The executive who stayed too long: When global mobility creates a permanent establishment in Mexico

Permanent establishment (PE) is often treated as a real estate issue, a branch, office, or factory. In practice, it can begin with a person. A foreign executive extends a stay in Mexico, works from an affiliate’s office or home, leads operations, negotiates terms, directs personnel, or secures approvals that headquarters endorses. Together, these facts may show that the foreign company is conducting business in Mexico through a fixed place or dependent agent.

The 183-day myth

The most dangerous misconception is that the risk begins on day 184. It does not. The 183-day concept may matter for individual taxation or particular treaty provisions, but PE is primarily an activities and facts test. Depending on the applicable treaty, exposure may arise before or after that threshold, or without crossing it. 

The real questions are: 

What decisions are made in Mexico? Is a location here at the enterprise’s disposal? Does the executive habitually conclude contracts, play the principal role leading to their conclusion, or deliver services under a treaty specific rule?

Titles don't protect you

Job titles and signature policies offer limited protection. An executive need not sign the final agreement in Mexico if its substance is settled there and headquarters’ approval is merely a formality. Calling a stay “temporary”, retaining the person on foreign payroll, or charging costs under an intercompany agreement cannot override the underlying reality.

The data trail

The data trail is a reality that is increasingly accessible. Calendars, emails, customer relationship management (CRM) records, electronic signatures, expenses, access logs, and board materials can reconstruct where value was created and authority exercised. What was once a travel policy issue is now a data trail.

A PE finding may require the company to attribute profits to Mexico, maintain records, file returns, and address VAT and payroll implications. It may also require defending prior years with adjustments, surcharges, and penalties, while exposing transfer pricing inconsistencies.

How to govern global mobility

The solution is not to stop global mobility; it’s to govern it. Before an executive relocates or repeatedly works from Mexico, companies should map authority, functions, locations, contract involvement, and treaty thresholds. During the assignment, conduct should be tested against that map – not merely the travel calendar. Where risk exists, authority can be redesigned, activities limited, documentation aligned, or a compliant Mexican structure implemented.

The executive who “stayed too long” may not be the one who spent the most days in Mexico. It may be the one who crossed an invisible line from visiting the market to conducting the foreign company’s business from within it.

In my experience advising international companies in Mexico, the greatest exposure rarely comes from a deliberate decision. It comes from business reality evolving faster than the tax structure. In global mobility, presence creates opportunity, but unmanaged activity creates risk.

If your clients have executives working cross-border into Mexico, this is worth a conversation before the assignment begins – not after.

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Prof Sergio Guerrero Rosas, Managing Director at Guerrero y Santana, has over 25 years’ experience advising companies from SMEs to multinationals, as well as individuals, on tax and estate planning. He is also Global Vice Chair of the GGI Trust & Estate Planning (TEP) Practice Group.