On 7 February 2018, the Tax Administration Service (Tax Authority) published on its website an early version of an amendment of the Miscellaneous Tax Rules for 2018 (Tax Rules) in order to facilitate the compliance with the new tax obligations related to the labor subcontracting regime in the terms of the Federal Labor Law. As we have previously reported in our client alerts, the tax obligations regarding labor subcontracting services consist of the following:
- issuance of payroll tax stubs or vouchers (CFDI's) corresponding to the employees of the service provider
- withholding and payment of income tax for wages and salaries
- monthly Value Added Tax (VAT) return filed by the service provider
- payment of social security contributions.
The benefit of the Tax Rules is to avoid the physical delivery of such documentation and to continue giving legal certainty to the taxpayers in order to claim the tax deduction of the expense and to claim a VAT credit of the services contracted.
It is important to mention that under the Tax Rules, other services recipients that do not fall within the subcontracting labor regime may obtain the benefit of the Tax Rules if the personnel of the service providers undertake their functions mainly in the premises or facilities of the entity that retained their services or in the facilities of a related party, regardless on whether or not the personnel is under its direction, and provided that the payroll is paid by the service provider.
In such respect, below we summarized the mechanism and requirements established in the Tax Rules to proper use the electronic application in labor subcontracting services and in other permitted type of services:
- In order to be able to use the electronic application, the service provider shall identify in its taxpayer mailbox the information of the service recipient that will be authorize. The authorization granted by the service provider shall include:
- Tax identification number of the service recipient.
- Contract number.
- The service agreement date of start and conclusion.
- List of employees engaged in the rendering of services, through the file 135/ISR “Report of information of the workers object of the agreement that participate in the service”.
- Thereafter, the service provider shall authorize the service recipient in order to be able to review, among other, the following:
- Issuance of CFDIs utilizing version 1.2. corresponding to the employees of the service provider for the performance of their services (regardless on whether or not the CFDIs include the subcontracting section).
- Evidence of compliance on withholding and payment of income tax for wages and salaries.
- Evidence of compliance with the VAT monthly obligations of the service provider.
- Evidence of compliance with the payment of social security contributions.
Finally, the service recipient shall enter into his own electronic tax mailbox to review and validate the information furnished by the service provider. Upon validation of such information, the system will provide an acknowledgment receipt to the service recipient which will be useful in order to have greater certainty of the tax deduction and the VAT crediting. If the information furnished by the service provider does not match or correspond with the information validated by the service recipient, this last shall settle the differences with the service provider in order to mitigate the risk of a rejection of a tax deduction or the VAT crediting.