One of the questions occupying the minds of millions of Mexicans is whether MORENA, the party currently in power, will survive the 2024 elections and the conclusion of Andrés Manuel López Obrador presidential term. In general, the debate regarding AMLO’s intention to possibly seek reelection is over. Some potential candidates to take the mantle of the 4T (as the current president calls his movement) regime include Claudia Sheinbaum, Marcelo Ebrard, and Adán López. This alone indicates that the principle of no presidential reelection enshrined in Mexico’s Constitution will be maintained. Apart from these signs, no evident opposition to the current regime appears to exist. As usual, the President has the power over the first five years of his term, while the sixth and final year is typically reserved for the leading candidate in the upcoming election. President López Obrador proposed a radical change to the country, and some feared such change would establish a left wing regime affiliated with Latin-American movements such as the ones in Venezuela, Nicaragua, and Cuba which limit freedom of the press, respect for human rights and generally establish a totalitarian, state-controlled, economic regime. For now, the most obvious signs are of a populist government that proposes policies to address social inequality, but the constitutional order has not been broken. This is also true in areas such as the separation of powers and maintaining a free market economic system, notwithstanding worrying signals coming from the current administration’s energy policies. Further, there have been no major ruptures with the United States, which could have damaging effects for Mexico; on the contrary, the Mexican government has a good bilateral relationship with the U.S., as shown in its support to sign the United States, Mexico and Canada Agreement (USMCA) that succeeded the NAFTA. Thus far, the government has followed and respected the Mexican Supreme Court’s rulings, even if such were contrary to its interests. Only time will tell if the 4T movement is here to stay, which will depend largely on the successor to president López Obrador, which will be decided when Mexicans vote in 2024 to chart the future course of their country.
The removal from office process, or recall, is a direct democratic process through which citizens decide whether an elected official should continue to serve until the expiration of his or her term, or be removed, under certain preestablished rules. This means that citizens decide if an elected official is to remain in office. This mechanism was introduced in the Mexican Constitution as a citizens’ right, and it has been the most discussed issue in Mexico’s political debate. Since his campaign, Mexican President Andrés Manuel López Obrador proposed that he would promote the recall process under the premise that “the people elect, and the people recall”. The President offered that at the midterm of his mandate he would propose a public consultation to determine if he should or should not continue in office. The topic has since become the most relevant issue for purposes of the Mexican political thermometer, as it has created a noteworthy divide in the general electorate. A significant number of opposing political parties, that typically would desire the President to end his administration are paradoxically opposing the recall process. They consider such a political scheme by the President to secure his power and demonstrate that the people would like to expand his constitutional term. Another group, for different reasons, is opposing this process under the premise that if the result of the consultation is that the President should be recalled, the constitutional mechanisms for a presidential substitution would cause political tension. To further complicate things, the recall process would require a substantial investment. Mexico’s National Electoral Institute (INE), the entity with the authority to organize the recall process, has stated that it does not have sufficient funds to operate this extra democratic procedure. The President and some representatives in Congress have stated that the INE should have assumed a commitment to austerity to enable it to have enough resources to conduct the recall. This topic will continue to attract the most attention in Mexico and will further elevate the temperature of the political thermometer.
On October 29, 2021, the Second Chamber of Mexico’s Supreme Court of Justice published the judicial opinion through contradiction of prior decision number 2a./J. 1/2021 (11a.), captioned: “Audit Inspections. An inspection order issued to verify environmental compliance in accordance with the General Law for Ecological Balance and Environmental Protection need not indicate a time period to carry out the audit.” In such new precedent, the Second Chamber held that “expressly stating the time period in which an audit must be carried out is not a valid requirement for an inspection order to be issued to verify environmental compliance in accordance with the General Law for Ecologic Balance and Environment Protection.” The Second Chamber reasoned that violations which may cause environmental damages are not subject to a specific time period of time; therefore, demanding a timeframe to perform the audit or setting a term to do so would make it impossible for environmental authorities to exercise their right to conduct audits. This is especially true considering that the ecological balance and fundamental rights to enjoy a healthy environment as guaranteed by the Constitution are legally protected. Therefore, an inspection order will be considered to be correctly issued if such contains clear and detailed obligations that shall be subject to audit, as well as those activities to be carried out by the authorities during the audit, so that the inspectors’ actions are limited only to such authorized activities.
On January 11, 2022, the Technical Council (the “Council”) of the Mexican Social Security Institute (“IMSS”) announced that the “COVID-19 Permit” process will be relaunched as a result of the heightened risk of infection caused by the Omicron variant.
The COVID-19 Permit provides employees with the possibility to obtain paid sick leave for up to seven business days without having to visit a medical unit. The purpose is to avoid symptomatic employees coming to the workplace and potentially transmitting the virus and damaging the company’s normal activities.
The “COVID-19 Permit Version 3.0” will establish that, through a digital application and by filling a questionnaire about symptoms, vaccination status and preexisting conditions, an employee may obtain the COVID-19 Permit and be granted paid sick leave up to seven days.
The Council also stated that working mothers who qualify for maternity leave will be able to file for such remotely through IMSS digital services, thus avoiding the risk of infection by visiting IMSS facilities in person.
The announcement requests employers to avoid requiring COVID-19 tests paid by the employee and provides that the employer should cover such costs.
Finally, the announcement asks employers to help employees who require assistance to complete the forms necessary to obtain the permit.
It is vital for employers to be in constant communication with employees and working mothers infected with COVID-19 so the company can obtain the paid sick leave permit and avoid paying double during the leave or apply non-justified discounts for not coming to the workplace.
On January 7, 2022, the Decree establishing a visa requirement for Venezuelan nationals with regular passports entering Mexico without work authorization (the “Decree”) was published in the Official Journal of the Federation. The Decree will enter into force on January 22, 2022. Beginning on such date, Venezuelan nationals who seek entry to Mexico as visitors, without work authorization, will be required to file an application for a visa in accordance with the terms set forth in the General Rules for visa issuance issued by the Mexican Departments of Governance and State and Foreign Relations, published in the Official Journal of the Federation on October 10, 2014.
The determination of the Mexican government to require visas for Venezuelan nationals derives from a substantial increase in Venezuelan citizens entering Mexico with an intent other than as permitted visitors without work authorization, and the increase in false statements from Venezuelan travelers, among others.
It is important to note that the fact that a person has a visitor visa does not guarantee that the immigration officer will allow entry at the port of entry into Mexico. Immigration officials have discretionary authority to permit or deny entry if they determine inconsistencies exist in the information provided by those seeking entry to the country.
Mexico’s Social Security Institute (“IMSS”) provides Mandatory Social Security Rules for Independent Contractors which do Construction Work and Fixed-Term Projects (“ROTIC” for its acronym in Spanish). The ROTIC sets forth the obligation and process to register construction works with the IMSS. Accordingly, while the primary mission and purpose of the IMSS is to provide medical care, such agency maintains a registry for construction projects taking place in Mexico.
In order to maintain a more organized and reliable registry of construction employees, employers, and their respective responsibilities, the IMSS has opted to digitalize the process to register construction projects as a system and platform for the registry.
The purpose of the registry is to streamline the regular process from six forms to only two modules with the Integral Registry Service for Construction Work, thereby simplifying the process to complete the forms and modules.
Pursuant to Article 5 of the ROTIC, owners, persons hired to perform construction services and which have employees, as well as the individuals or entities subcontracted to perform construction services, must each register their work and projects with the IMSS.
Of note, Article 12 provides that an employer must register the construction project within a period of five business days from the project’s starting date, otherwise the employer will be subject to applicable fines.
Employers and owners of a construction project which have permanent employees are exempt from compliance with the ROTIC, since such applies to independent contractors and employees hired for fixed terms. In order to register, the applicant must have a valid electronic signature (valid “e.firma” with the Tax Administration Service).
Pursuant to the Mexican Federal Labor Law (“FLL”), work-related accidents and illnesses are those caused by an employee’s exposure to work activities. Accordingly, a work-related accident is defined as bodily injury or distress, whether immediate or not, death, disappearance caused by criminal actions, occurring suddenly at any place or time, and includes accidents that occur during an employee’s commute to or from home and the workplace; and a work-related illness is a pathological condition caused by ongoing actions arising from work-related activities, or the manner in which the employee must render services. The FLL also provides that the FLL and the Department of Employment and Social Welfare (“STPS” per its initials in Spanish) may designate other work-related illnesses from time to time.
Importantly, an employer is responsible for the safety and hygiene at the workplace and the prevention of work-related accidents and illnesses in accordance with the FLL, its regulations, and applicable official standards. Likewise, employees are also responsible for complying with applicable regulations as required by authorities and employers to prevent work-related risks.
The following consequences may result from a work-related accident or illness:
(i) Temporary disability, which is the loss of the capacity or ability to perform his or her job duties, either in part or completely, for a certain amount of time;
(ii) Partial permanent disability, which is a reduction in the employee’s capacity or ability to work, or
(iii) Permanent total disability, which is the employee’s loss of the capacity or ability to perform any type of work for the rest of his or her life.
The consequences resulting from a work-related accident or illnesses are taken into consideration in determining the level of disability.
The following may be considered in order to determine any disability compensation due to employees with respect to work-related accidents or illnesses: the employee’s daily base salary at the time of the work-related accident or illness, any wage increases corresponding to the position held by such employee until the level of disability is determined, the employee’s salary at the time of death, or the employee’s salary at the time the labor relationship ended. However, if the employee’s salary exceeds twice the minimum wage for the corresponding geographic area, the latter will be considered as the maximum.
An employer will be exempt from paying disability compensation in the following situations:
(i) The employee was under the influence of alcohol at the time of the accident;
(ii) The accident occurred while the employee was under the influence of drugs, unless such were medically prescribed and the employer was provided a copy of the medical prescription;
(iii) The employee intentionally caused the injury himself or with the help of another; or
(iv) The disability was caused by a fight or attempted suicide.
An employer has the following obligations in connection with work-related accidents and illnesses:
(i) Maintain at the work place, medications and equipment necessary to render first aid if needed, and train employees to use such;
(ii) Provide written and electronic notice to the STPS, the Labor Inspector, and the Courts, within seventy-two hours of any such occurrence; and (iii) Duly register its employees with the Mexican Social Security Institute.
Non-U.S. citizens may be surprised to find out that they can unwittingly become U.S. residents for tax purposes, without the benefits of becoming a U.S. resident for immigration purposes. Such non-U.S. citizens are often surprised to learn that at least three different types of “residence” exist under U.S. law: i) for immigration purposes, ii) for income tax purposes, and iii) for estate and gift tax purposes.
Obtaining a U.S. Permanent Resident Card, otherwise known as a Green Card, enables an immigrant to live and work permanently in the United States and to be protected by all of its laws. People seek Green Cards for various reasons, including as a steppingstone to obtaining U.S. citizenship, because they do not want to risk a denial of their visa renewal application based on changes in the political climate or otherwise. Such individuals may also desire to avoid the hassle of the visa renewal process every few years. Finally, they may want to avoid the extra scrutiny that non-U.S. citizens face when entering the United States. However, Green Cards come at a cost, as they also trigger important U.S. tax obligations, among other responsibilities to the U.S. government. Therefore, prior to applying for a Green Card, an applicant should seek legal and tax advice regarding the implications of becoming a U.S. Permanent Resident to determine whether or not such immigration status is truly in the applicant’s best interest. It may be the case that U.S. Permanent Residence is appropriate and beneficial for some, but not all, members of the same family.
Accordingly, Green Card holders are considered U.S. residents for U.S. income tax purposes even when living outside the United States. Further, a nonresident alien who meets the substantial presence test of being physically present during the year will also be considered a U.S. resident for U.S. income tax purposes, meaning that the length of stay in the U.S. can trigger income tax obligations. There are formulas used to determine how long a non-resident may be present in the United States without triggering income tax obligations, and for individuals with substantial non-U.S. income, it is very important to track their length of stay in the United States to ensure they do not exceed such threshold. U.S. residents for income tax purposes are generally subject to pay income taxes in the same manner as U.S. citizens. Therefore, similar to U.S. citizens, they must report their worldwide income on their U.S. income tax returns. Worldwide income includes dividends, wages, income from rental property or royalties, and any other form of income, and it includes income earned within or outside the United States. It is important to consider, in addition, the income tax withholding requirements for payments to the nonresident, and whether the nonresident is from a country with which the U.S. has a tax treaty which provides for the exclusion from withholding of some or all of the nonresident’s income, such as wages, scholarships/fellowship grants, and independent personal services.
The third type of U.S. residence is for U.S. estate and gift tax purposes and exists when someone has his or her domicile in the United States at the time of their death. A person becomes a U.S. domiciliary by living in the United States, even if for only a brief period of time, without the current intention of leaving. No government authorization or formula exists to establish when someone becomes a U.S. resident for estate tax purposes. Rather, the determination is made after the taxpayer has died and it is based on facts and circumstances used to determine the decedent’s intent. Factors used in making this determination include immigration status, statement of intent in important documents, and the location of business interests, and club and church affiliations, among others. The determination as to whether or not someone is a U.S. domiciliary can have a major impact on his or her estate, considering that the estate tax rate is up to 40% of the decedent’s assets. U.S. residents for estate tax purposes and U.S. citizens alike are subject to U.S. estate tax on their worldwide assets. However, they are entitled to an exemption/credit, which is currently $11.7M in 2021. The estates of persons who were not U.S. residents for estate tax purposes at the time of their death are also subject to U.S. estate tax, but only with respect to their assets located within the United States. They are entitled to a small exemption/credit of only $60,000. Accordingly, without proper planning, non-residents who own a second home or other assets in the United States may leave an estate tax problem for their estate. With proper legal and tax advice, non-residents can minimize the estate tax impact on their estates, allowing more assets to pass to their heirs rather than being devoted to paying U.S. estate tax.
Non-citizens should seek legal and tax advice on the various implications of their immigration status, length of stay in the U.S., and their intention to permanently live in the U.S. to conduct proper planning so as to avoid being caught by surprise by unintended U.S. tax obligations.
On November 1, 2021, Mexico’s Secretary of Labor and Social Welfare (“STPS” for its acronym in Spanish) published a Decree in the Official Journal of the Federation (“DOF”) creating a new Voluntary Labor Verification Program (the “Program”), which entered into force the day following its publication. The decree provides that employers may voluntarily report to the STPS their level of compliance with General Labor Conditions, Development and Training, Safety and Sanitation, among other aspects, as relates to their respective workplaces.
In relation to the Program, the General Rules of Workplace Inspections and Implementation of Sanctions in force, in article 2, section VI, 46 and 47, provides for Alternate Mechanisms to Inspections (“AMI”) to be conducted by duly certified entities. The AMI are alternative mechanisms that allow for reporting compliance to the STPS in an easy, transparent, amicable, and free manner. Employers and employees will be able to use technological devices for the implementation of the AMI, which information will be made known to them in the DOF. Employers registered with the AMI will be exempted from regular inspections; however, such does not mean that the STPS is waiving its inspection authority.
All employers in Mexico are eligible to join the AMI for matters relating to workplace safety and sanitation, and for development and training of their employees. However, employers under federal jurisdiction may join the AMI only with respect to general labor conditions matters and only if they comply with the requirements set forth in articles 123, part A, section XXXI, paragraphs a) and b) of the Constitution and 527, sections I and II of the Federal Labor Law. For employers not under federal jurisdiction, the STPS may enter into cooperation agreements with Mexican states so employers may receive the benefits of the Program.
In all cases, the receipt issued by the STPS may exempt employers from regular inspections on the above matters, as well as other matters and obligations governed by Mexican labor laws, and such will be regulated by guidelines to be published on the STPS website.
Among the principal advantages of the Program, the exemption from regular inspections is one of the most important, as it grants employers the opportunity to demonstrate their compliance with STPS guidelines.