Outsourcing: Labor responsibilities vs Exemption payment of VAT


Published in Wednesday, September 28, 2016

As an important matter, we would like to comment that recently there were changes in the treatment of the Law of value added tax (IVA Law) through jurisprudence) based on an analysis made in labor matters.


The amendment in question applies to Companies (clients) that outsource to another company and is commonly called outsourcing.


First, it is prudent to comment that exist labor matters which require, that both, client and outsourcing are considered as employer, bringing also that both will be responsible before outsourcing’s employees as well as the correct compliance for  labor and social security obligations (IMSS).


The specific case when a “double employer exist” is the one called outsourcing, which is originated from a service contract between a client and a contractor (outsourcing); being the customer who sets and supervises  tasks, jobs or services that are provided by outsourcing’s employees.  If in addition to aforementioned exists one of the following circumstances;  it will result that both contracting parties are regarded as employers:


  1. If it encompasses the totality of its activities that develop, in other words: if the client has given outsourcing to all staff.
  2. If the assigned work is not specialized.
  3. If the client hires an outsourcing to develop the same or similar tasks to those entrusted to some of their workers.


If you find any of the above cases, judges have determined that there is subordination (employment relationship) between the client and outsourcing workers.


Now, in terms of the VAT law stipulates that are subject to IVA, the provision of independent services except among others that which is given in a subordinate manner, in other words:  when there is an employment relationship. Taking into account the aforementioned, we have two cases with different treatment in regard to VAT law:


  1. If the customer is considered employer, in this case client will be paying to outsourcing subordinate services and therefore should not be charging VAT for such services, except for the fee that would charge such outsourcing, however as the customer is considered as a employer taking at the same time the obligation of the proper fulfillment of obligations in  labor matters, including PTU (profit sharing), tax matters and social security.
  2. If the customer is not considered employer, in this case the outsourcing must transfer  the VAT on the full amount of their services and in turn  the costumer has no further  obligations than those agreed between them.


It is likewise convenient to make sure that contracts established between client and outsourcing are consistent with the type of relationship and work obligations between the two parties.


Finally, there remains to say that it is important to carefully analyze each situation as if it is true in some cases non-payment of VAT can be attractive by reducing expenditures, this situation could bring other employer costs. 

In case to require any additional assistance, please contact us and one of our associates will review your case in detail.



"That article may be contrary to the interpretation of the tax authorities"

C.P.C. | L.D. Gabriela Rojas


Teran Rojas & Associates.

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September 2016