On April 23, 2021, after the legislative process was carried out, a Decree was published in the Official Journal of the Federation (hereinafter "DOF") amending, adding and repealing several provisions of the Federal Labor law, The Social Security law, Law of the institute of the national housing fund for workers, The federal tax code, The income tax law, The value added tax law, the federal law of workers in the service of the state, regulatory by the section B) of article 123 of the Constitution, the law regulating section XIII Bis of section B, corresponding to article 123 of the Constitution of the United Mexican States in matters of labor subcontracting. (hereinafter, the "Decree"), entering into effect the day after its publication.

Which laws were amended?

• Federal Labor Law.
• Social Security Law.
• INFONAVIT Law.
• Federal Tax Code.
• Income Tax Law.
• VAT Law.
• Federal Law of Workers in the Service of the State.

Each of the changes is explained below:

• Changes to the Federal Labor Law:

• Prohibition of personnel subcontracting: Personnel subcontracting is considered to be the service consisting of providing or making available its own workers for the benefit of a third party.

• Registration before the STPS and inscription in the public registry of companies subcontracting services and specialized works.

• The regulation of the subcontracting specialized services and projects that are different from the corporate purpose and the main economic activity of the contracting company.

• If the provider of specialized services fails to comply with its obligations to its workers, the beneficiary of the service will be jointly and severally liable.

• Requirement to transfer assets object of the company or establishment of the substituted employer or establishment of the substituted employer to the substitute employer in order for the employer substitution to take effect.

• The STPS has a term of 30 calendar days to issue general provisions in connection with the registration of persons providing subcontracting services, and such persons must obtain the registration within 90 days.

• A maximum limit to the amount of PTU is established, consisting of three months of the employee's salary or the average of the participation received in the last years, applying the amount that is more favorable for the employee.

• During the 90 calendar days following the entry into effect of the decree, the transfer of the company's assets will not be required for the employer's substitution to take effect.

• Changes to the IMSS Law:

• Joint and several liability: The individual or legal entity that contracts the rendering of services or execution of specialized works will be jointly and severally liable with those contractors that do not comply with their social security obligations.

• Obligations of contractors: Contractors rendering specialized services must provide the competent authorities, on a quarterly basis, the information of each contract entered into.

• Changes to the INFONAVIT Law:

• Joint and several liability: In the case of employer substitution, the substituted employer will be jointly and severally liable with the new employer with respect to the obligations derived from this Law, born before the date of the substitution, for up to a term of three months.

There will also be joint and several liability of the individual or legal entity that contracts the rendering of services or execution of specialized works with contractors that do not comply with their obligations under the INFONAVIT Law.

• Obligations of contractors The persons registered to carry out the rendering of

specialized services or the execution of specialized works that are not part of the corporate purpose or the economic activity of the beneficiary thereof, must provide, on a four-monthly basis, information on the contracts entered into.

• Changes to the Income Tax Law:

• Requirements for deduction of expenses: It will be a requirement to deduct expenses for specialized services or the execution of specialized works, that the contracting party obtain from the contractor a copy of the corresponding registration before the STPS, as well as obtain from the contractor a copy of the tax receipts for the payment of salaries, bank receipt for the payment of income tax withholdings, as well as the payment of IMSS contributions and INFONAVIT contributions. The contractor will be obliged to deliver the aforementioned receipts and information to the contracting party.

• Non-deductibility of subcontracting expenses: Payments made in relation to subcontracting services or in those cases where the workers that the contractor makes available to the contracting party were originally workers of the latter and have been transferred to the contractor through any legal figure, or when the workers that the contractor makes available cover the main activities of the contracting party, are not deductible.

• Changes to the VAT Law:

• Elimination of the figure of personnel subcontracting: 6% withholding of VAT derived from personnel subcontracting services will not be applicable.

• VAT crediting in personnel subcontracting: VAT paid for outsourcing services may not be deducted or credited when it corresponds to non-deductible services for income tax purposes.

 Requirements for VAT crediting: In order for VAT transferred by contractors of specialized services or specialized works to be creditable, the following must be obtained:

• • Verify that the contractor is registered in the STPS registry.
  • The VAT declaration and the acknowledgement of receipt of the payment corresponding to the period in which the contractor made the payment of the consideration and the VAT that was transferred.

• Changes in the Federal Tax Code:

• Joint and several liability: Persons who receive specialized services are jointly and severally liable for the contributions caused by the workers with whom the service is rendered.

• Aggravating circumstance in the commission of tax violations: Aggravating factors are established in the commission of tax violations: deduction or accreditation.

• Fines for non-compliance: When the contractor does not comply with its obligations, fines of $150,000 to $300,000 are established for each obligation to deliver information not complied with.

• Qualified tax fraud offense Using simulated schemes for the rendering of specialized services or the execution of specialized works, or subcontracting personnel.

Aspects to consider:

Given the complexity of the reform, it is necessary to carry out various modifications to the corporate structures, evaluate the classification of the services received by the different suppliers, as well as the services provided by the taxpayer in order to have the documentation that allows demonstrating to the authorities the proper compliance with tax, labor and social security obligations.

The following is an explanation of what our service for compliance with the reform consists of, in addition to each reformed point in the different laws.

How can we help you?

Our service is divided into two stages:

• Analysis and restructuring alternatives: Analysis of the Client's current situation, in order to determine the impact that the Subcontracting Decree will have on its corporate structure and proposal of an action plan.

• Implementation: According to the alternative chosen by the Client, the necessary activities for the implementation of the restructuring are carried out.

Do you provide specialized services?

We help you to register in the Registry of persons providing specialized services or executing specialized works, which is mandatory and is valid for 3 years.

For more information: info@g-r.mx Our team is here to support you.

"Prevention is your best ally".