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Outsourcing deduction requirements

Financial year 2021 was a year of change for outsourcing services; since on April 23rd, 2021 the decree that restricts subcontracting operations was published in the DOF.

The aforementioned decree repealed the 6% withholding provided for in numeral 1-A, section IV of the LIVA, said withholding was a requirement to apply the deduction of subcontracting expenses. When the withholding was repealed, the requirements for deductibility were also adjusted.

In said decree, numeral 13 of the LFT is modified, where the subcontracting of specialized services or the execution of specialized works that are not part of the corporate purpose or the predominant economic activity of the beneficiary of these is allowed, provided that the contractor is registered in the public registry before the Ministry of Labor and Social Welfare, has a written contract that determines the purpose of the contract and the approximate number of workers with whom the service will be provided.

The aforementioned decree entered into force for tax purposes until the 1st. August 2021, which meant that the taxpayer had to observe different requirements for deductibility throughout the year.

Thus, from January 1st to July 31st, 2021 (period where the 6% VAT withholding was in force) there was no express provision that would indicate a particular requirement for the deductibility of subcontracting expenses; however, section VI of article 27 of the LISR establishes that when the payments whose deduction is intended to be made are made to taxpayers who cause VAT, said tax is transferred expressly and separately in the CFDI. Likewise, they must comply with the VAT withholding and full obligation.

August 1st 2021, the provision of specialized services or the execution of specialized works may be deductible in terms of article 27, section V of the LISR, as long as the contracting party:

• The contracting party must verify when the payment of the consideration for the service received is made.

• Verify that the contractor is registered with the Ministry of Labor and Social Welfare.

• You must obtain from the contractor a copy of the tax receipts for the payment of wages of the workers with whom they have provided the service or executed the corresponding work.

• The receipt of payment issued by the banking institution for the full statement of the tax withholdings made to said workers.

• Payment of employee-employer contributions to the Mexican Institute of Social Security.

• Payment of contributions to the National Workers' Housing Fund Institute.

The contractor shall be obliged to deliver to the contracting party the receipts and information referred to in this paragraph.

Taxpayers who intend to deduct expenses for specialized services must comply with both requirements; withholding tax until July 31st, 2021 and with those indicated from the August 1st 2021, being insufficient only to have the REPSE; If the other documentation is not available, the contracting party will put its deduction at risk and the contractor may be subject to fines ranging from 150,000 to 300,000 pesos for each document not delivered.

We inform you that this information provides general information based on the current laws and regulations, and in case of an individual report, be sure to receive advice from an expert before handling it.

Reproduction, partial or full distribution without the approval of Doowoo Accounting S de RL de CV is prohibited.

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