Tax laws and regulations vary from country to country. If you’re planning to do business in a Latin American (LATAM) country, you should brush up your knowledge on the various tax laws in order to remain compliant. As a successful professional employer organisation (PEO), we understand the LATAM market and climate, enabling us to help businesses operate effectively. Failure to adhere to tax laws could mean your business is non-compliant, which can be incredibly detrimental. When it comes to payroll, tax and labour laws, it’s better to outsource to a group that understands, rather than learning from scratch.
Here at Payroll Worldwide, we provide human resources (HR) and payroll systems to businesses in LATAM and those wishing to expand to the region. Hiring a team in-house can be costly and time-consuming as they need to be trained; we can assist with all areas of HR, from onboarding and recruiting to paying employer tax and providing a concierge service for employees. If you’re planning to do business in Mexico in particular, we’re here to help.
According to Statista, in 2020 there were approximately 10,000 companies with more than 251 employees in Mexico. It’s a growing, thriving economy to be a part of, with dedicated workforces and a great skillset that business owners can utilise as well as providing jobs for hundreds of people. Income tax is a common necessity for pretty much everyone, no matter which country you operate in. In Mexico, the tax year runs from the 1st January to the 31st December, and key tax authorities include the Ministry of Finances and Public Credit and the Mexican Institute of Social Security. Anyone working in Mexico must obtain a tax number a Uniform Population Registry Code. If you are a foreign employee, you must obtain a tax number directly from the authorities.
All people or businesses who are considered tax residents must pay income tax based on their global income. In cases where income is obtained by a foreign individual in Mexican territory that qualifies Mexico as the primary source of wealth, a final payment may be assessed on Mexican source income only. There are ten types of taxable income in Mexico, including incorporation regime, salaries and rental income. However, some types of income are tax-exempt, including insurance benefits for sickness, certain social security benefits and reimbursement for funeral expenses.
Income tax must be paid to the local authorities by the 17th of the following month, and late payments can result in a penalty as high as 50%.
Employers in Mexico have an obligation to register all of their employees with social security. Employees should submit their social security information in order to receive benefits such as medical care. Like National Insurance in the UK, both the employee and the employer make contributions. They are calculated at various rates depending on the employee’s wage. The Social Security Institute provides benefits, such as full pay for up to 78 weeks of disability, paid maternity leave, daytime nurseries and old-age benefits. Employees must pay their social security at a rate of 5%.
Employers and employees contribute to state pension too. The employer pays 2% of the employee’s salary towards their retirement, as well as 1.125% for unemployment and old-age insurance. If you’re considering payroll outsourcing and entrusting your HR functions to a trusted PEO, we can help you get settled in Mexico. To discover more, please visit our services page here.
Local Payroll Taxes and New Employees
Most states in Mexico place tax upon salaries in cash; for instance, in Mexico City, a 3% payroll tax is imposed and is payable by the employer. In order to report tax, certain social security payments are filed and paid differently. Social security itself is contributed monthly, as is local payroll tax, but retirement and housing are bi-monthly.
New employees just starting in a business, whether they be local or foreign, must register with the IMSS within their first five days on the job. There are certain criteria that is required, such as an employment contract, a compensation and benefits package, bank details, identification and personal information such as their address.
Keeping on top of all of these requirements can be stressful; if one thing goes wrong, it could affect different aspects of your business. Our team here at Payroll Worldwide can handle payroll calculations and payment of tax liabilities for you, ensuring that everything is filed and paid on time. If you would like to find out more, or to receive a consultation, please give us a call on 07469 892524. Alternatively, you can fill out our online form here.