Employees must be registered with the Mexican Institute of Social Security (ie, Instituto Mexicano de Seguro Social, IMSS), as well as the National Housing Fund (ie, Fondo Nacional para la Vivienda de los Trabajadores, INFONAVIT).
This is relevant because Mexican employers are required to make contributions to the IMSS and INFONAVIT based on the salaries of their employees. These contributions are subject to daily salary caps that are determined based on a multiple of the minimum daily salary in the area in which the work is performed.
In this regard, an employee must pay approximately 2.755 percent of their salary to the IMSS (payment to the IMSS includes all social security dues), while an employer must pay a total of 36.69 percent of the employee's salary. Contributions to INFONAVIT are approximately 5 percent, and contributions to a Mandatory Pension Plan are progressive up to 4.241 percent of employee compensation for 2023, and increase at such rate until 2030, amounting to a maximum rate of 11.875 percent.
These contributions are subject to daily salary caps that are determined based on a multiple of the minimum daily salary in the area in which the work is performed.
The contribution percentages are generally applied to an employee’s total integrated salary. However, in some cases, the percentage is broken down and applied to only a portion of the salary. There are maximum contributions that are capped for high salaries.
In addition, most states impose a payroll tax of approximately 2 percent of a company's total payroll. There are no caps for the state payroll tax.
Mexican companies are required, under the Federal Constitution and labor laws, to make mandatory profit-sharing payments to employees equal to 10 percent of the adjusted taxable income of the company. In general terms, the same overall rules are applied in determining the adjusted taxable income for profit sharing as for income tax purposes. Most significantly, profit-sharing rules do not provide for inflationary adjustments or net operating loss carryforwards. Furthermore, exchange gains and losses are recognized as realized rather than an accrual basis. Mexican companies are not required to make profit-sharing payments for the 1st year of existence.
The profit sharing is allowed as a reduction for income tax purposes. The reduction of taxable income, once certain calculations are made, does not fall under deductible expenses. However, since profit sharing is not a tax per se, it is not creditable for foreign tax credit purposes, representing a cost to most foreign investors.
On April 23, 2021, amendments to the Federal Labor Law (Ley federal del Trabajo), the Social Security Law (Ley del Seguro Social), the Employee Housing Fund Law (Ley del Instituto del Fondo Nacional de la Vivienda para los Trabajadores), the Mexican Tax Code (Código Fiscal de la Federación), the MITL and the VAT Law in order to regulate outsourcing was published in the Federal Official Gazette, which came into effect of April 24, 2021.
It prohibits the subcontracting of personnel (ie, outsourcing), which is defined as an arrangement in which an individual or entity provides or makes its own employees available for the benefit of another.
Subcontracting of personnel for rendering specialized services or to execute specialized works that are not part of the main corporate purpose (ie, core business) or main economic activity of the beneficiary of the services or works (ie, the customer) is permitted, provided that the provider entity is duly registered as provider of specialized services or works with the STPS.
Although the Federal Labor Law establishes penalties in case of breach of the abovementioned provisions, in accordance with the amendments to the Mexican Tax Code, the invoices derived from the outsourcing of services in order to carry out activities forming part of the main corporate purpose or economic activities of the beneficiary will not be deductible for income tax purposes and not creditable for VAT purposes by the customers of such services.