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  • Writer's pictureBrandon Guillermo Lopez Moreno

Undistributed Profit in the 2023 EPS Project

Employee profit sharing is a right established in Article 123, section A, paragraph IX of the Mexican Constitution, in accordance with Article 117 of the Federal Labor Law (LFT).

Its purpose is to reward the efforts of the employees, which represent a fundamental factor for companies to generate wealth in the development of their objectives. This, of course, does not grant them any rights over them.

The percentage to be distributed, referred to in Article 117 of the Federal Labor Law and determined by the "Comisión Nacional de la Participación de los Trabajadores en las Utilidades de las Empresa" (National Commission for Employee Profit Sharing) is 10% of the fiscal profit. The basis for profit sharing is referred to in Article 120 and is determined by the Income Tax Law.

The payment must be made by the obligated persons no later than May 31 (legal entities) and April 30 (individuals).

Although it is true that the procedure to distribute the 2022 profit remained the same (number 1 of the example), the 2022 labor reform incorporated a rule that limited the amount to be distributed to each worker (number 2 of the example) as shown below:

  • Section VIII, incorporated as of April 23, 2021 to Article 127 of the Federal Labor Law, mentions) as the maximum amount for profit sharing for each employee: three months' salary or the average EPS received during the last three years by the employee (whichever is more beneficial for the employee).

The consideration of the limit established in the labor reform in question may give rise to a remnant (paragraph 3 of the example), in which case the final destination of this undistributed profit is not currently regulated by any legal regulation, which could represent a difficult decision for the companies.

A hypothetical case is shown below,

The company "Servicios Especiales de Nayarit, S. de R.L." must distribute 165,000 EPS among its three employees,

It is well known that the uncollected EPS, in accordance with the last paragraph of Article 122 of the Federal Labor Law, must be accumulated to the EPS to be distributed the following year. The employee did not exercise his or her right to receive the EPS, since it was determined but the employee did not exercise his or her right to receive it.

However, the EPS not distributed as a result of the limit established in Section VIII of Article 127 does not correspond to an uncollected EPS since it was not distributed nor was the right to collect it determined for any employee.

Thus, for the treatment of the remnant, the company could take one of the following alternatives:

  • To give them the character of liabilities that will be added to the EPS process of the following year,

  • Decree dividends on it, since it is an undistributed profit.

  • To conserve the spirit of redistribution of the wealth generated by the company and in retribution for the efforts of the employees, based on the agreement determined by the "Mixed Commission for Employee Profit Sharing in the Companies", distribute it to the employees.

The purpose of this article does not constitute an answer to any consultation, nor does it represent the position of our firm; therefore, the consideration and interpretation that the reader may make in this regard is not our responsibility.

Should the reader require professional advice from our tax lawyers, we will have to analyze the specific situation in order to establish the best alternative.


Published on August 10th, 2023

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