How to set up as an independent contractor in Mexico

Picture the scene: you’re sitting on a warm, sandy beach, laptop in one hand and a refreshing margarita in the other. As the waves crash against the shore and the sun shines on your face, you think about your old working life and bask smugly in the glow of being your own boss.

Sounds perfect, right?

Well, if you want to trade in your office cubicle for a hammock and make this vision a reality, then setting up as an independent contractor in Mexico could be just the ticket. Before you can head off for happy hour, though, you’ll need to know how to register your business in Mexico, avoid misclassification as an employee, and create compliant contracts that protect you.

We cover all these things in this article, helping you navigate your tax responsibilities as a self-employed worker to ensure you know how to become an independent contractor in Mexico. So, if you’re ready to become el jefe and start living the good life, let’s begin!

What is an independent contractor according to Mexican law?

Independent contractors are classified differently than employees under Mexican law. They’re considered workers who provide paid services (or products) to another party, and they have more freedom and flexibility than employees in the way they work.

On the flip side, independent contractors are not usually entitled to the same benefits as employees, such as paid leave, sick days, and minimum wage.

While there is no specific section dedicated to independent contractors, Articles 8, 15, 20, and 25 of Mexico’s Federal Labor Law (Ley Federal del Trabajo) identify several key differences between employees and contractors. With these guidelines in mind, you can be considered a contractor if you:

• Determine your own work schedule and working hours

• Perform work for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into the company and its operations (i.e., you don’t have an internal email address)

• Are able to delegate or subcontract work

• Work without direction or supervision

When you work with clients, it’s important to be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes.

How to register your business in Mexico

Before you can begin working as an independent contractor in Mexico, you’ll first need to choose a formal structure for your business.

Unlike most countries, there is technically no sole proprietorship or sole trader structure in Mexico. Instead, sole owners can set up a business under a persona fisica (natural person) tax identity that, depending on your business activity, can take one of two forms:

Persona fisica (natural person)

A simple structure that is ideal for independent, individual contractors. It is similar to the sole proprietorship model that is prevalent in most countries. You have full control of the enterprise, although there is no legal separation between business owners (you) and the business; you are personally responsible for all its debts and liabilities. This model is generally intended for professionals, such as doctors, lawyers, and architects.

If you choose to operate under the persona fisica structure, you can register your business with the Public Registry of Commerce (Registro Público de Comercio) — although this is not mandatory. And if you make less than $3,500,00 MXN per year as a persona fisica, you can take part in an optional tax regime called RESICO, which may get you lower tax rates.

Actividad Empresarial (Business Activity)

Technically, Actividad Empresarial is a type of tax regime rather than a legal structure. However, you can form and operate your business as a persona fisica under this guise. Generally, this structure is intended for all other forms of business activity, such as vendors, artisans, and other tradespeople. Again, there is no legal separation between you and the business.

Under the Actividad Empresarial structure, you can use your personal bank accounts and employ other people, but you can’t own assets under your business.

If you want more legal protection (or you anticipate that you will generate large revenues), you can also incorporate a company or enter into a partnership. If you’re unsure which structure is most suitable for your business, it’s a good idea to speak with a registered solicitor or accountant first.

Regardless of which structure you opt for, there are a few sectors that you can’t work in if you’re not a Mexican citizen, including oil, transportation, and energy. Double-check that your profession doesn’t fall under one of these categories before registering your business.

What do I need to register my business in Mexico?

To register your business in Mexico, you’ll need to have a personal tax number (Registro Federal de Contribuyentes, or RFC). If you don’t already possess one, you can apply through the Mexican Tax Authority (Servicio de Administración Tributaria, or SAT).

After you do this, you’ll have to take a few more steps before you can fully register your business in Mexico. After receiving your personal tax number, look into securing the following:

Clave Única de Registro de Población (CURP)

Also known as a Unique Population Registry Code, a CURP is essentially the equivalent of a social security number in Mexico. You need one to register your business whether you’re a Mexican citizen or not.

A CURP is also required to participate in other services in Mexico, such as opening a bank account, paying taxes, and getting a driver’s license. To receive one, you need to be a temporary or permanent resident of the country.

Proof of identity documentation

The identity documentation you need includes a passport, proof of residence in Mexico (such as a utility bill), and your aforementioned personal tax number.

Incorporation documents

Incorporation documents are the papers that list your company’s information. They typically include details like the business name and address (which must be a physical address), the type of business, and the business’s objective.

Notary services

For the most part, the documents needed to register your business in Mexico are in Spanish. If you’re not fluent in the language, it’s helpful to secure the services of a credible notary (called a notario) to legalize all of your incorporation documents and company bylaws. A notary in Mexico must be a citizen of the country and have a law degree.

Resident visa

If you’re not a Mexican citizen, you need a resident visa to earn income in Mexico. Without one, all the steps you take to register your business won’t be effective legally.

You can apply for an FM2 visa if you intend to stay in the country for an indefinite period of time or an FM3 visa if you plan to stay for one year or less. You may need a sponsor for the latter, but you can reapply after the year is up.

It’s also possible to employ other people as an independent contractor in Mexico. If you’re interested in this, register with the Mexican Social Security Institute (Instituto Mexicano del Seguro Social, or IMSS) and the National Workers Housing Fund (INFONAVIT).

If you choose to operate under an assumed trading name (say, for marketing or branding reasons), you will need to check that this name is not already registered in the Public Registry of Commerce. Once you’re in the clear here, you can register your business name online.

If your business activity is regulated (i.e., you are practicing a licensed profession or handling food), you will also need to make sure that you have the correct operating permits for your location.

How do I get paid as an independent contractor in Mexico?

As an independent contractor, it’s up to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick but often come with hefty service fees. And if you have clients in other countries besides Mexico, the payment collection process can be even more complicated.

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Mexican pesos — and with no hidden fees. Learn more about how our platform can help.

How do I send an invoice in Mexico?

Under both the persona fisica and Actividad Empresarial structures, you can issue facturas (invoices) to clients. Officially, these are called Digital Fiscal Receipts (CFDI).

As of 2014, all facturas must be issued electronically — although you can always print copies for your records. As the independent contractor, you provide all the information required, but the invoices themselves are issued by a government-approved third party called an Authorized Certification Provider (PAC), whose services you pay for. You can request a certain number of facturas from the PAC ahead of time based on how many you think you’ll need.

Here are some of the items to include on your facturas:

• Your legal name or the legal name of your business as an independent contractor

• The client’s legal name

• The client’s legal address

• Your and the client’s RFC

• Your and the client’s tax regime

• The transaction category

Once they’re sent out, you can’t edit these digital invoices. However, they can be canceled if they have errors or the work paid for is never actually completed.

Before getting started, it’s also important to secure an e.Firma, which is a digital certificate verifying your electronic signature. You can get this, along with your personal tax number, from the SAT. You’ll need an appointment to apply, to which you should bring your CURP and personal identification.

Independent contractor taxes in Mexico

If you use facturas, the process for paying your taxes as an independent contractor in Mexico is pretty straightforward. Since these invoices are made by a third party and registered with the SAT, when you enter the info digitally, it will go to the SAT and will count as you reporting taxable income. In this case, your clients withhold and pay your taxes.

If you go with this option, make sure to send your facturas out as soon as possible since taxes in Mexico are filed every month.

If you don’t use facturas an independent contractor, you’re responsible for filing and paying your own taxes. The good news is that, as persona fisica, you pay personal income tax (Impuesto Sobre la Renta, or ISR) on your business profits (using your personal tax number). This means that you do not have to fill out a separate tax return or pay additional corporate taxes.

Like most countries, Mexico has a progressive income tax rate system. Depending on how much you earn, you pay a set flat amount, plus anywhere between 2% and 35% on the excess.

You must file your tax return and settle your tax bill by April 30 each year. You can do this online.

In Mexico, it’s not mandatory for self-employed people to make social security contributions. However, if you want to contribute (and access the benefits), you can enroll with the IMSS. Your contributions will be calculated according to your level of income.

What tax credits can I get as an independent contractor in Mexico?

In some parts of Mexico, you may be eligible for tax credits, so check with your local tax office. You can also claim tax deductions on multiple business expenses, such as:

• Accounting, bookkeeping, and other professional services

• Insurance premiums

• Equipment and materials (including maintenance costs)

• Rent and utility bills for business premises

• Business travel (including mileage and maintenance costs)

VAT information for independent contractors in Mexico

Under Mexican VAT (IVA) laws, any self-employed person who “sells goods or renders independent services” is liable for VAT. This means that you must charge your clients VAT (on relevant goods or services) and then pass on this tax to the government. In most cases, you must make these payments on a bi-monthly basis, though this might change depending on your level of income.

In Mexico, the standard VAT rate is 16%, although this is lower (around 8%) in the northern border region. A small number of goods and services are charged at 0%.

Liability considerations for independent contractors in Mexico

As a persona fisica, you are personally liable for finance and tax obligations, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Mexican and international clients.

Accounting requirements for independent contractors in Mexico

As a persona fisica, you do not need to publish financial statements or accounts. However, you should still keep organized, accurate records of all your income and expenditures (including client invoices, purchase orders, bank statements, and receipts). This will help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.

You can manage these records yourself using an accounting or bookkeeping tool or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in Mexico

As we’ve mentioned, independent contractors are classified differently from employees in Mexico. Many of the protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in Mexico?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Mexican law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approval, and payment systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Mexican pesos (or other currencies), without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Mexican laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Set up as an independent contractor in Mexico today

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities from learning how to become a freelancer can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Mexican and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.