Mexico has recently enacted legislative amendments to various tax laws in a bid to restrict the ability of companies to enter into outsourcing arrangements.
The changes are intended to prevent companies from circumventing obligations that would apply to them if they engaged their workforce directly, not only in relation to income tax and social security contributions but also the obligation to pay employees a share of company profits. The new law caps such shares of profits at the greater of either: three months’ salary, or the average amount of such payments in the past three years.
Under the law, outsourcing will be permitted only in limited circumstances, where a company is seeking expertise outside the sphere of its regular economic activities. There will be tougher penalties for failing to abide by the rules of the new regime, including imprisonment and potentially joint and several liability for companies in respect of tax amounts owed by contractors in certain circumstances.
Further, non-compliance will result in companies no longer being able to deduct, for income tax purposes, expenses relating to outsourcing, and value-added tax credits will also be denied.
Intra-group services are outside the scope of the regime.
The provisions will be effective from August 1, 2021.