The impact that the bill will have on service company structures will require careful analysis. Taxpayers may need to restructure their operations in Mexico to comply with the bill’s provisions.
On 20 April 2021, the Mexican Congress approved an amended version of the bill, originally introduced in November 2020, that would prohibit outsourcing services in Mexico. The bill incorporates the verbal agreement on the outsourcing prohibition reached by Mexico’s Government and representatives of the labor and business sectors during the first week of April. For more information, see EY Global Tax Alert, Mexico: Government reaches agreement with representatives of labor and business sectors on outsourcing services in Mexico, dated 12 April 2021.
Congress substantially amended the bill. Those amendments include the following:
- The amount of profit sharing paid to each employee will be limited to the higher of (1) three months’ salary or (2) the average of the profit sharing received in the last three years.
- The outsourcing of specialized services that are not part of the business purpose or the main economic activity of the service recipient will be allowed, provided the contractor registers with the labor authorities within 90 days of the bill’s effective date.
- Complementary or shared services provided between companies of the same business group will be considered specialized as long as the services are not part of the business purpose or the main activity of the contracting party.
- Within 30 days of the bill’s effective date, the labor authorities must issue the general registration procedures for providers of specialized services.
- For those entities operating under a subcontracting structure, the contracting party may be a substitute employer for service company employees, provided the service company transfers the employees to the contracting party within 90 days of the bill’s effective date through an employer substitution; the service company does not have to transfer assets to the contracting party for the contracting party to qualify as the substitute employer.
- Individuals and legal entities that render specialized services or carry out specialized work must report information on the subcontracting services to the labor authorities within 90 days of the bill’s effective date.
The bill will be sent to the President for his signature and then for publication. The bill would be effective the day following its publication in the Official Gazette, except for the amendments to the tax provisions, which would be effective 1 August 2021.
We will issue a Tax Alert with further details on the bill.
For additional information with respect to this Alert, please contact the following:
EY México
- Óscar Ortiz, Mexico City
- Jaqueline Álvarez, Mexico City
- Juan Carlos Curiel, Querétaro
- Mario Ríos, Guadalajara
- Alejandro Caro, Monterrey
- Juan Pablo Lemmen-Meyer, Monterrey
- Yeshua Gómez, Monterrey
Ernst & Young LLP (United States), Latin American Business Center
- Ana Mingramm, New York
- Enrique Perez Grovas, New York
- Jose Manuel Ramirez, New York
- Terri Grosselin, Miami
- Alejandra Sanchez, Chicago
- Ernesto Ocampo, San Diego
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific
- Raul Moreno
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
- Lourdes Libreros
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
