Mexican Outsourcing Legislation Amendments

On April 23, 2021, the Federal Government released in the Formal Gazette the amendment of many provisions of the Federal Labor Legislation, the Social Protection Regulation, the Law of the Countrywide Workers’ Housing Fund (Infonavit), the Federal Tax Code, the Earnings Tax Legislation, the Worth Extra Tax Law (VAT), the Federal Law for Point out Employees, and the Federal Legislation regulating paragraph (b) of Short article 123 of the Federal Structure (collectively the “Amendments“) to entirely modify the current regulation of staff outsourcing.  

Major Reason

In basic conditions, the objective of the Amendments is to stop “outsourcing,” comprehended as a system by means of which a beneficiary hires its required personnel by way of a third party aiming to keep away from or lower employer’s liabilities and obligations underneath Mexican law. The Amendments’ aim is to incentivize corporations benefiting from personnel to hire them immediately, below labor agreements reflecting sector problems and that induce the tax and social safety contributions that correspond beneath relevant regulation.  

Track record

In Mexico, labor-linked and social protection contributions have customarily been perceived as high¹. In that context, for many years organizations functioning in Mexico have designed “outsourcing” mechanisms that have permitted them to cut down these prices. These mechanisms have also been applied to lower tax and sometimes required income-sharing affect on overall operational prices. 

A initial try to control the above-stated mechanisms was implemented in 2012. An amendment to the Labor Legislation released the so-known as “intermediation,” which allowed a firm to render expert services with its own staff to a 3rd-social gathering called “beneficiary.” The corporation that hired the staff was directly responsible for social stability and associated expenses, and the beneficiary would only be liable if specified conditions ended up not met. Nevertheless, the attempt was unsuccessful, and the Federal Governing administration continued complaining about the impact of these mechanisms on public finances, specifically on the Social Stability Institutes, and also to the employees’ lawful and constitutional rights. 

Reps of the Federal Government and the personal sector have been discussing a new proposal to address these considerations. This new try is based mostly on the prohibition of “outsourcing,” as described previously mentioned, supported with unique fines, the non-recognition of the deductibility of the bills for tax applications of the beneficiary, and even the chance of a prison accusation for tax evasion. 

Amendments

The amendments can be classified in 4 crucial groups: (i) the Labor Regulation, (ii) the Social Security Institute Legislation, (iii) the Infonavit Law, and (iv) other tax laws (revenue, benefit added tax, and the fiscal code). 

Federal Regulation now forbids “outsourcing” – described as the problem in which a corporation or individual supplies or would make personnel offered for the benefit of yet another entity. This determine, which involves the use of businesses known in Mexico as “pagadoras,” is now forbidden.
Firms will only be permitted to outsource solutions that in shape in just the description of specialized works or companies if (i) those works or services are not bundled in the beneficiary’s company objective or core activities and, therefore, are not able to be carried out specifically, and (ii) the expert services company is registered in a new database to be created by the Ministry of Labor beneath still-to-be-published rules. 

A enterprise would be able to outsource specialized expert services to a subsidiary or affiliated if the very same circumstances are achieved. 

Any particular person or corporation outsourcing solutions without meeting those people disorders will be fined², jointly liable for all labor obligations and, as talked about down below, will also be liable for social protection contributions and will not be permitted to deduct the corresponding cost for needs of revenue tax, or to credit rating the price for VAT needs. 

The Social Protection Institute Regulation now supplies, in its new report 15-A, that firms offering specialized expert services or accomplishing specialized works will now have to offer quarterly info to the Institute about their contracts and staff. Failure to do so will consequence in specific fines. On the other hand, companies that deal with corporations in breach of these obligations will be jointly liable vis-à-vis the Social Protection Institute for all corresponding obligations. 

The Infonavit Regulation was amended to intently keep track of changes to the Social Protection Institute Regulation. The amendments set forth obligations for organizations providing specialised products and services and for the beneficiaries.  The former have a reporting obligation about contracts and personnel furnishing specialized companies, and the beneficiaries will be jointly liable vis-à-vis the Infonavit if its companies supplier is in breach of its obligations. 

On the tax aspect, the Tax Code, the Profits Tax Legislation, and the VAT Regulation were being all amended to deny deductibility for tax applications of payments created by a beneficiary of “outsourced” products and services that are either related to the beneficiary’s corporate function or aspect of its main routines. Payments for “outsourced” solutions will only be deductible if the beforehand mentioned ailments are met specifically, they are referred to specialised providers or works not involved in the corporate goal or core things to do of the beneficiary, and if the provider is registered ahead of the Ministry of Labor. The Tax Code sets forth new fines for corporations that try out to deduct payments for “outsourced” services, and for services suppliers not appropriately registered.  On top of that, the Tax Code goes as much as to take into account all buildings that simulate the rendering of specialised solutions as tax evasion. 

Pertinent Dates

Amendments ended up enacted in the April 23 night version, so they will turn out to be effective on April 26, other than for the amendments to the Federal Tax Code, the Cash flow Tax Regulation and the Benefit Added Tax Law, which will turn into effective on August 1, 2021.

* This GT Inform is minimal to non-U.S. issues and legislation.

¹ This perception may possibly not be totally exact. (see: https://info.oecd.org/tax/social-stability-contributions.htm)

² Fines may perhaps be as high as 50,000 units, equivalent to US$225,000 at a 20 Peso trade fee.