Profit-sharing is a constitutionally guaranteed right of some workers in Mexico. Generally, this requires that businesses distribute part of their profits among their employees.
According to Article 123 of the Federal Labor Law, a business must share 10% of its fiscal profits (i.e., after-taxes profits), in equal parts, based on two different criteria:
- The first half must be distributed equally among all workers, considering the number of days worked by each worker during the preceding year.
- The second half of the distribution should be made in proportion to the salary earned by the worker during the preceding year.
Recently, limits have been placed on the amount workers can earn from profit-sharing. A worker’s share has now been limited to either three months of their salary or their average share of the profits received in the last three years, whichever is greater.
The deadline for entity-owned profit-sharing payments to workers is May 31st. The deadline for non-entity-owned businesses (persona física) is June 30th.
Only qualified employees who have worked at least 60 days for the same employer and who receive their income through the employer’s regular payroll are entitled to receive profits.
Workers who do not qualify for profit-sharing benefits under Article 123 include company directors, administrators, CEOs, partners, shareholders, professional service providers, and temporary workers with less than 60 days of work during the corresponding year.
There are also some companies and employers that are not required to pay profits. They are:
- Newly created companies during the first year of operation.
- Newly formed companies engaged in producing a new product during the first two years of operation.
- New energy companies during the period when they are exploring new energy sources.
- Non-profit private assistance institutions recognized by law.
- The Mexican Social Security Institute and decentralized public institutions with cultural, welfare, or charitable purposes.
- Companies whose annual income declared for income tax purposes is less than 300,000 pesos.
Note: This article is for general informational purposes only and does not constitute legal advice. It is essential that you contact a skilled accountant who can help you with your particular circumstances. At Mextax, we are ready to assist you with your specific accountanting needs.
