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What is normal abroad but not in Mexico: ten assumptions foreign investors should drop before they start

Last verified: 2026-10-26 · Status: Stable

Many habits that are routine in the US, Europe or Asia do not work in Mexico: there is no at will employment, employees share 10 percent of taxable profit by law, staff cannot be supplied by an outside agency, and every deductible expense needs a government stamped electronic invoice paid through the banking system. Foreigners cannot hold direct title to land within 100 km of a border or 50 km of a coast, a corporate parent cannot own a Mexican company alone, cash is banned above set amounts for property, vehicles and shares, and foreign currency debts payable in Mexico can be settled in pesos. None of this blocks investment; each rule has a well worn compliance route, and this page gives the rule, the official article, the cost and a worked number for each one.

USD conversions use MXN 18.5026 per US dollar, the US Federal Reserve H.10 noon buying rate in New York for 16 October 2026 (FRED series DEXMXUS), the latest observation available when this page was verified. Mexican law uses the Banxico FIX rate for foreign currency amounts, which differs slightly. Conversions are for orientation only.

Key facts

Indemnity for unjustified dismissal, before back pay and seniority premium	3 months of salaryLFT art. 48, as of 2026-10-26 · in force
Seniority premium per year of service on any dismissal (daily salary capped at twice the minimum wage)	12 days of salary per yearLFT arts. 162 and 486, as of 2026-10-26 · in force
Maximum back pay after losing a dismissal case, before interest	12 monthsLFT art. 48, as of 2026-10-26 · in force
Mandatory employee profit sharing (PTU), share of taxable income	10 %LFT art. 117; Sixth National Commission resolution, as of 2026-10-26 · in force
Per worker profit sharing cap: higher of three months of salary or three year average	3 months of salaryLFT art. 127, section VIII, as of 2026-10-26 · in force
Annual bonus (aguinaldo), minimum, due before 20 December	15 days of salaryLFT art. 87, as of 2026-10-26 · in force
General minimum wage, 2026	315.04 MXN per dayCONASAMI resolution, DOF 9 December 2025, as of 2026-10-26 · in force
Specialized services registry (REPSE) renewal period	3 yearsLFT art. 15, as of 2026-10-26 · in force
Corporate income tax rate	30 %LISR art. 9, as of 2026-10-26 · in force
Payments above this amount must be electronic, by nominative check or card to be deductible	2000 MXNLISR art. 27, section III, as of 2026-10-26 · in force
Retention period for accounting and tax records	5 yearsCFF art. 30, as of 2026-10-26 · in force
Restricted zone width along borders (no direct foreign ownership)	100 kmConstitution art. 27, section I, as of 2026-10-26 · in force
Restricted zone width along coasts (no direct foreign ownership)	50 kmConstitution art. 27, section I, as of 2026-10-26 · in force
Maximum term of a restricted zone trust, extendable	50 yearsLIE art. 13, as of 2026-10-26 · in force
SRE fee for a restricted zone trust permit, 2026 (rounded amount payable)	21650 MXNLFD art. 25, section V a); RMF 2026 Annex 4, as of 2026-10-26 · in force
Minimum shareholders of a sociedad anónima	2 shareholdersLGSM art. 89, section I, as of 2026-10-26 · in force
Maximum total annual income of an S.A.S. (open to individuals only), 2026	7678849.94 MXNLGSM art. 260; update agreement DOF 26 December 2025, as of 2026-10-26 · in force
Cash payment ban threshold, real estate, 2026 (8,025 UMA)	941412.75 MXNLFPIORPI art. 32, section I; UMA 2026 MXN 117.31, as of 2026-10-26 · in force
Cash payment ban threshold, shares, vehicles, jewelry and art, 2026 (3,210 UMA)	376565.10 MXNLFPIORPI art. 32, sections II, III and VI; UMA 2026 MXN 117.31, as of 2026-10-26 · in force
Unit of Measure and Update (UMA), daily value from 1 February 2026	117.31 MXNINEGI publication DOF 9 January 2026, as cited by IMSS, DOF 6 February 2026, as of 2026-10-26 · in force
Foreign currency debts payable in Mexico may be settled in pesos at the prevailing rate	Yes Ley Monetaria art. 8, as of 2026-10-26 · in force

The rule

1. No at will employment. Abroad, many employers can end a job without giving a reason. In Mexico an employer may dismiss without liability only for one of the causes listed in the Federal Labor Law, and must hand the worker a written notice stating the conduct and the dates, either in person at the moment of dismissal or through the labor court within five business days. Failing to give that notice on its own presumes the dismissal was unjustified. If the dismissal is unjustified, the worker may choose reinstatement or three months of salary, plus back pay from the dismissal date of up to twelve months if the employer loses in court. On top of that, every permanent worker who is dismissed, with or without cause, receives a seniority premium of twelve days of salary per year of service, with the daily salary capped at twice the minimum wage. In the cases where the employer may refuse reinstatement, the law adds twenty days of salary per year of service.
Cost to do it: With the 2026 general minimum wage of MXN 315.04 a day, the seniority premium salary cap is MXN 630.08 a day (about USD 34.05). Settlements are usually signed before the federal or local conciliation center, which charges no fee; legal counsel is a separate professional cost.
Example: A permanent employee earning MXN 30,000 a month (MXN 1,000 a day) with five years of service is dismissed without a valid written notice. Minimum exposure: three months of salary, MXN 90,000, plus a seniority premium of 12 days x MXN 630.08 x 5 years = MXN 37,804.80, total MXN 127,804.80. If the case is litigated and lost, back pay of up to twelve months (up to MXN 360,000) is added. / About USD 6,907 minimum (USD 4,864 indemnity plus USD 2,043 seniority premium), rising by up to about USD 19,457 of back pay if the employer loses in court.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Arts. 47 (final paragraphs), 48, 49, 50, 162 and 486, 1970-04-01 official text · verified 2026-10-26 · changed: The DOF 1 May 2019 labor justice reform moved dismissal claims to mandatory prejudicial conciliation and to federal and state labor courts, and allowed the written notice to be filed with the court; the DOF 24 December 2024 reform restated art. 50 and added a separate indemnity line for digital platform workers.

2. Profit sharing is mandatory. Abroad, profit sharing is a voluntary bonus plan. In Mexico it is a constitutional right: employees share in 10 percent of the employer's taxable income as determined under the income tax law, under the resolution of the Sixth National Commission for Employee Profit Sharing cited by SAT. Directors, administrators and general managers do not participate. Each worker's share is capped at the higher of three months of that worker's salary or the average profit share received over the last three years. The payout is due within 60 days after the annual income tax return is due, which for companies is three months after the 31 December year end, so in practice by the end of May.
Cost to do it: 10 percent of taxable income (renta gravable), paid in cash to employees, subject to the per worker cap. SAT states that companies with annual declared income of no more than MXN 300,000 are exempt under a 1996 STPS resolution.
Example: A Mexican subsidiary with taxable income of MXN 10,000,000 for 2026 owes employees MXN 1,000,000 of profit sharing, payable within 60 days after its 2026 annual return is due (return due by 31 March 2027), with each worker's share limited to the greater of three months of salary or that worker's three year average. / Taxable income of about USD 540,465 produces a profit sharing pool of about USD 54,046, before the per worker cap.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (consolidated text, last reform DOF 14 May 2026); Resolution of the Sixth National Commission for Employee Profit Sharing, as cited by SAT, LFT arts. 117, 122 and 127, sections I and VIII; Sixth Commission resolution, first resolutive point, 1970-04-01 official text · verified 2026-10-26 · changed: The DOF 23 April 2021 outsourcing reform added the per worker cap (art. 127, section VIII), which the DOF 24 December 2024 reform restated.

3. No staffing agencies or employer of record arrangements for core staff. Abroad, it is common to have a third party employ people who work for you. In Mexico, supplying one's own workers to benefit another party is prohibited. Only specialized services or works that are not part of the client's corporate purpose or main economic activity may be subcontracted, and only to a contractor registered with the Ministry of Labor (STPS) in the public registry (REPSE), under a written contract that states the services and the approximate number of workers. The client is jointly and severally liable for the contractor's obligations to those workers. Registration requires being current on tax and social security obligations, must be renewed every three years, and is deemed granted if STPS does not rule within 20 days and then within three days of a reminder. Recruitment agencies may still recruit, select and train, but they are not the employer.
Cost to do it: The LFT sets no government fee for REPSE registration. The real cost is moving staff onto the Mexican entity's own payroll, with its social security, housing fund and profit sharing obligations.
Example: A foreign software company that wants ten developers in Guadalajara cannot lawfully have a local agency employ them and lend them out, because development is its core activity. It must hire them through its own Mexican entity; it may still contract a REPSE registered firm for, say, specialized building maintenance. / Not a monetary rule; the exposure is joint liability for the contractor's unpaid wages and social security, plus the loss of deduction and VAT credit that the tax laws attach to prohibited subcontracting.Ley Federal del Trabajo (LFT), DOF 1 April 1970, as reformed by the outsourcing decree DOF 23 April 2021 (consolidated text, last reform DOF 14 May 2026), Arts. 12, 13, 14 and 15, 2021-04-23 official text · verified 2026-10-26 · changed: The DOF 23 April 2021 reform replaced the earlier permissive outsourcing rules with the general ban and the specialized services registry.

4. A year end bonus is law, not a perk. Every worker is entitled to an annual bonus (aguinaldo) of at least 15 days of salary, paid before 20 December, and workers who did not complete the year, including those who left before payment, are owed the proportional part.
Cost to do it: At least 15 days of salary per worker per year, prorated for partial years.
Example: A worker on MXN 1,000 a day is owed at least MXN 15,000 before 20 December; a worker on the 2026 general minimum wage of MXN 315.04 a day is owed at least MXN 4,725.60. / About USD 811 and USD 255 respectively.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (consolidated text, last reform DOF 14 May 2026), Art. 87, 1970-04-01 official text · verified 2026-10-26

5. No invoice, no deduction: every transaction runs through SAT's electronic invoice. Abroad, a supplier's own invoice or a receipt usually supports a deduction. In Mexico, whenever the tax laws require a receipt, it must be a digital tax receipt (CFDI) issued through the SAT system, stamped with a digital seal and validated before it is issued; buyers of goods and services must ask for one. To be deductible, an expense must be supported by a CFDI, and payments above MXN 2,000 must be made by bank transfer from an account in the taxpayer's name, nominative check, or credit, debit or service card. Accounting and supporting documents must be kept for five years.
Cost to do it: SAT's own invoicing service is free to use; most companies pay an authorized certification provider (PAC) or ERP connector. Under the 30 percent corporate tax rate, an undocumented or cash paid expense costs 30 percent of its amount in lost deduction.
Example: A Mexican subsidiary pays a local consultant MXN 50,000 in cash, or without a CFDI. The expense is not deductible, so at the 30 percent rate the company pays MXN 15,000 more income tax than if it had paid by transfer against a CFDI. / An expense of about USD 2,702 that loses its deduction costs about USD 811 of extra tax.Código Fiscal de la Federación (CFF), DOF 31 December 1981 (consolidated text, last reform DOF 9 April 2026); Ley del Impuesto sobre la Renta (LISR), DOF 11 December 2013 (consolidated text consulted, last reform DOF 1 April 2024), CFF arts. 29 and 30; LISR arts. 9 and 27, section III, 1981-12-31 official text · verified 2026-10-26 · changed: The DOF 12 November 2021 tax reform restated CFF art. 29 to require a CFDI also for exports not involving a sale and to require an active tax registration and e.firma to issue CFDIs.

6. Foreigners cannot hold direct title near borders and coasts, and need a permit elsewhere. Abroad, foreigners can usually buy land like locals. In Mexico, in a strip of 100 km along the borders and 50 km along the coasts (the restricted zone), foreigners may by no means acquire direct ownership of land and water. A Mexican company with a foreigners admission clause may own restricted zone property for non residential use, giving notice to the Ministry of Foreign Affairs (SRE) within 60 business days. For residential use, foreigners hold rights through a bank trust (fideicomiso) that needs an SRE permit and lasts up to 50 years, extendable on request. Outside the zone, a foreigner must first file an agreement before SRE to be treated as a national for that property and not invoke the protection of their government (the Calvo clause), and obtain a permit, which is deemed granted if SRE does not publish a refusal within five business days for municipalities fully outside the zone.
Cost to do it: 2026 federal fees (RMF 2026 Annex 4, rounded amounts payable): MXN 595 to examine each permit application, MXN 21,650 for a restricted zone trust permit, MXN 1,475 for each notice of non residential acquisition by a Mexican company with foreign shareholders. Bank trustee, notary and registry fees are additional and vary.
Example: A foreign individual buying a beach apartment in Quintana Roo sets up a bank trust: SRE fees of MXN 595 plus MXN 21,650 = MXN 22,245, plus the bank's set up and annual trustee fees and the notary. / Federal fees of about USD 1,202, before bank and notary costs.Constitución Política de los Estados Unidos Mexicanos, DOF 5 February 1917 (consolidated text, last reform DOF 7 October 2026); Ley de Inversión Extranjera (LIE), DOF 27 December 1993 (consolidated text, last reform DOF 27 May 2024); Ley Federal de Derechos (LFD) and RMF 2026 Annex 4, DOF 28 December 2025, Constitution art. 27, section I; LIE arts. 10, 10 A, 11, 12 and 13; LFD art. 25, sections III, V and X, 1917-02-05 official text · verified 2026-10-26

7. A foreign parent cannot own a Mexican company on its own. Abroad, a single member company owned by a corporate parent is standard. In Mexico, a sociedad anónima needs at least two shareholders, each subscribing at least one share, and a company whose shareholders fall below the legal minimum, or whose interests come together in a single person, is in a cause of dissolution. The one shareholder simplified company (S.A.S.) is open only to individuals, not companies, and its total annual income may not exceed MXN 7,678,849.94 (2026 updated amount) or it must convert into another type of company.
Cost to do it: No extra government fee; the second shareholder is usually an affiliate holding one share, which adds a second set of corporate documents and, for foreign holders, registration with the National Foreign Investment Registry.
Example: A US parent forms a Mexican S.A. with 999 shares held by the parent and 1 share held by a US affiliate. If the affiliate's share is later transferred to the parent, leaving one shareholder, the company falls into a cause of dissolution. / The S.A.S. income cap of MXN 7,678,849.94 is about USD 415,015 a year.Ley General de Sociedades Mercantiles (LGSM), DOF 4 August 1934 (consolidated text, last reform DOF 20 October 2023; S.A.S. income cap updated by agreement DOF 26 December 2025), Arts. 89, section I; 229, section IV; and 260, 1934-08-04 official text · verified 2026-10-26

8. Large cash payments are banned. Abroad, paying cash for an asset is merely unusual. In Mexico it is prohibited to pay or accept payment in cash, in pesos, foreign currency or precious metals, even through a bank, for: creating or transferring real rights over real estate worth 8,025 UMA or more; vehicles, watches, jewelry, precious metals and stones, art, armoring services, and shares or equity interests worth 3,210 UMA or more; and leases of those goods at 3,210 UMA or more a month. Notaries must record how such payments were made. Taking part in a prohibited operation is fined at 10,000 to 65,000 UMA, or 10 to 100 percent of the operation's value, whichever is greater.
Cost to do it: With the 2026 UMA of MXN 117.31 a day (in force from 1 February 2026), the real estate threshold is MXN 941,412.75 and the shares and vehicles threshold MXN 376,565.10. The minimum fine is MXN 1,173,100.
Example: A buyer pays MXN 400,000 in cash for 10 percent of the shares of a Mexican company. Because MXN 400,000 is above MXN 376,565.10, the payment is prohibited and both sides face a fine of at least MXN 1,173,100 or up to the full value of the operation, whichever is greater. / The share threshold is about USD 20,352 and the real estate threshold about USD 50,880; the minimum fine is about USD 63,402.Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita (LFPIORPI), DOF 17 October 2012 (consolidated text, last reform DOF 16 July 2025), Arts. 32, 33, 53, section VII, and 54, section III, 2012-10-17 official text · verified 2026-10-26 · changed: The DOF 16 July 2025 reform restated art. 32, extended the ban to any cash settlement through a financial entity and to payments into court, and restated the fines in art. 54.

9. Dollars are not legal tender in Mexico. Abroad, a contract in a foreign currency is paid in that currency. In Mexico, foreign currency has no legal tender status unless a law says otherwise, and a foreign currency payment obligation, whether contracted in or outside Mexico, that is to be performed in Mexico may be discharged by paying the peso equivalent at the exchange rate prevailing at the place and date of payment, determined under Banxico rules. Transfers from abroad made through Banxico or banks are paid in the currency transferred.
Cost to do it: No fee; the cost is FX exposure between the contract currency and the peso rate on the payment date.
Example: A Mexican customer owes a USD 100,000 invoice payable in Monterrey and pays MXN 1,850,260 at a rate of MXN 18.5026; the debt is discharged even if the supplier wanted dollars. / USD 100,000 owed; the supplier bears the cost of converting the pesos back into dollars.Ley Monetaria de los Estados Unidos Mexicanos, DOF 27 July 1931 (consolidated text, last reforms DOF 19 January 2026), Art. 8, 1931-07-27 official text · verified 2026-10-26

Common abroad	Mexican rule	Compliant route
Dismissal at will, or with short notice	Only listed causes, written notice, 3 months plus 12 days per year seniority premium if unjustified (LFT arts. 47, 48, 162)	Document cause and deliver the notice, or settle before the conciliation center
Discretionary bonus plans	10 percent of taxable income to employees, capped per worker (LFT arts. 117, 127)	Budget PTU each year and pay by the end of May
Staffing agency or employer of record	Supplying workers is prohibited; only REPSE registered specialized services (LFT arts. 12 to 15)	Hire through your own Mexican entity
Year end bonus optional	At least 15 days of salary before 20 December (LFT art. 87)	Accrue monthly
Supplier invoice or receipt is enough	Only a SAT CFDI supports a deduction; over MXN 2,000 pay electronically (CFF art. 29, LISR art. 27)	Reject suppliers that cannot issue CFDIs
Foreigners buy land directly	No direct title within 100 km of borders and 50 km of coasts (Constitution art. 27)	Bank trust or Mexican company, with SRE permit or notice
Single member subsidiary	S.A. needs two shareholders; S.A.S. only for individuals (LGSM arts. 89, 260)	Add an affiliate as a one share holder
Cash for large purchases	Banned above 8,025 UMA for property and 3,210 UMA for shares and vehicles (LFPIORPI art. 32)	Pay by bank transfer
Contract currency is payment currency	Foreign currency debts payable in Mexico can be paid in pesos (Ley Monetaria art. 8)	Book payment abroad or hedge

Normal abroad versus the Mexican rule, with the compliant route. Sources: the articles cited in each rule above.

Worked example

A foreign group sets up a Mexican S.A. to run a 50 person plant, with taxable income of MXN 10,000,000 in its first full year. The rules on this page add the following items that many home country budgets miss.
Corporate structure: a second shareholder (an affiliate holding one share) is needed from day one, because a sociedad anónima requires at least two shareholders.
Payroll: aguinaldo of at least 15 days of salary per worker each December, and a profit sharing pool of MXN 1,000,000 (about USD 54,046) paid by the end of May of the following year, with each worker capped at the greater of three months of salary or their three year average.
Taxes: every supplier must issue a CFDI and be paid electronically above MXN 2,000; an undocumented MXN 50,000 expense costs MXN 15,000 (about USD 811) of extra income tax at 30 percent.
People changes: dismissing one five year employee on MXN 30,000 a month without proper notice costs at least MXN 127,804.80 (about USD 6,907), and up to MXN 360,000 more in back pay if litigated and lost.
Property: a warehouse near the US border is bought by the Mexican company itself for non residential use, with a notice to SRE (2026 fee MXN 1,475, about USD 80) within 60 business days and payment by transfer, never in cash.

Step by step

1. Before incorporating, decide who the second shareholder will be and register the foreign shareholders' investment as the foreign investment law requires (see the entities and investing pages).
2. Before the first hire, put every worker on the Mexican entity's own payroll; do not use an agency to supply staff. Check REPSE registration for any specialized service contractor.
3. Adopt written internal work rules and a dismissal procedure that produces a written notice stating the conduct and dates, delivered in person or filed with the labor court within five business days.
4. Set up SAT e.firma, digital seal certificates and CFDI issuance before the first sale, and a payables policy that pays only against a valid CFDI and by bank transfer above MXN 2,000.
5. Accrue aguinaldo and profit sharing monthly; pay aguinaldo before 20 December and PTU within 60 days after the annual return deadline (31 March for companies).
6. For any property, confirm whether it lies in the restricted zone; use the company (non residential) with an SRE notice within 60 business days, or a bank trust with an SRE permit (residential).
7. Pay for property, vehicles, shares and similar assets above the LFPIORPI thresholds only by bank transfer, and keep the evidence for the notary.
8. Keep accounting and supporting documents for at least five years from the related return.

Common traps

Failing to deliver the written dismissal notice, or delivering it late, turns any dismissal into a presumed unjustified one, even if the cause was real.
Back pay keeps running while a dismissal case is open, up to twelve months, so a slow settlement is often the most expensive option.
The seniority premium is owed on every dismissal of a permanent worker, justified or not.
Directors, administrators and general managers do not share in profits, but other confidential staff do, with a capped salary base.
An employer of record contract for staff doing the client's core activity is prohibited subcontracting, and the client carries joint liability for those workers.
An expense paid in cash above MXN 2,000 is not deductible even if a CFDI was issued.
Placing restricted zone residential property in the name of a foreign individual, rather than through a bank trust, conflicts with the Constitution; a foreigner who breaks the Calvo clause agreement risks losing the property to the Nation.
Consolidating all shares of a Mexican S.A. in the parent after an intragroup transfer puts the company in a cause of dissolution.
The cash ban applies even if the cash is deposited through a bank, and the fine can reach the full value of the deal.
A USD price in a Mexican contract does not guarantee payment in dollars; the debtor may pay the peso equivalent at the prevailing rate.

Sources

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