Mexico City, November 17th, 2020.
On November 12th, 2020, President Andres Manuel Lopez Obrador introduced a bill to the Legislative Commission of the House of Representatives that amends, adds, and repeals several provisions of the following statues to substantially regulate the subcontracting or outsourcing regime in Mexico:
- The Federal Labor Law.
- The Social Security Law.
- The National Worker’s Housing Fund Law.
- The Federal Tax Law.
- The Income Tax Law; and
- The Value Added Tax Law.
The bill is still pending to be discussed and approved by the House of Representatives and the Senate.
Below are the highlights of the bill:
A. Employment.
In connection to the Federal Labor Law («FLL»), the bill proposes to amend articles 12, 13, 14, 15, 1004-A, and 1004-C; adds a third paragraph to article 41; and repeals articles 15-A, 15-B, 15-C, and 15-D to regulate specifically the following:
1.Outsource of personnel:
The bill prohibits to subcontract / outsource personnel. This is that an individual or entity will not be allowed to supply personnel to benefit another individual or entity.
2.Specialized Tasks / Activities and Services:
Subcontracting or outsourcing may be permitted to the extent it refers only to specialized services or tasks / activities that are not part of the contracting party’s corporate purpose or core business.
To formalize an agreement for specialized services between the parties, they shall execute a services agreement in writing, which shall must include (i) the purpose of the services or tasks/activities to be provided; and (ii) the number of employees who will participate in such project.
The hiring party shall be jointly liable for the employment obligations if the service provider breaches any of its employees’ responsibilities.
Individuals or entities that provide specialized services shall first obtain from the Ministry of Labor and Social Welfare a license / authorization.
To secure the license / authorization, the service provider must show full compliance with its employment, tax, and social security obligations.
Services providers must renew the license / authorization every three years.
The Ministry of Labor and Social Welfare may refuse or cancel authorizations at any time for failure to comply with statutory requirements.
Service providers will have to register in a so-called “Registry for Providers of Specialized Services or Tasks” (“Padrón de Prestadoras de Servicios Especializados u Obras Especializadas”). This registry will be available online to the public in general.
3.Placement / Employment Agencies.
An «intermediary» is defined as the individual or entity that assists in the hiring process of personnel that will be engaged and provide services to a specific employer.
This process may include recruitment, selection and training of personnel, among others.
In no event shall the intermediary be considered the employer as this will be the individual or entity that engages and benefits from the services of the recruited individual.
Sanctions.
The individual or entity who breaches any of the above-mentioned rules related to subcontracting, or benefits from unauthorized outsourcing of personnel, specialized services or task/activities will be subject to:
- a fine from 2000 to 5000 Measurement and Update Units (“UMA” for its acronym in Spanish), and
- any other sanction under applicable legislation.
B.Tax.
Below are highlights of the bill in connection with tax related laws:
- Payments for unauthorized services or outsourcing of personnel will not be deductible nor accreditable for income and value-added tax purposes, unless the contracting party shows that services are specialized and strictly necessary to complement its core business.
- Conversely, should Tax Authority verify that the specialized services or tasks/activities were procured by a service provider authorized by the Ministry of Labor that complies with current employment legislation; then such services will be deductible and creditable for purposes of income tax and value-added tax, respectively.
The bill amends the Income Tax Law and the Value-Added Tax and imposes to the contracting party the obligation to request to the service provider the following documents:
- License / authorization issued by the Ministry of Labor and Social Welfare.
- Digital salary tax receipts of the employees who performed the service or activity / task.
- Withholding tax return; and
- Evidence of payment of social security contributions.
This information must be provided to the Tax Authority no later than the last day of the following month in which the contracting party made the payment for services rendered and the value-added tax has been transferred.
If the hiring party does not request this information, then a complementary tax return may be filed and may deduct payment for such concept from the total credited amount.
The bill expands / extends the scope of joint liability between the parties in tax law. Specifically, the bill sets forth that the legal entity or individual (hiring party) who receives services or activities / tasks will be jointly liable with the service provider for contributions that would have been generated to the employees who performed the services.
The bill imposes fines to the service provider if it fails to deliver the hiring party the information and documentation related to the services provided. In this case Tax Authority will impose the service provider a fine from MXN 150,000.00 / USD 7,143.00 to MXN 300,000.00/USD 14,286.00.
Additionally, the bill sets-forth that the party who benefits from fraudulent schemes of specialized services or tasks will commit a criminal offense, specifically tax evasion.
Finally, in connection to the value-added tax, the bill repeals the obligation enacted on January 1, 2020, consisting in the withholding of 6% of the contributions paid effectively for the services provided to the hiring party or any related entity.
C.Social Security.
Social Security Law.
Article 15-A is amended to restrict the subcontracting of personnel only for specialized services or tasks / activities that are not part of the corporate purpose or core business activities of the person or entity requesting the services.
The obligation to register the information of a services provider in the so-called Services Provider System (“SIPRESS” for its acronym in Spanish) will be required to execute the specialized services and the authorization from the Ministry of Labor and Social Welfare issued to the services provider will be needed.
Joint liability for the hiring party is incorporated in the event the services provider fails to comply with its obligations as employer.
The Mexican Institute of Social Security and the Ministry of Labor and Social Welfare will be able to exchange information related with services provider entities.
The “Employer Registry by class” provided in Article 75 which eased registration of employees to service providers based on the activity to be performed will be eliminated.
The amount of fines is increased in the event the hiring party fails to comply with the submission of information to SIPRESS.
National Worker’s Housing Fund Law.
A six-month joint liability period between the substitute and substituted employer is incorporated in article 29 in the event of an employer substitution. Once this period lapses, the new employer will be solely liable.
The Housing Fund Institute and the Ministry of Labor and Social Welfare will be able to exchange information related with services provider entities.
Joint liability for the hiring party is incorporated in the event the service provider fails to comply with its obligations as employer.
The Partners of our Labor Law, Tax and Social Security Practices, together with the associates of these remain at your orders to specify the necessary.
S I N C E R E L Y,
Tax and Social Security:
Gerardo Nieto
Gil Zenteno
Labor and Social Security:
Jorge De Presno
Tax:
Alejandro Barrera
Víctor Barajas
Labor:
Álvaro González
Tax:
Francisco Matus
