Labor outsourcing is banned. Labor and Tax Implications.

Recently the Mexican Federal Government has announced modifications to Federal Labor Law, Social Security Law, Federal Fiscal Code, Income Tax Law, Value Added Tax Law, etc. The main purpose of these reforms is to proscribe the labor outsourcing/insourcing services. According to these reforms, companies are subject to the following mandatory rules:

 

1. The subcontracting of personnel is forbidden. Companies subcontracting personnel are compelled to transfer the personnel properly within the following three months.

 

2. The subcontracting of specialized services or specialized work is allowed provided such services are not considered part of the corporate purpose or main activity of the subcontracting company.  For such purposes, it is mandatory to support these labor schemes with the corresponding contracts and registrations.

 

3. The profit sharing to be distributed to workers is limited to three months of the salary or the average received in the last three years.

 

4. The tax deduction and credit (ISR/VAT) for outsourced/insourced services is prohibited. The payments for subcontracting specialized services or specialized work are deductible from taxes provided the legal provisions authorizing such schemes are previously complied.

 

5. Sanctions and fines shall be imposed in case of non-compliance with the above new regulations, including criminal charges under the tax laws for companies or individuals.

 

Please consider that this summary is a general explanation on legal implications, only. Consequently, we strongly suggest to analyze the specific case of your company in order to anticipate actions.

 

Finally, please note that these labor reforms entered into full force on April 24, 2021 and tax reforms will enter in force on August 1, 2021.

 

For more information, please do not hesitate to contact us.

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