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Thursday, November 7, 2013

Working Legally in Mexico - in a nutshell

It is hardly easy to write a "How-To" story when discussing Mexican legal paperwork of any kind because the steps are really just guidelines - not firm structure. And sometimes when told how to go through the steps today they can be the exact opposite of what you were told yesterday - and more frustratingly, completely different from what you might be told tomorrow.
A little advice - don't get angry; get used to it.
Gorgeous bougainvillea plants color many La Paz building fronts. 
American and Canadian and most European expectations are that if it says such and such, or you were told this and that... then it should be such and such or it should closely resemble this and that. In Mexico, it doesn't work that way.  So that is why after living in La Paz, Mexico's Baja California Sur full-time for over a year, I still can't explain step-by-step exactly how a foreigner goes about getting legal permission to work in Mexico. But I can certainly shed a little light on some things to think about for anyone who might be considering it.
Many Mexican businesses don't make it the first year.
There are two ways I can share with you how one can work legally in Mexico - one is through a Mexican Corporation and the other is by working for someone else.

#1 - Starting a Mexican Corporation:
It sounds big and scary and complicated - but it's really not. A Mexican "corporation" is just a word... just verbiage that means the business owner is protected by the entity (or, in a nutshell, that his or her or their personal assets and good name can't be targeted for compensation in a legal battle) . Most Gringos we know that are in business do it this way and many middle class and upper middle class Mexicans also operate businesses by way of the Mexican Corporation.

As a foreigner, you do not have to have a Mexican passport to open a corporation. However, one must hire a legal professional to get the ball rolling. And in addition to your primary passport and current immigration papers, you also need the following:
  • Original, notarized birth certificates
  • Original, notarized marriage license (if you're in business together as a couple)
  • Apostilles for each of the above
  • Professional translations for all of those documents (obtained from a Mexican perito tranducir, a legitimate translator)
At present, a Mexican corporation start-up cost is roughly $2,000 US and includes your "working" immigration cards. There are many local services in La Paz that offer to get you set up with a corporation. Shop around to find out how much each charges and what you get for your money - they are not all the same.

Under your corporation name you can list whatever you want under the sun that doesn't require certification or licensing - like teaching or a medical degree. For example, Meri's Fun Under the Sun store front might be a dive shop offering classes, swim apparel and dive gear. But I also might sell pies, sew school uniforms, offer boat management services, have pet grooming capabilities, grow organic produce and yodel all under the same corporation name. The list can be almost endless. This means I could make money doing any and all of those things in Mexico. It is important that you really think through your categories, though. Once you've submitted and been approved, getting any changes to that list, as I understand it, can be a nightmare and expensive.

Another benefit to having a corporation is that should you run into trouble down the line...
some business up the street claims you spread a bad rumor about them...
or an employee gets mad at you and claims you owe them money...
or a customer says your Daily Special gave them food poisoning...
the corporation is sued and not you personally.
That doesn't mean it's not going to cost you money or that you won't lose your business because of it - BUT in theory it does protect your home, your car, your personal bank account, etc...

Also, your Mexican Corporation allows you to work anywhere in Mexico. So, if your business is mobile or you decide to move - then you can re-locate anywhere in the country.
Busy Mexican restaurants along the Malecon
You are required by law to hire a Mexican accountant. Accountants charge 1,500 pesos each month for corporation work (roughly $150 US dollars each month). You have to get all your data organized - the accountant simply enters it into the computer. And even if you didn't make one single centavo that month, you are still required to pay that accountant 1,500 pesos. In addition, there are annual and bi-annual reports that cost 3,500 pesos each (roughly, that is $350 US dollars). Any extras that the accountant does - getting new facturas ordered, changing your address at Hacienda, accompanying you to sign yet more documentation... those are all charges usually on top of what you are already paying your accountant.

Then there are the monthly Hacienda fees, or taxes. And if you are from the US, don't forget the beloved IRS. Yes, you have to pay US taxes on any money you make no matter where you are making it if you are a US citizen.

And if you go out of business, dissolving your Mexican corporation is hideous. The cost is a joke (over $1,000 US), especially if you have been forced out of business due to the economy or bad health. It is so ridiculously expensive that most people I have been told  (and this is just a rumor) leave the country. Selling your corporation might be easier - but I know nothing of that.

If you have employees - that is a very costly thing, indeed. I will talk more about it down below. Many Gringos and many Mexicans running small businesses refuse to hire employees, corporation or no.

Before you start a Mexican corporation, you might consider talking to foreigners that have already started their businesses - treat them to lunch and pick their brain. It is a great way to get a personal perspective - all the ins and outs. And most people don't mind sharing - unless you are going to be in direct competition with them.
Out of Business: graffiti, chained doors, scattered mail on the floor (bills?),
and something yucky splattered across the glass.
#2 - Working for Someone Else
Working for an employer is another way to work legally in Mexico as a foreigner. To work for someone else really isn't that difficult - except that you have to find someone who will hire you first. And, it does require visiting the Immigration office multiple times with copies of the following: the corporation papers of the entity you are working for (if it is under a corporate umbrella), a special letter in Spanish signed by your future boss requesting your services, copies of the monthly Mexican tax returns from the business you are wanting to work for and copies of legal immigration status of the owner.

Once you are approved, you get your Immigration card with your working status. It costs between $200 and $300 US. But, you have to pay every year until you are "Residente Permanente"... and that is another ball of sticky cobwebs. It is doubtful your employer will pay those fees unless you are working for a large company, like Walmart or Home Depot for example.

In a nutshell, employee benefits are very, very good. So, is this how I worked for Snug Harbor Sails? Well, yes and no. Yes, I was legal. I paid for the fees out of my own pocket to have the legal right to work. And though my labor was in trade for sails and canvas instead of income, if someone had reported me to Immigration I would have been in the clear. (Believe it or not, I was asked several times if I was "legal" to work for Snug Harbor Sails... not by Mexicans, either.) However, I did not receive employee benefits. The truth is that I didn't care. But was I entitled by law? Yes, I was. Could Snug Harbor afford to pay those benefits? No - not at all. Was Snug Harbor taking a risk by hiring me? Absolutely... because if I had pressed the issue I would have won. And the longer an employee works for a business, the more benefits begin to stack up.

Any time you work for someone else you are at their mercy. Pay is low in Mexico, even though cost of living is going up, up, up! Hours can be long - it is not uncommon to be expected to work 10 hours a day, 6 days a week for lower level positions.
Large mall on the outskirts of La Paz has this beautiful fountain.
And for any employers out there who are thinking they are going to hire cheap Mexican labor? Ha! Let me help open your eyes a little wider regarding employee benefits.

It is still very typical in Mexico to hire employees and pay them under the table. That is the way it has been done here for years and years. The benefit to the employer is that it is cheaper, less paperwork, and simpler. The benefit to the employee is that it can be less hours, more pay, and offer flexibility. However, IF you hire employees in Mexico and they are not under a very - specific - contract - agreement through an attorney, the employee is also entitled to the following should he or she pursue it:
  • Health benefits
  • Social security
  • Taxes paid on earnings
  • Infonovit (which goes towards their rent or mortgage)
  • Vacations
  • Annual bonuses
  • And in some cases - a percentage of your company's annual earnings.
When I mention this to Westerners the response is usually, "Oh - that's the same as in the States" or "Well, workers should get the same benefits here as they do in Canada". I am not here to agree or disagree with either statement. I am simply saying that the COST of hiring employees in Mexico can be bigger in the end than what it was in the beginning. And most businesses can't afford to pay out all those benefits... which grow larger and larger and over time.

Here are a few little anecdotes:

Lupita & Roberto Luis
Recently our Mexican friend (who's name will be changed to Lupita in this story) who owns a small restaurant was sued by her faithful employee, Roberto Luis (another alias). Roberto Luis worked for Lupita for nearly 2 years and Lupita paid him under the table. Lupita was happy and Roberto Luis was happy. But, Roberto Luis's wife pressured her husband to sue Lupita for benefits that she felt Roberto Luis was entitled to have. "It's the law!", she told her husband. So, Roberto Luis sued and he won - but not as much money as he wanted. And he also lost his job. And Lupita had to sell personal belongings to pay her ex-employee the settlement. And Roberto Luis couldn't find another job for a very long time. And when he finally did find another job it was longer hours for less pay. And neither Lupita nor Roberto Luis were very happy at all.

Miguel & the Security Guard
A marina store owner, who we will call Miguel, hired a security guard. The security guard was on his way to work on the very first day and had a car accident. Miguel was sued and the security guard won... even though the security guard was not on the premises, was not on the time clock, and had never even started his job at the marina! But because he was on his way to work the accident was considered work related.

Albert & Rosa
"Albert", a retired Canadian professor living in a home he bought in El Centenario ( a subdivision north of La Paz), hired "Rosa" to come twice a week to clean his house. Albert and Rosa had a wonderful friendship for 4+ years. Albert was generous with Rosa - he gave her gifts every year for holidays, offered her his beautiful dining room table and sofa when he replaced them, paid to have her car repaired, bought her medication when she was sick, etc... Rosa worked hard and was happy to have the income and extras. Albert trusted Rosa.
Out of the blue and not out of malice, Rosa sued Albert for benefits.
And Rosa won.
And Rosa lost her job.
And Albert and she were no longer friends.
And Rosa was confused as to why Albert was upset.
And Rosa cost Albert a very, very large sum of money because she had been his "employee" for over 4 years.
"But, it's the law", Rosa said.

La Paz - tranquil and at peace
Truly, this scenario with Albert and Rosa doesn't happen as frequently as the one with Lupita and Roberto Luis. However, it goes to show how the labor laws work in favor of the "employee" here in Mexico. It is exactly the reason why so many small businesses in Mexico only hire family. Because it is less likely that Primo Javier is going to sue his Primo Beto for benefits when Tio Manny and Tio Raul hear about it. And if Abuelita Mariposa finds out - Javier better watch out!

So, if you think labor is cheap in Mexico - think again. And, what you pay an attorney to write up in an agreement in the beginning just may end up costing you a lot less in the long run. Or, if you sub-contract through someone who has a Mexican corporation you are protected. But paying under the table anymore isn't safe, although people still do it. And though labor laws are changing here in Mexico to protect the longevity of businesses- everything takes a lot longer in Mexico.


  1. Excellent, fascinating, thank you. Have you read Jorge Castaneda's book, Manana Forever? If not, remind me to give you a copy when we hopefully see you in La Paz.

  2. I have not read it, Michael, but would love a copy! When will you guys be in La Paz? I don't want to miss your visit.