Special thanks to Liliana Hernandez-Salgado and Maria del Rosario Lombera for this update.

On November 12, 2020, the President of Mexico, Andres Manuel López Obrador, sent a draft bill to dramatically change subcontracting (outsourcing) regulations applicable to private companies. If approved by Congress, the bill will significantly impact companies with outsourcing and insourcing (with dual corporate structure) structures.

The draft bill bans the subcontracting of personnel (assignment of personnel in benefit of another party) for activities related to the corporate purpose or economic activity of the beneficiary of the services. Under the proposed legislation, penalties for breaching subcontracting regulations will increase significantly and criminal liability could also arise. If passed, the law would also have significant social security implications and employers who fail to comply with these regulations would not be able to deduct taxes or to credit the value added tax on the service fee.

Employers should closely follow developments on this draft bill and start analyzing their current structures and operations in Mexico. Our Labor & Employment team in Mexico will keep you informed and can assist companies with navigating these substantial changes.