Multinational enterprises with manufacturing facilities in Mexico may soon be faced with significant changes to Mexico tax law which may limit their ability to enter into labor outsourcing or subcontracts. In Mexico, 10% of a company’s taxable profits are required to be shared amongst employees, and many employers have been utilizing service entities and contract labors to minimize their employee profit share obligations. In an effort to put a stop this labor practices, Mexican President Andres Manuel Lopez Obrador proposed legislation that would effectively eliminate outsourcing of personnel by disallowing deduction for outsourcing cost for tax purpose. While the proposal continues to be the topic of governmental and industry representative debate, the current view is that is it likely to pass.
Please see the article below published by Maurcio Monroy Contadores, a Mexico CPA firm, provides additional detail regarding the proposal. Newsletter about outsourcing reform