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Mexico passes new laws on outsourcing services

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Tax Hot Topics newsletter Mexico passed a major legislative overhaul of its legal framework related to outsourcing services that will have a significant tax impact as early as Aug. 1, 2021.

The new legislation amends, enacts and repeals several provisions on outsourcing practices, and establishes that employment outsourcing and insourcing services are now prohibited. Many of these changes take immediate effect. As a result, companies that conduct business in Mexico, and that engaged in such services, will need to become compliant by Aug. 1, 2021.

Notably, the amendments with respect to outsourcing services were made as part of changes to Mexico’s Labor Law, Social Security Institute Law, National Housing Institute Fund for Workers Law, and several other tax laws. The changes limit certain income tax deductions and value added tax credits on services payments to insourcing and outsourcing companies. The prohibitions extend both to employee subcontracting through third parties, as well as employee subcontracting between related parties as part of a corporate structure. However, there are certain “specialized” services or special projects that still may be subcontracted, provided:

  • They are not within the business purpose as stated in company bylaws
  • They are not part of the primary economic activity of the service recipient
  • The service provided is duly registered with Mexico’s new specialized services provider registry within the Ministry of Labor and Social Welfare

Additionally, amendments allow complementary or shared services, and work provided among companies of the same business group, to be outsourced, so long as they are neither part of the corporate purpose, nor the main economic activity of the company receiving them.

The changes to Mexico’s outsourcing laws represent an important reform of labor matters with significant tax impact. Companies may need to substantially amend service contracts, and in some cases may need to make changes to their business structures. Therefore, taxpayers conducting business in Mexico should immediately, and carefully, review their current corporate structures and employment practices, to assess whether changes are necessary to comply with the new laws by Aug. 1, 2021.

Contact:
David Sites
Partner
Washington National Tax Office
T +1 202 861 4104

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