VAT 6% withholding personnel services

“Taxpayers in any of the following classifications are required to withhold taxes charged to them:

… Corporations or individuals with business activities, who receive services in which personnel is available to the contracting party or a related party, that carry out their functions in the facilities of the contracting party or a related party, or even outside the facilities, whether or not they are under the direction, supervision, coordination or dependence of the contracting party, regardless of the name given to the contractual obligation. In this case the withholding shall be made for 6% of the value of the consideration actually paid…”

Since VAT is a cash flow base tax, the withholding tax must be levied on services paid from 1 st January 2020, regardless of when they were accrued. However, transitory article 50 of the Miscellaneous Tax Resolution for 2020 establishes that taxpayers may not make the withholding provided that the related Electronic Invoice (CFDI) is issued before 1st January 2020, and payment is made no later than 10th January 2020.

Based on the above, it is necessary to clarify that the concept of subcontracting disappears in the wording compared with the tax reform, and therefore each case must be analyzed individually. If there is any doubt, it is highly advisable to consult a labor lawyer, since the fact of assuming the deduction could have some labor repercussions from a subcontracting perspective, and if there were an obligation to withhold VAT, not doing so would imply a nondeductibility for corporate income tax of all the services in question.