Taxes in Mexico

Employer contributions in Mexico

Social insurance

Mexico has several social security systems. The following two are the most important public institutions providing social security:

• The Mexican Social Security Institute (IMSS) – mandatory for persons linked to others by an employment relationship, members of cooperative societies, and persons determined by the Federal Executive
• Institute of Security and Social Services of State Workers (ISSSTE) – mandatory for employees of the federal government (Executive, Legislative, Judicial, and Autonomous Institutes)

The complex social security system comprises various schemes providing a wide range of benefits. This system includes occupational risks (occupational accident or illness), sickness, and maternity; medical care and payment of disability; disability, life (death of the insured); retirement, severance at an advanced age and old age (pension based on age and years of contribution); and childcare and social benefits.

Workers spend an average of 20.1% of their salaries on taxes and social security contributions. The contributions are shared between employer and employee, in which workers pay an average of 8.4% ISR (income taxes). In addition, companies and employees pay 10.5% and 1.2% in social security contributions.

On December 16, 2020, the decree amending, adding, and repealing several provisions of the Social Security Law and the Retirement Savings Systems Law was published in the Diario Oficial de la Federación (Official Journal of the Federation). This presidential amendment, among its modifications, provides a gradual increase in the employer’s contribution to the severance at advanced age and old age.

However, such an increase began as of January 1, 2023, as provided in the second transitory provision; therefore, the social security contributions for this year remain as shown below.

Social Security contribution breakdown

Employee contributions in Mexico

Income tax

Mexican or foreign nationals who are residents abroad and who earn income in Mexico are required to pay income tax.
Employees must pay value-added tax when they obtain income from the sale of goods or from the lease of real estate other than their homes.

Likewise, individuals or legal entities that make payments to residents abroad for the rendering of services used in Mexico and for the use or enjoyment of tangible and intangible goods, among other cases, must pay the tax at a rate of 16% in accordance with the Value-Added Tax Law and are considered to be importing goods or services. The importation of goods or services is considered to be the use of services in Mexican territory when they are rendered by non-residents of the country.

The use in Mexican territory of services rendered by residents abroad without a permanent establishment in Mexico includes services rendered from abroad as well as those rendered in Mexican territory.

If the employee is not a resident of Mexico, the employee is not obligated to pay the value-added tax directly. In that case, the persons to whom the service was provided or contracted must pay it since they are obligated to pay such tax through the means established by the Tax Administration Service.

Income base for calculating the income tax

Income tax & Social Security

Workers spend an average of 20.1% of their salaries on taxes and social security contributions. The contributions are shared between employer and employee, in which workers pay an average of 8.4% ISR (income taxes). In addition, companies and employees pay 10.5% and 1.2% in social security contributions.