VAT withholding is maintained for Outsourcing services

August 6, 2021

As is known, the withholding tax applicable to outsourcing services was to be repealed as of August 1. However, due to the extension of the “Outsourcing” obligations, the respective derogation was extended for an additional month.

1. Legislative Background

On April 24, the Outsourcing reform went into effect, prohibiting the subcontracting of personnel, considering it as making personnel available to a contractor or client, but allows the subcontracting of specialized services or specialized works.

It should be noted that in order to offer specialized services, companies must register in the Registry of Providers of Specialized Service or Specialized Works (Registro de Prestadoras de Servicios Especializados u obras especializadas – REPSE, in Spanish).

2. Validity of withholding

The 6% VAT withholding remained in effect for a transitory period and, as stated, was to be repealed as of August 1, 2021. However, with the extension to conclude the Outsourcing obligations, the derogation of the obligation to withhold VAT was extended for one more month.

It was also pointed out that the 6% VAT withholding should only be made on specialized services that are registered in the REPSE. Otherwise, these services would be prohibited and, consequently, should not be contracted.

Finally, it is necessary to highlight that the obligation to register in the REPSE for service providers expires on August 30, 2021, so they have until this date to register.

Source: Msn 04/08/21