Sending employees on international assignment is a strategic business decision for many companies. While often necessary to compete in the global marketplace, employees abroad may bring hidden and unknown risk. This series will identify various considerations in several countries and discuss proactive measures that employers may implement.
Visas and Work Permits
U.S. companies often take advantage of the flexibility that Mexican immigration offers by having their U.S. citizen employees enter Mexico without visas to do business at Mexican client sites or affiliate companies. Mexico allows many non-U.S. citizens to enter Mexico as business visitors without having to obtain visas (the list of countries is available at http://www.sre.gob.mx/). In addition, non-U.S. citizens who hold unexpired U.S. visas are also permitted to enter Mexico as business visitors. Visitors may participate in business activities (such as business meetings, visits to install or repair machinery or equipment, or providing technical assistance at a client or affiliate company) for up to 180 days per visit as long as they are not paid by a Mexican entity.
While U.S. companies can send their U.S. citizen employees to Mexico easily and quickly without having to obtain visas, it is important for HR and Global Mobility Managers to remember that while holding business visitor status an individual is very limited in what he or she can do, which can seriously impede an individual’s daily activities. For example, business visitors may not open bank accounts or secure loans, and they may be ineligible to apply for visas to visit other countries while in Mexico. Many of these activities are not related to an employee’s job duties, but they are directly related to their ability to live comfortably in Mexico for several months and, in our experience, are a major source of unforeseen frustration. As such, GT highly recommends obtaining Temporary Resident (TR) visas at a Mexican consulate before traveling to Mexico, particularly when dealing with high-level employees and executives.
Mexican consulates no longer have jurisdictional restrictions based on where an individual resides so employees can apply for TR visas at any consulate outside of Mexico. The wait times for appointments vary by consulate; however, most Mexican Consulates can issue TR visas anywhere from same day as the appointment to five business days.
Stealth Business Travel
Stealth business travelers – or employees who travel to foreign countries to conduct “business” without an employer’s knowledge – present hidden risk to companies. Compared with many countries, including the United States and Canada, Mexican authorities allow individuals to perform a broad range of activities as long as they are not being paid in Mexico. It is important, however, that pre-departure discussions are held with employees to make sure they understand what they can and cannot do while in Mexico as a business visitor, particularly considering that certain activity can have serious adverse effects. For example, if an employee is negotiating or signing contracts on behalf of the non-Mexican company, the employee could trigger the creation of permanent establishment for the non-Mexican company, which results in Mexican tax liability. As a result of such activities, the employee could also be considered a Mexican resident for tax purposes and would be subject to Mexican worldwide taxation. As always, it is critically important for companies to minimize stealth business travel to avoid unintended consequences.
Besides the risk of permanent establishment mentioned above, doing business in Mexico can also trigger Mexican social security requirements as an employee might be required to contribute to both the U.S. and the Mexican social security systems. Another important practice point: it is not unusual for U.S. citizen employees to be advised incorrectly by Mexican tax advisors that they do not need to pay U.S. taxes because they are Mexican residents under the U.S.-Mexico income tax treaty. Please remind your employees that U.S. tax advisors should advise them on their U.S. tax compliance.
The “Tax Considerations” contribution of this post was prepared in connection with Diana Davis, Tax Shareholder in the firm’s New York office. Diana provides U.S. tax advice to international clients with regard to corporate tax matters, international acquisitions and reorganizations, structure of inbound and outbound transactions, tax advantaged treaty-based structures, international transportation, expatriation, and withholding issues.