In accordance with Article 123, Section A, subsection IX of the Political Constitution of the United Mexican States, “Employees are entitled to share in the profits of the companies…”
Profit sharing must be carried out within 60 days following the filing of the annual income tax return, i.e.:
- During May, for legal entities.
- During June, for individuals with business activities.
All individuals or legal entities with employees are required to distribute profits, if they have generated taxable profits.
Determination of the profit sharing base
According to the Mexican Income Tax Law (LISR), the base for calculating profit sharing is taxable income. The National Commission for Employee Profit Sharing has established that 10% of such taxable income must be distributed.
Additionally, any unclaimed PTU amount from the previous year must be added to the distributable profits of the following fiscal year.
As of 2021, a cap was established under the Federal Labor Law (Ley Federal del Trabajo) limiting the number of PTU to be distributed: either three months of the employee’s salary or the average PTU received in the last three years whichever is more favorable for the worker.
Calculations to be performed by the employer
Considering the above mentioned, employers must carry out the following three calculations:
- Calculate 10% of the taxable income, as per the Income Tax Law.
- Determine three months’ salary based on the last salary registered in fiscal year 2024.
- Compute the average PTU paid to each employee over the last three years.
Calculation base
Taxable Income Base (as per Income Tax Law)
PTU distribution calculation mechanics:
Taxable profit
(minus) Non-deductible exempt provisions (Art. 28, Section XXX, Income tax law)
(equals) = Base for PTU calculation
(x) 10%
(equals) = PTU for fiscal year 2024
(+) Unclaimed PTU from 2023
(equals) = PTU to be paid in 2025 corresponding to fiscal year 2024
Article 9 of the LISR clarifies that the PTU paid must not be deducted from the taxable base. Nor can prior years’ tax losses be subtracted.
Three Month Salary Base
This calculation considers three months of salary based on the employee’s daily wage, according to Articles 89 and 124 of the Federal Labor Law.
Three-Year PTU Average Base
The PTU paid to each worker over the last three years must be totaled and divided by three. If PTU was not paid in one or more years, only the years with PTU payments are considered, still dividing by three.
It’s important to note that these calculations must be performed for each employee. Each worker’s PTU is determined by comparing the three bases. The most favorable amount will be used:
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- Taxable base
- Three-month salary
- Three-year average PTU
PTU payment amount for a fiscal year
Profit sharing is only paid if there is a taxable income base. If no such base exists, no PTU is paid.
- If the taxable income base amount is lower than either the three-month salary or the average PTU of the last three years, PTU will be based on the taxable income base (According to the Mexican Constitution and the Income Tax Law).
- If there is no taxable base, then no amount of PTU will be paid to the workers.
- If the three-month salary is lower than the taxable base PTU, but higher than the three-year PTU average, PTU is based on the three-month salary.If the three-year average is lower than the taxable base PTU and higher than the three-month salary, PTU is based on the three-year PTU average.
Who is entitled to PTU
The employees who are entitled to receive PTU are as follows:
-
- Permanent employees (regardless of how long they’ve worked).
- Temporary employees who worked at least 60 days.
- Trusted employees (up to 20% above the highest unionized or base employee salary).
Who is not entitled to PTU
Those who have the following characteristics are not entitled to share in the employees’ profits
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- General directors, administrators, and managers.
- Domestic workers.
- Professionals offering independent services or those under salary-similar schemes.
Employee objections to the tax return
According to Article 121 of the Federal Labor Law, if employees disagree with the annual tax return, the following process applies:
- Within 10 days of filing, the employer must provide workers with a copy of the annual return.
- Within the next 30 days, the union or majority of employees may file objections before the Tax Administration (SHCP).
- The SHCP’s resolution is final and cannot be appealed by employees.
PTU joint committee
As per Article 125 of the Federal Labor Law:
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- A committee with equal representation from employer and employees will be formed.
- This committee determines the individual PTU distribution.
- Any disputes must be resolved by the committee within 15 days.
Withholding income tax on PTU
Article 93, Section XIV of the LISR states that no income tax is payable on PTU up to 15 times the daily UMA value (approx. $1,697.10). The remainder is subject to withholding under Article 96 (fourth paragraph) of the LISR and Article 174 of its Regulations.
Additional considerations for PTU calculation
a) Days counted as worked:
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- Maternity or work-related injury leave
- Holidays, rest days, vacation days, contractual leave
- Union duties
b) Days not counted as worked:
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- General illness inability
- Paid or unpaid leave
- Unjustified absences
c) Salary base for calculation (Art. 124 Federal Labor Law):
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- Fixed salary: daily wage only, excluding overtime, bonuses, and other benefits.
- Variable salary: average earnings during the fiscal year, excluding extra benefits as per Article 84 (Federal Labor Law).
- Mixed salary: daily wage plus average of variable pay, excluding benefits under Article 84.
PTU distribution must be individualized considering two variables:
a) 50% distributed proportionally based on days worked by each employee.
b) 50% distributed based on the proportion of salary earned relative to total payroll.
PTU Limit for certain workers
For workers whose income comes exclusively from service fees (e.g., in a civil partnership or non-profitable society), or those managing rental-generating assets or collections, PTU cannot exceed one month’s salary.
At Núñez Rosas y Asociados, we understand the complexity of these calculations. We offer our professional services to elaborate precise PTU distribution services, fully compliant with all applicable legal obligations, to ensure the correct number of PTU is paid to each of your employees.
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