Mexico Update
By: LUIS G. RESÉNDIZ
January 7, 2010
Overtime Just Became a Little Bit More Expensive
In a recent decision, Mexico’s Supreme Court has determined that the salary to calculate payments for overtime must include not only the daily base salary but also all gratuities, earnings, housing, premiums, commissions, non-cash payments, and any other sums or consideration provided to the employee for her services. This is typically known in Mexico as the “daily integrated salary”. The court further stated that the daily integrated salary is the salary employees are entitled to receive every day, including for days of rest. The court clarified that the daily integrated salary does not include other concepts that are not paid ordinarily and systematically every week or every fifteen days, such as Christmas bonuses or vacation premiums.
This decision is a departure of what many companies and practitioners considered to be the rule: that the daily integrated salary was used only for severance payments. Employers must review their payment processes to verify that they pay overtime (and other ordinary salary payments, including days of rest) using the daily integrated salary. Failure to do this may have multiple consequences, including the possibility of providing employees a right to terminate their employment with the right to receive full severance payments.
Taxes Went Up
As part of the Mexican government efforts to increase its revenues, several taxes increased effective January 1, 2010. Mexico’s corporate income tax rate went up to 30% from 28% last year. This tax rate is scheduled to decrease to 29% in 2013 and back to 28% in 2014. In addition to the direct impact on the taxes paid in Mexico, U.S. companies doing business in Mexico must analyze how this increase may impact the tax credit they may be receiving in the United States for the taxes they pay in Mexico.
The Value Added Tax (VAT) increased to 16% from 15% (and to 11% up from 10% in the border cities). These increases will affect the importation of products into Mexico if those products are subject to VAT payment.
Other federal, state and local taxes, including personal income taxes, taxes charged on cash deposits, special taxes on certain products and services (including telecommunications), and real estate taxes in many states also went up.