MEXICO Law and Practice Contributed by: Luis Álvarez Cervantes, Adolfo Athié Cervantes, Alejandro Barrera, Jesús Colunga, Eduardo Kleinberg, Juan José López de Silanes, Carlos Martínez-Betanzos and Amílcar Peredo, Basham, Ringe y Correa S.C.
Income tax Income tax is calculated according to the gross income of the employee based on a progressive tax rate, which goes from 1.92% up to 35%. For this pur - pose, the employee must be a Mexican tax resident. Social charges Social security fees While the employer is responsible for paying most of the social security fees, the employee is responsible for contributing part of this fee. The social security fee is calculated based on a pro - gressive rate but limited to 25 UMA’s (UMA is the acro - nym for Unidad de Medida y Actualización , which is a daily quota used in Mexico for economic calculations adjusted by inflation on a yearly basis. Currently a UMA equivalent is about USD6.80). AFORE Part of the AFORE supported by the employee. Employer Contributions Income tax While the employer is not the taxpayer for the employ - ee’s income tax, it is responsible for the calculation, withholding and payment of the portion of the employ - ee’s salary which constitutes income tax. Social charges Social security fees The employer is the taxpayer of most of the social security fee, and it is also responsible for calculating and withholding the employee’s social security fee. AFORE The employee discounts and contributes the retire - ment fee from the employee salary, but they are not considered a taxpayer to the retirement fund. Housing fund ( INFONAVIT ) The employer is responsible for the housing fund, which is approximately 5% of the salary paid. Payroll tax This is a local tax levied upon the payroll. Ordinar - ily it ranges from 2% to 3% of the salary paid to the employee and it is paid on a monthly basis.
In these situations, a specific legal process must be followed. 4.5 Employee Representations There are specific circumstances and legal frameworks that trigger employee representation and require man - agement to inform or consult with employees through their representatives. The most common form of employee representation is through labour unions, which are voluntary organisa - tions formed by employees to defend their collective interests. When a union is legally recognised by the labour authorities, it acts as the representative body for its members in collective bargaining agreements (CBAs), dispute resolution and other labour matters. Employee representation is also required to form the mandatory joint committees established by the FLL, which include: • Safety and Hygiene Joint Committee; • Joint Committee for the Preparation of the General Seniority Chart; • Joint Committee for Annual Profit Sharing; • Training, Teaching, and Productivity Joint Commit - tee (for employers with more than 50 employees); and • Joint Committee for the Drafting of the Internal Work Regulations (if the company opts to have Internal Work Regulations). All the committees mentioned above must have an equal number of employee and employer representa - tives.
5. Tax Law 5.1 Taxes Applicable to Employees/ Employers Employee Contributions
An employee is subject to two types of contributions – income tax and social charges, which, in turn, are integrated into social security fees and a retirement fund (AFORE).
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