1. Implementing Payroll for Mexico
  2. Legal Entities for Mexico

Legal Entities for Mexico

A legal entity is an entity identified and given rights and responsibilities under commercial law, through registration with the territory's appropriate authority.

A legal entity can legally:

  • Own property

  • Trade

  • Repay debt

  • Account for themselves to company regulators, taxation authorities, and owners according to rules specified in the relevant legislation

The judicial framework may enforce their rights and responsibilities.

For your enterprise, a legal entity may help you with:

  • Facilitating local compliance

  • Minimizing the enterprise's tax liability

  • Preparing for acquisitions or disposals of parts of the enterprise

  • Isolating one area of the business from risks in another area

    For example, your enterprise develops property and also leases properties. You can operate these two businesses separately.

There are no predefined legal entities for Mexico. Create all legal entities that apply to the enterprise you're setting up. Use the Legal Entity HCM Information task in the Setup and Maintenance work area.

There are several things you need to consider when you define your legal entities.

  • What roles will they play

  • What types of legal entities do you need

  • What registrations will they require

  • What additional reporting information do you need

Roles of Legal Entities

In configuring your enterprise structure, the contracting party on any transaction is always the legal entity. Individual legal entities:

  • Own the assets of the enterprise

  • Record sales and pay taxes on those sales

  • Make purchases and incur expenses

  • Perform other transactions

Legal entities must comply with the regulations of jurisdictions, in which they register. Europe now allows for companies to register in one member country and do business in all member countries, and the US allows for companies to register in one state and do business in all states. To support local reporting requirements, legal reporting units are created and registered.

You are required to publish specific and periodic disclosures of your legal entities' operations based on different jurisdictions' requirements. Certain annual or more frequent accounting reports are referred to as statutory or external reporting. These reports must be filed with specified national and regulatory authorities.

Individual entities privately held or held by public companies don't have to file separately. In other countries, your individual entities do have to file in their own name, as well as at the public group level. Disclosure requirements are diverse. For example, your local entities may have to file locally to comply with local regulations in a local currency, as well as being included in your enterprise's reporting requirements in different currency.

A legal entity can represent all or part of your enterprise's management framework. For example, if you operate in a large country such as the United Kingdom or Germany, you might incorporate each division in the country as a separate legal entity. In a smaller country, for example Austria, you might use a single legal entity to host all of your business operations across divisions.

Types of Legal Entities

There are two types of legal entities.

This kind

Does this

Legal employer

A legal entity that employs workers.

Payroll statutory unit (PSU)

A legal entity responsible for paying workers, including the payment of payroll tax and social insurance. A PSU can pay and report on payroll tax and social insurance on behalf of one or many legal entities. That choice depends on the structure of your enterprise.

When defining a legal entity, consider the context in which it's used:

  • If the entity is to be used in an HCM context, designate it as a legal employer. In an HCM implementation, it's mandatory to define legal employers.

  • If the entity is to be used in a payroll context, designate it as a PSU for payroll processing and tax reporting.

  • You can define a legal entity that's both a legal employer and a PSU.

  • If multiple legal employers must be grouped together for tax reporting purposes, you can associate them all with a single PSU. If legal employers don't report together, they must be segregated by PSU.