Mexico: Tax and labor reform; outsourcing personnel rules (changes made during legislative process)

Amendments to the draft decree were made during the congressional process

Amendments to the draft decree were made during the congressional process

A decree implementing labor law, social security law, and tax law measures relating to the use of outsourcing personnel was published in the official gazette on 23 April 2021.

The measures (in the form of a draft decree) were considered by the Mexican Congress earlier this month. Amendments to the draft decree were made during the congressional process, and an overview of these modifications is provided below.

Read a fuller description of the measures as contained in the draft decree: TaxNewsFlash

Federal labor law-related changes in final decree

  • Provisions to regulate outsourcing in Mexico were removed; thus, subcontracting personnel using these structures will be prohibited.
    • Transitional provisions establish that outsourcing employees can be transferred to the operating entity within 90 days, without requiring the transfer of assets of the subcontracting entity.
  • The hiring of personnel who perform activities that are related to the core business of the contracting company is also prohibited.
  • With regard to “specialized services,” these can be provided by obtaining the proper authorization from the Mexican Labor Ministry. Therefore, the provision of specialized service must be registered, and this will be relevant for those group companies that provide services in Mexico to other entities of the same group.
    • According to the transitional provisions, Mexican labor authorities have 30 days to issue guidance about how to satisfy the registration requirement. Also, the transitional provisions establish a period of 90 days for the registration.
    • The registration must be renewed every three years.
    • The transitional provisions establish a period of 90 days to register.
  • Individuals and legal entities that subcontract or execute specialized services will be subject to a jointly and severally liability rule if the employer fails to comply with its obligations arising from the relations with its workers.
  • The amount of employee profit sharing (“PTU” for its acronym in Spanish) will be the greater of (1) three months of the employee’s salary, or (2) the average of the PTU received by the employee in the last three years.

Social security law-related changes in final decree

  • Specialized service providers must disclose to the social security authorities certain information such as the names of the parties signing the agreement, detail of the services contracted, and the number of employees under the agreement.
  • This information must be provided on a quarterly basi

Workers’ housing fund law-related changes in final decree

  • Specialized service provider must disclose to the national housing fund authorities certain information, when services are rendered by the provider—including information about service contracts, amounts of contributions and amortization, employee information, how the contribution base salary is determined, and a sample copy of the registry issued by the Ministry of Labor and Social Security.
  • This information must be provided on a quarterly basis.

Tax law-related changes in final decree

  • If Mexican entities subcontract personnel related to core business activities or had employees that were transferred to the services entity (prior this reform) and such employees rendered services to that entity, the amount paid as consideration will not be deductible for corporate income tax purposes and will not be creditable for value added tax (VAT) purposes.
  • Regarding corporate income tax, when there are authorized specialized services, the Mexican entity that receives such services must obtain, among other items, a copy of the tax receipts for salary and wages paid to workers and other supporting documentation that confirms the employer has properly complied with the social security contribution and labor obligations.
  • Relating to VAT, the requirement to withhold 6% of VAT when subcontracting services are provided is eliminated.
  • In case of authorized specialized services, the Mexican entity that receives these services must obtain documentation confirming the VAT payment relating to the service, and if this information is not provided, the recipient of the services must file an amended monthly VAT return eliminating the VAT credit.
  • There are certain provisions that will trigger a tax fraud investigation such as any schemes that simulate the provision of specialized services, specialized labor or the subcontracting of personnel.

Effective dates

The decree reforms will be effective on various dates. The measures relating to the labor law, social security law, and workers’ housing fund are effective on the day following the day of publication in the official gazette (or 24 April 2021).

The tax law-related changes are effective 1 August 2021.


 

For more information, contact a KPMG tax professional in Mexico:

Armando Lara Yaffar | +52 (55) 5246 8374  | armandolara@kpmg.com.mx

Manuel Rico | +52 (55) 5246 8558 | rico.manuel@kpmg.com.mx

 

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.