How to pay and manage Mexican contractors: A practical guide

If you're paying independent contractors in Mexico, you need to handle payment, understand CFDI invoices and RFC requirements, and manage the Mexican tax system. The payment part is straightforward once you know the right method. The compliance part—collecting CFDI invoices, verifying RFC status, and understanding SAT requirements—is where most foreign businesses struggle.

This guide walks through what you actually need to do. Then we'll show you where Kontrable helps organize the work.

The main things you need to do

1. Use Wise for payments. It's the cheapest and most reliable way to pay Mexican contractors. Wise costs $3-8 per transfer with real mid-market exchange rates. PayPal costs $5-12 and has worse exchange rates. Traditional bank transfers cost $15-35 and take 3-5 days. Use Wise.

2. Verify RFC before starting work. RFC (Registro Federal de Contribuyentes) is Mexico's tax identification number. Always verify the contractor has a valid RFC before the first payment. You can check validity on SAT's website (sat.gob.mx).

3. Collect CFDI for every payment. CFDI (Comprobante Fiscal Digital por Internet) is Mexico's digital invoice system. Your contractor must provide a CFDI invoice for each payment. This is required by Mexican tax law and you need it for your records.

4. Use a written contract. Document the contractor relationship with a clear service agreement (contrato de prestación de servicios) covering scope, deliverables, payment terms, currency, IP ownership, confidentiality, and explicit statement that they're an independent contractor.

5. Keep payment records. Maintain documentation of all payments made and CFDI invoices received. As a foreign company, you typically don't withhold Mexican taxes, but you need records for your own country's tax compliance.

That's the foundation. Everything else builds on these five things.

Payment methods: What actually works

For paying Mexican contractors:

Use Wise. It's the cheapest, fastest, and most transparent way to pay contractors in Mexico.

Why Wise is best: It charges $3-8 per transfer with real mid-market exchange rates—no markup. PayPal charges $5-12 and has worse exchange rates. Traditional bank transfers cost $15-35 and take 3-5 days. For regular payments, Wise saves you money and time.

How to set up: Create a Wise business account (free). Get the contractor's CLABE (18-digit Mexican bank account number). Send USD or MXN to their account. Wise converts at mid-market rate if needed. The contractor receives money in 1-2 business days.

What about PayPal?

PayPal is widely accepted in Mexico and offers instant transfers, but it charges $5-12 per transaction with worse exchange rates than Wise. For small one-time payments or if the contractor specifically prefers it, PayPal works. For regular payments, use Wise.

What about Payoneer?

Payoneer is popular with Mexican freelancers and charges $5-10 per transfer with 1-3 day delivery. It's useful if the contractor already has an account and prefers it. But Wise is still cheaper and faster.

What about SPEI transfer?

SPEI (Sistema de Pagos Electrónicos Interbancarios) is Mexico's domestic instant transfer system. If you have a Mexican bank account, SPEI is free and same-day. But most foreign companies don't have Mexican accounts, so Wise is the practical choice.

What about traditional bank transfers?

Avoid them. They cost $15-35 per transaction and take 3-5 days. Use Wise or PayPal instead.

Currency: USD or MXN?

Unlike many countries, Mexican contractors are comfortable with both USD and MXN. The choice depends on the contractor's preference and work type.

Tech workers and those primarily serving US clients often prefer USD because it protects them from Mexican peso volatility. Local service providers may prefer MXN for ease of local accounting and expenses. Some contractors are flexible on either.

Always ask your contractor which currency they prefer before setting up payments. Have the conversation upfront so both sides know exactly what's being paid. If they're flexible, USD is often simpler for international transfers.

Understanding RFC (Tax ID)

RFC (Registro Federal de Contribuyentes) is Mexico's tax identification number. All contractors earning income in Mexico must have one.

The RFC is a 12-13 character alphanumeric code that identifies the contractor to the Mexican tax authorities (SAT). You need to verify the contractor has a valid RFC before starting work. You can check RFC validity on SAT's website (sat.gob.mx)—ask the contractor to provide their RFC and then verify it.

This is the contractor's responsibility to obtain and maintain, not yours. But you need to ensure they have one before paying them.

Understanding CFDI (Digital Invoices)

CFDI (Comprobante Fiscal Digital por Internet) is Mexico's digital invoice system. All business transactions in Mexico require CFDI. This is critical for compliance.

What it is: CFDI is an XML-based digital invoice certified by SAT (Mexico's tax authority). It's the official invoice format in Mexico.

What you need to do: For every payment to a Mexican contractor, request a CFDI invoice. This is not optional—it's required by Mexican law. Your contractor should provide CFDI for each payment before or immediately after you pay them.

Why it matters: You need CFDI for your tax records. If audited, you need to show you have proper invoices for all contractor payments. Without CFDI, you have no proof of legitimate business expense.

Tax and compliance requirements

When hiring contractors in Mexico, tax obligations are straightforward: the contractor is responsible for their own taxes with SAT (Servicio de Administración Tributaria). You don't withhold taxes or file anything with Mexican tax authorities.

Your responsibilities: Verify the contractor has a valid RFC before starting work. Collect CFDI invoice for each payment. Have a clear written service contract (contrato de prestación de servicios). Keep documentation of all payments. Don't withhold Mexican taxes.

Contractor's responsibilities: They must register with SAT and maintain valid RFC. Issue CFDI invoice for each payment. File monthly and annual tax returns. Charge and remit 16% IVA (VAT) if applicable. Keep records of income and expenses.

Important note: As a foreign company paying a Mexican contractor, you typically don't have tax withholding obligations in Mexico. However, you should collect CFDI invoices for your records. Consult with a tax professional in your country about reporting requirements in your jurisdiction.

Contractor vs employee classification

One mistake businesses make is treating contractors like employees. Mexico has labor laws that distinguish between the two, and misclassification can create legal risk.

A proper independent contractor relationship means they control how work is done, use their own tools and equipment, work for multiple clients, and are engaged on a project basis with defined deliverables. They should provide CFDI invoices (which signals self-employment). They shouldn't have set working hours, provided equipment, exclusive work requirements, or ongoing employment-like arrangements.

Document the relationship carefully with a written contract (contrato de prestación de servicios) that explicitly states independent contractor status.

Common mistakes and how to avoid them

Mistake 1: Not collecting CFDI invoices. You pay the contractor but don't get CFDI invoices. Later, if you're audited, you have no proof of legitimate business expense. This creates tax compliance issues.

Solution: Always request CFDI invoice before or immediately after payment. Make it part of your payment workflow. Don't process payment until you have CFDI.

Mistake 2: Not verifying RFC. The contractor doesn't have a valid RFC or provides an invalid number. This creates legal and tax issues.

Solution: Verify RFC before starting work. Ask the contractor for their RFC and check it on SAT's website (sat.gob.mx). Takes 5 minutes and prevents problems.

Mistake 3: Using expensive bank transfers. Traditional international wire transfers cost $15-35 per transaction with poor exchange rates. Over a year, paying a single contractor, this costs thousands extra.

Solution: Use Wise ($3-8) or PayPal ($5-12). You save 60-80% on transfer fees.

Mistake 4: Assuming English fluency. Many Mexican tech contractors are bilingual, but not all. You assume English communication and run into language barriers.

Solution: Clarify language requirements upfront. Many Mexican contractors are bilingual and actively prefer English communication for professional work. But confirm expectations before hiring.

Mistake 5: Misclassifying employees as contractors. You treat a contractor like an employee—setting hours, providing equipment, requiring exclusive work. This creates legal risk under Mexican labor law.

Solution: Ensure true contractor relationship. They control how work is done, use their own tools, work for multiple clients, provide CFDI invoices. Document this in the contract.

Why Mexico for nearshoring?

Mexico has become increasingly popular for US companies hiring contractors. Time zones align perfectly with US business hours (CST/MST). Cultural proximity and similar business styles make collaboration smooth. Mexico has strong engineering and design talent with 30-50% lower rates than US-based contractors while maintaining quality. Short flights make in-person meetings easy. Many contractors speak English fluently.

For US companies, Mexico offers the best nearshoring value in North America—close proximity with strong talent at competitive rates.

Frequently asked questions

Q: Do I need an EOR platform like Deel for Mexican contractors? A: No. EOR (Employer of Record) is for hiring employees internationally. Mexican contractors handle their own taxes and compliance. You just need a good payment method (Wise) and the ability to track CFDI invoices and contracts.

Q: Should I pay in USD or MXN? A: It depends on the contractor's preference. Tech workers often prefer USD, while local service providers may prefer MXN. Always ask your contractor which currency they prefer before setting up payments.

Q: What is CFDI and why do I need it? A: CFDI (Comprobante Fiscal Digital por Internet) is Mexico's digital invoice system. You need it for tax compliance and record keeping. Your contractor must provide CFDI for each payment. Without it, you have no proof of legitimate business expense if audited.

Q: Do I need to withhold Mexican taxes? A: No. As a foreign company paying a Mexican contractor, you typically don't withhold Mexican taxes. The contractor is responsible for their own SAT tax compliance.

Q: How do I verify a contractor's RFC? A: You can verify RFC validity on SAT's website (sat.gob.mx). Ask the contractor to provide their RFC before starting work, then check it online.

Q: What's the best payment method for Mexico? A: Wise offers the lowest fees ($3-8) and best exchange rates. PayPal is also popular but has higher fees ($5-12). Avoid traditional bank transfers ($15-35).

Q: Do I need a local presence or business registration in Mexico? A: No. You're paying independent contractors for services. You don't need a Mexican business entity, registration, or tax ID. The contractor handles their own compliance.

Getting started

If you're paying Mexican contractors, here's the process:

1. Verify contractor has valid RFC (check on sat.gob.mx)
2. Set up Wise business account
3. Ask contractor for currency preference (USD or MXN)
4. Get contractor's CLABE or Wise account
5. Create written service agreement (contrato de prestación de servicios)
6. Request CFDI invoice for each payment
7. Keep records for your tax purposes
8. Maintain contractor contact and documentation

Kontrable helps with steps 2, 4, 5, 6, 7, and 8 by organizing contractor information, tracking payments, managing invoices and CFDI documentation, and storing contracts. You stay in control of your payment method and use Wise directly.

If you're managing a few contractors, a spreadsheet works. If you're managing dozens or coordinating across a team, Kontrable saves time and keeps contractor data organized.

Ready to get organized?

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