Mexico operates a comprehensive tax system that includes significant obligations for both employers and employees. Understanding these requirements is crucial for companies operating within the country and for individuals earning income there. The system is administered primarily by the Servicio de Administración Tributaria (SAT), Mexico's tax authority, and involves various contributions and withholdings related to employment.
Employers in Mexico are responsible for calculating, withholding, and remitting several taxes and contributions on behalf of their employees. These include income tax, social security contributions, housing fund contributions, and retirement savings contributions. Employees, in turn, are subject to income tax on their earnings and may be eligible for certain deductions and credits when filing their annual tax returns. Navigating these complexities is key to ensuring compliance and smooth operations.
Employer Social Security and Payroll Tax Obligations
Employers in Mexico are required to contribute to several social security and payroll funds based on employee salaries. The primary contributions are made to the Mexican Social Security Institute (IMSS), the National Workers' Housing Fund Institute (INFONAVIT), and the Retirement Savings System (SAR). Additionally, some states levy a local payroll tax.
Mexican Social Security Institute (IMSS)
IMSS contributions cover healthcare, disability, life insurance, maternity, childcare, and occupational risk insurance. Contributions are shared between the employer, the employee, and the government, calculated based on the employee's Integrated Daily Wage (Salario Diario Integrado - SDI), which includes base salary plus certain benefits. Employer contribution rates vary depending on the type of insurance and the company's risk level for occupational hazards.
| IMSS Branch | Employer Rate (Approx.) | Employee Rate (Approx.) | Government Rate (Approx.) | Calculation Base |
|---|---|---|---|---|
| Sickness and Maternity | Varies by SDI level | Varies by SDI level | Varies by SDI level | SDI |
| Disability and Life | 1.75% | 0.625% | 0.25% | SDI |
| Retirement, Disability, Old Age, and Survivor's Insurance (IVM) | Varies (increasing annually) | 1.125% | 0.25% | SDI |
| Occupational Risk | Varies by risk class | 0% | 0% | SDI |
| Childcare and Social Benefits | 1.0% | 0% | 0% | SDI |
Note: The employer contribution rate for IVM is subject to a gradual increase from 3.15% in 2023 to 11.875% by 2030 for employees earning more than 4 times the minimum wage. The rates shown are approximate and depend on specific salary levels and risk classifications.
National Workers' Housing Fund Institute (INFONAVIT)
Employers must contribute to INFONAVIT to help employees access housing credits. The employer contribution rate is 5% of the employee's SDI. There is no employee contribution to INFONAVIT.
Retirement Savings System (SAR)
SAR includes contributions to a retirement fund (Retiro) and a housing sub-account (Vivienda, which is the same as the INFONAVIT contribution mentioned above). The employer contributes 2% of the employee's SDI to the Retiro sub-account. The employee contributes to the IVM branch of IMSS, which includes a retirement component.
State Payroll Tax
Most Mexican states levy a payroll tax on the total amount of salaries paid by an employer. The rate varies significantly by state, typically ranging from 1% to 3%. This tax is solely an employer obligation.
Income Tax Withholding Requirements
Employers are responsible for withholding Impuesto Sobre la Renta (ISR), or income tax, from employee salaries and wages. ISR is a progressive tax, meaning the tax rate increases with income. Employers must calculate the monthly withholding based on published tax tables and the employee's monthly income.
The monthly ISR calculation involves applying the corresponding tax rate to the taxable income (gross income minus certain non-taxable benefits), subtracting a fixed fee, and then potentially applying a tax credit (Subsidio para el Empleo) for lower-income earners.
Here is an example of a simplified monthly ISR tax bracket table (rates and brackets are subject to annual adjustment):
| Lower Limit (MXN) | Upper Limit (MXN) | Fixed Fee (MXN) | Rate on Excess (%) |
|---|---|---|---|
| 0.01 | 8,952.49 | 0.00 | 1.92 |
| 8,952.50 | 75,984.55 | 172.05 | 6.40 |
| 75,984.56 | 133,248.54 | 4,914.96 | 10.88 |
| 133,248.55 | 154,735.39 | 11,153.68 | 16.00 |
| 154,735.40 | 185,083.02 | 14,537.17 | 17.92 |
| 185,083.03 | 373,683.87 | 20,180.06 | 23.52 |
| 373,683.88 | 594,533.22 | 64,079.81 | 30.00 |
| 594,533.23 | 891,800.00 | 130,358.02 | 32.00 |
| 891,800.01 | 1,783,600.00 | 225,945.34 | 34.00 |
| 1,783,600.01 | More | 538,669.69 | 35.00 |
Note: This table is illustrative and based on recent figures. Actual 2025 brackets and rates will be published by the SAT.
Employers must provide employees with a digital payroll receipt (CFDI de Nómina) detailing gross pay, deductions, and net pay.
Employee Tax Deductions and Allowances
While employers handle monthly ISR withholding based on standard calculations, employees can claim certain personal deductions and credits when filing their annual tax return. These deductions can potentially result in a tax refund.
Common deductible expenses for individuals include:
- Medical, dental, psychological, and nutritional professional fees
- Hospital expenses
- Analysis, clinical studies, and prosthetics
- Expenses for specialized glasses
- Funeral expenses
- Donations to authorized donees
- Mandatory contributions to retirement systems
- Voluntary contributions to retirement plans (up to certain limits)
- School transportation expenses (under specific conditions)
- Real interest paid on mortgage loans (up to certain limits)
- Medical insurance premiums (under specific conditions)
- Tuition fees (up to certain limits, depending on education level)
There is an overall limit on personal deductions (excluding medical expenses due to disability, donations, mandatory retirement contributions, and school transportation) equivalent to the greater of five annual minimum wages or 15% of the taxpayer's total annual income.
Employees may also be eligible for certain tax credits, such as the annual ISR credit, which is separate from the monthly Subsidio para el Empleo.
Tax Compliance and Reporting Deadlines
Employers have several ongoing compliance and reporting obligations:
- Monthly Payroll Tax Filings: Employers must calculate and pay federal ISR withholding, IMSS, INFONAVIT, and SAR contributions, as well as state payroll tax, on a monthly basis. Payments are typically due by the 17th of the following month.
- Monthly CFDI de Nómina: Issuing digital payroll receipts (CFDI) for each payment to employees is mandatory.
- Annual Information Returns: Employers must file an annual information return (Declaración Informativa de Sueldos, Salarios, Conceptos Asimilados y Crédito al Salario) detailing employee income, withholdings, and subsidies paid during the previous calendar year. This is typically due in February of the following year.
- Annual Employee Tax Returns: While employers withhold tax monthly, employees whose income exceeds a certain threshold, have multiple employers, or wish to claim personal deductions must file an annual ISR return. The deadline for individuals is typically April 30th of the following year. Employers must provide employees with the necessary tax information (Constancia de Sueldos, Salarios, Crédito al Salario y Retenciones) by February.
- IMSS and INFONAVIT Filings: Specific monthly and bi-monthly filings are required to report employee wages and contributions to IMSS and INFONAVIT.
Staying current with these deadlines and requirements is essential to avoid penalties and interest.
Special Tax Considerations for Foreign Workers and Companies
Foreign individuals working in Mexico and foreign companies operating there face specific tax rules.
Foreign Workers:
- Tax Residency: An individual's tax obligations depend on their residency status. Generally, individuals are considered tax residents if they have established their home in Mexico or if Mexico is their center of vital interests (more than 50% of their income is sourced from Mexico, or Mexico is their primary professional activity location).
- Residents: Mexican tax residents (including foreigners) are taxed on their worldwide income. Employers must withhold ISR from their Mexican-sourced employment income using the standard progressive rates.
- Non-Residents: Non-residents are generally taxed only on their Mexican-sourced income. The tax rate on employment income for non-residents can vary depending on the duration of their stay and the amount of income earned. Lower income thresholds may be exempt, while higher income is subject to flat rates (e.g., 15% or 30%) without the progressive brackets used for residents. Employers hiring non-residents for work performed in Mexico are responsible for applying the correct withholding rates.
Foreign Companies:
- Permanent Establishment (PE): A foreign company may be deemed to have a permanent establishment in Mexico if it has a fixed place of business or conducts activities through a dependent agent. If a PE exists, the foreign company is subject to Mexican corporate income tax on the income attributable to the PE.
- Employer Obligations: A foreign company with a PE in Mexico that hires employees in Mexico is subject to the same employer obligations (ISR withholding, IMSS, INFONAVIT, SAR, state payroll tax) as a domestic company.
- No PE: If a foreign company hires employees in Mexico but does not have a PE, the tax and social security obligations can be complex. In such cases, the employee might be responsible for self-remitting taxes, or the foreign company might need to register for limited purposes or utilize an Employer of Record service to handle local compliance.
- Tax Treaties: Mexico has tax treaties with many countries. These treaties can impact the tax obligations of foreign workers and companies by providing relief from double taxation or modifying the rules regarding PE and income sourcing.
Navigating the tax landscape for foreign workers and companies requires careful consideration of residency rules, PE status, and applicable tax treaties.
