Obligation to withhold value added Tax for Contractors of Personnel Supply Services

 Professional related: Manuel Tamez   |      October 26th, 2019

On October 17, 2019, the Report of the Finance and Public Credit Commission was published in the Parliamentary Gazette.

Containing a proposal of the decree amending, adding and repealing various provisions of the Income Tax Law, the Value Added Tax Law, the Excise Tax Law, and the Federal Fiscal Code (the "Report"), which we estimate will be approved by the Senate without any material changes. Regarding the provision of personnel supply services, the proposal of the Finance and Public Credit Commission of the Chamber of Representatives regarding value added tax (“VAT”) withholdings consists on adding a section IV to article 1-A of the VAT Law establishing the obligation in charge of contracting parties of labor outsourcing services, to calculate, withhold and pay to the tax authorities, a portion of the corresponding VAT due from said transactions. The proposed section IV establishes that legal entities or individuals conducting business activities are obligated to withhold the corresponding VAT that is transferred to them when they receive services through which personnel carrying out their functions is made available to the contracting party or a related party thereof at the contractor’s facilities or at those of a related party, or even outside of them, whether or not they are under the direction, supervision, coordination or depend on the contractor, regardless of the designation given to the contractual obligation. The article states that in this case, the withholding will be equivalent to 6% of the value of the consideration effectively paid. We consider that the definition of services to which this obligation will apply is extremely broad, encompassing arrangements other than labor outsourcing as defined in the Federal Labor Law which will be subject to complying with this obligation, including the commonly used “insourcing” figure.

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