Generally, the outsourcing reform creates a prohibition on subcontracting employees and limits the use of subcontracting to specific cases (e.g., for specialized registered companies whose core business, according to its by-laws, differs from the core business of the company that is contracting it). In order to help companies transition to the new rules, Congress approved a different set of deadlines. Importantly, effective August 1, 2021, all payments from a Mexican company to an unregistered outsourcing company are nondeductible for income tax purposes. Furthermore, the corresponding VAT is nonrecoverable.
In this regard, Congress agreed to change the transitory articles that apply to various tax and labor provisions. These changes include:
- As of September 1, 2021, the above-mentioned tax aspects (i.e., nondeductible payments and nonrecoverable VAT) of the outsourcing reform comes into force. Likewise, the current 6% VAT withholding rate applicable to payments to outsourcing companies is eliminated.
- In order to qualify as a specialized registry company (known in Mexico as the REPSE registry), companies must register with the Ministry of Labor by September 1, 2021.
- Companies now will have until September 1, 2021 to transfer their employees from the outsourcing companies to the operating companies, as applicable, without requiring the transfer of property or equipment (i.e., typically seen as an alienation between related parties), as long as their labor rights are recognized, including seniority.
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