Employer tax guide for Mexico: what foreign companies need to know

Hiring in Mexico means taking on a set of clearly defined payroll tax obligations from day one. The country’s social security system, retirement savings framework, and state-level payroll taxes all require employer contributions, and getting the calculations right is non-negotiable. This guide covers every employer tax obligation you’ll encounter when hiring in Mexico, including contribution rates, filing deadlines, and the compliance structure you need to operate legally.

Mexico’s tax framework at a glance

Mexico’s fiscal year runs on the calendar year, from 1 January to 31 December. The national tax authority is the SAT (Servicio de Administración Tributaria), which oversees income tax, VAT, and corporate tax. Payroll taxes and social security contributions are administered by separate bodies, most notably IMSS for social security and INFONAVIT for the housing fund.

All salary figures and contribution calculations use the Mexican peso (MXN) as the base currency.

Imss contributions: social security for your employees

The Employer of Record (EOR) framework in Mexico almost always involves navigating IMSS first, because it’s the largest employer cost beyond base salary. IMSS (Instituto Mexicano del Seguro Social) covers sickness, maternity, disability, life insurance, work risk, retirement, and childcare. Employer contributions typically range from approximately 15% to 25% of salary, depending on the employee’s salary level and the company’s assigned work risk class.

How imss contributions are calculated

IMSS contributions are calculated on the Salary Base of Contribution (SBC), which must not fall below the daily minimum wage. The minimum wage in 2026 is MXN 315.04/day nationally, or MXN 440.87/day in the Northern Border Free Zone.

The main employer-side components are as follows:

• Sickness and maternity (fixed quotas): employers pay a fixed daily quota per worker, plus a percentage of salary above three times the UMA (Unidad de Medida y Actualización), the reference unit used for contribution calculations
• Disability and life: approximately 1.75% of SBC
• Work risk (riesgos de trabajo): starts at 0.54% and varies based on the company’s actual accident rate
• Childcare (guarderías): 1% of SBC, paid entirely by the employer

The retirement and old-age component (Cesantía en Edad Avanzada y Vejez, or CyV) uses a graduated scale tied to multiples of the UMA. The 2026 rates are:

Employees also contribute to IMSS. The total employee contribution is approximately 1.65% of salary, with the employee CyV portion at 1.125%. You’ll withhold this from the employee’s pay and remit it alongside your employer contributions.

Infonavit: the housing fund

INFONAVIT (Instituto del Fondo Nacional de la Vivienda para los Trabajadores) is Mexico’s national housing fund. Employers contribute 5% of each employee’s SBC to INFONAVIT, and this is entirely an employer cost with no separate employee contribution. These funds accumulate in an individual account and can be used by employees toward home purchases or accessed under certain conditions.

SAR: retirement savings contributions

The SAR (Sistema de Ahorro para el Retiro) is Mexico’s individual retirement savings system. Employers contribute 6.5% of each employee’s SBC to their AFORE (Administradora de Fondos para el Retiro) account. This is separate from the IMSS CyV contributions and represents an additional employer cost on top of social security.

Isn: state payroll tax

In addition to federal contributions, every state in Mexico levies an ISN (Impuesto Sobre Nóminas) on employer payrolls. Rates typically range from 2% to 4% depending on the state, with Mexico City (CDMX) at 4% in 2026. Some states offer reduced rates for small businesses, so it’s worth verifying the rate that applies to your specific workforce location.

ISN is calculated on total payroll and paid monthly to the relevant state treasury. Deadlines are state-dependent but generally fall on the 10th or 17th of the following month. If you have employees in multiple states, you’ll have separate ISN obligations in each one.

Isr withholding: employee income tax

Employers in Mexico are responsible for withholding and remitting employee income tax (ISR, or Impuesto Sobre la Renta) on each pay cycle. ISR is a progressive tax based on monthly taxable income, with rates running from 1.92% at the lowest bracket to 35% at the top.

The 2026 monthly ISR brackets confirmed by SAT are:

To calculate the amount to withhold, subtract the lower bound of the applicable bracket from the employee’s monthly income, multiply by the marginal rate, and add the fixed fee. You remit this amount to SAT monthly. An annual reconciliation (declaración anual) applies, and in some cases employees may receive a refund or owe additional tax at year end.

Vat obligations for employers

Mexico’s standard VAT rate is 16%. In the Northern Border Free Zone, a reduced rate of 8% applies. Most employers don’t face VAT obligations purely from paying staff, but if your company provides taxable services through a Mexican entity, you’ll need to register for VAT with SAT and file monthly returns.

Corporate income tax

If you establish a Mexican legal entity, that entity pays corporate income tax (also called ISR at the corporate level) at a flat rate of 30% on annual profits, filed annually with SAT. Foreign companies that operate without a local entity but still create a taxable presence risk being treated as having a permanent establishment, which triggers full corporate tax obligations. Using an EOR avoids this risk by keeping the employment relationship within a locally registered entity.

Working hours and the 40-hour week transition

Mexico’s standard working week is currently 48 hours. A constitutional amendment enacted in March 2026 reduces this to 40 hours, but phased implementation doesn’t begin until January 2027. For now, you’ll plan payroll and overtime calculations on the existing 48-hour standard, but it’s important to prepare for the transition well in advance of the January 2027 effective date.

Payroll structure and filing deadlines

Mexican payroll is paid bi-weekly (quincenal), on the 15th and the last day of each month. Key compliance deadlines you’ll need to track are:

Every employer must register with IMSS before hiring and obtain an employer registration number (registro patronal). This registration is the foundation for all social security filings and must be in place before your first employee’s payroll runs.

How foreign companies typically structure hiring in mexico

Foreign companies that want to hire in Mexico without setting up a local entity most commonly use an EOR services provider. An EOR holds the employer registration with IMSS, manages INFONAVIT and SAR contributions, handles ISN filings across states, withholds and remits ISR, and runs bi-weekly payroll on your behalf without requiring you to incorporate a Mexican company. This approach eliminates the permanent establishment risk that comes with informal direct hiring across borders.

contractors are another option for certain engagements, but Mexico’s tax authority takes misclassification seriously. If a working relationship resembles employment through fixed hours, ongoing work, or economic dependence, SAT and IMSS can reclassify it and trigger back contributions and penalties.

Summary of employer contribution rates

The table below summarises the main employer costs on top of gross salary for a typical employee:

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