it.
What do you need to know regarding labor in Mexico?
Regarding Mexican labor regulations you need to know the following:
- The Social Security in Mexico is Mandatory for all employees and is in charge of IMSS (Mexican Institute of Social Security), the contributions regarding Social Security must be considered before starting the company, that can go up to approximately $350 USD monthly per employee, depending on the salary level.
- A state tax for salaries must be paid the rate goes from 2% – 3% depending on the state.
- The Income Tax Rate for employees can goes from 11% to 35% depending on the salary level.
- Mexican labor laws established a compensation payment when the employee is fire, this payment include: 3 months salaries, 20 days per worked year and seniority prime.
- You will need to be in compliance with “NOM -035 Labor Stress Prevention”, requirements will change according to the number of employees.
- Labor contracts are indispensable for all your employees.
- In Mexico, all employees have access to the profits of the companies and is call PTU, 10% of the profits in the tax year will be paid to the company collaborators.
- Payroll receipts in Mexico must be in XML format and certified by Mexican IRS platform
What risks can you front in Mexico?
In the process of setting up you Mexican Entity, you may be offer by law and tax firms “tax strategies” that are focus to avoid social security contributions a reduce income tax withheld using different legal figures in Mexico such as; Workers unions, illegal outsourcing, special bonus, among others, is important to mention that all this strategies are out of compliance in Mexican regulations and can generate a possible tax contingency.
What about employee benefits?
The mandatory law benefits are the following:
- Social security
- 15 days Christmas bonus
- 6 days paid vacations (every year the number of days increase)
- 25% vacation prime
- Mandatory holidays
A lot of companies may offer other not mandatory benefits to their employees in order to be more competitive such as:
- Private health insurance
- Life Insurance
- Food coupons
- Save founds
- Over law vacations days, Christmas bonus and vacation prime
- Education bonus
- Among others
Is important to consider that the benefits may increase the social contributions or income tax withheld.
Recommendations:
Before establishing your shared services in Mexico is important to make financials projections that include the following:
- Total cost of employees (social security, benefits, federal and state taxes)
- Offices rent costs
- Termination payments
- Legal fees regarding advisory and labor contracts
- Labor equipment for employees
After projections, a tax planning is recommended to plan and estimate corporate taxes and make your business profitable under Mexican regulations. Creating a legal entity in Mexico can be awesome but you need to careful with Mexican regulations.
