Mexico’s Executive branch submitted a bill to Congress on November 12 that would reform labor and tax laws related to the tax treatment and legal permissibility of subcontracted services. Given the political context, Congress likely will pass some version of the proposed legal reform and that the effective date could be as early as January 1, 2021.
Taxpayers should analyze the possibility of significant change to the tax and legal treatment of subcontracted services or workforce solutions for discussion with management, as the consequences extend far beyond tax. Since legislative action is likely and there is a compressed timeline for the amendments’ effective date, companies should consider contingency planning for any Mexican business with subcontracted services. This action should include a labor law review, a functional review of the Mexican legal entities, analysis of the overall tax impact, and a human resources review of the potential impact to employees.