Report Topics:
1:- General Information
2:- Cooling-off Period
3:- Pyramid Schemes
4:- Multi-Level Marketing
5:- Prohibition on Products
6:- Credit Restrictions Country
7:- Money Collections
8:- Licenses
9:- Status of Direct Sellers
10:- Earnings Claims
11:- Taxes and Fees
12:- Social Security
13:- Others
General Information
Direct Selling activities are considered in a Commercial Administrative Norm: “Commercial Practice and Information Criteria for the Sales at Home Systems” NOM 035 SCFI-2003.
It is worth mentioning that such Commercial Administrative Norm was reviewed by the Ministry of Economy in December 2018, concluding that the information established on such Norm is still valid to fulfill its content, so it was resolved to ratify it for 5 years, since the causes that originated its issuance are maintained.
http://www.2006-2012.economia.gob.mx/mexico-emprende/productos-servicios/normas
https://www.sinec.gob.mx/SINEC
http://dof.gob.mx/nota_detalle.php?codigo=688970&fecha=20/10/2003
Cooling-off Period
Direct sales in Mexico are regulated by the Consumer’s Protection Federal Law (published on February 4, 2004) and its Regulation (published on December 19, 2019) which provide that such sales must be evidenced in writing (sales receipts) and a copy given to the consumer, who has the right to cancel the contract within five (5) business days. During this period the consumer may withdraw, free from all liability.
Cancellation may be carried out through written notice or personal delivery of the merchandise to the direct seller (or independent distributor, as defined by the aforementioned NOM); or by registered post, with the acknowledgement of receipt; or by any other legal means. Such cancellation makes the contract void.
https://dof.gob.mx/nota_detalle.php?codigo=5582358&fecha=19/12/2019
Pyramid Schemes
In the Mexican legal system, there is no regulation as such regarding pyramid schemes. Nevertheless, the Consumer´s Protection Agency (PROFECO) has published on its web-site notices regarding companies with pyramid schemes, in which the consumer is warned regarding the existence of such legal entities. As examples, there are the 2005 consumer´s warning “discount cards and electronic wallets that mislead the consumer” and the 2007 consumer´s warning “Miracle Credits”.
Furthermore, the Judicial Power, through legal precedents, have established that the pyramid schemes are not from a civil or mercantile nature because they do not meet all the existence´s, nor validity requirements for the corresponding contract to be enforceable; instead, they are considered of a criminal nature because of the existence of machinations and deceits that, in a malicious way, the company performs under appearing investments.
Multi-Level Marketing
There is no specific legislation, therefore rules applicable to direct sales apply to this model.
Prohibition on Products
Any product manufactured in Mexico or legally imported can be sold freely in the country, if it fulfills with the General Health Law provisions, like Labeling Norms, Allowed Substances, Sanitary Control, etc.
Drugs/medicine cannot be sold through Direct Sale.
Cosmetics are regulated by the Mexican Official Standard NOM-141-SSA1/SCFI-2012 “Labeling for prepackaged cosmetic products. Sanitary and commercial labeling”, (NOM-141-SSA1/SCFI-2012, for its acronym in Spanish).
Dietary and food supplements are regulated by the Mexican Official Standard NOM-051-SCFI/SSA1-2010, “General labeling specifications for prepackaged food and non-alcoholic beverages – Commercial and sanitary information”, (NOM-051-SCFI/SSA1-2010, for its acronym in Spanish).
The Federal Commission for the Protection against Sanitary Risks (COFEPRIS) has established certain guidelines regarding label requirements, prohibited ingredients, within others, for dietary and food supplements.
https://www.gob.mx/cofepris/acciones-y-programas/suplementos-alimenticios-62063
Recent modifications to the General Health Law require notices to be given, when advertising the sale of cosmetics.
Credit Restrictions in Mexico
The Consumer’s Protection Federal Law requires the supplier to notify the consumer as to the cash price of goods, the amount and rate of interest, the total amount of interest payable, the amount and description of charges (if any), the number of payments to be made, the periodicity of payments and the total amount to be paid for the goods.
Notice must also be given of the consumer’s right to make early settlement of credit, with the resulting interest reduction, and the date when the goods are to be delivered.
Money Collections
Please see Credit Restrictions.
Licenses
There is no licensing legislation for direct sellers. Notwithstanding, the Federal Law of Industrial Property (“Ley de la Propiedad Industrial”) is applicable.
http://www.ordenjuridico.gob.mx/
Status of Direct Sellers
Most of the commercial distributors are independent contractors either mercantile commission or mediation agents; they are registered as such before the tax authorities and have no employer/employee relationship. They do not receive fixed or variable expenses; they are not bound to work under a schedule; they are not committed to attend meetings or submit reports; there is no restriction on selling the products of different companies (exclusivity clauses); they do not receive instructions or orders. As a result, they have no dependence upon a company, which under the Federal Labor Law, is essential to establish the status of a subordinate worker or depending agent.
Court precedents have ruled that commission agent agreements may or may not be deemed as to create labor relationships, depending on the type of obligations contained in such agreements.
Also, certain court precedents have established that the fact that an individual proves, in court, that he/she frequently received payments from a company, does not in itself, demonstrate that such individual is an employee of such company.
Federal Labor Law (“Ley Federal del Trabajo”): http://www.ordenjuridico.gob.mx/
http://www.stps.gob.mx/bp/secciones/junta_federal/secciones/consultas/ley_federal.html
Earnings Claims
No information.
Taxes and Fees
- Income Tax
In general terms, pursuant to the new Income Tax Law, direct sellers whose income is determined through commissions may decide to pay their tax subject either to: (i) the Salaries and Subordinate Services Income Tax Regime, or (ii) the Commercial Activities and Independent Personal Services Income Tax Regime. The maximum income tax rate for individuals is 35%.
As a general rule, direct sellers must pay taxes subject to the Commercial Activities and Independent Personal Services Income Tax Regime, in which, the seller is obliged to perform advanced payments through the filing of provisional tax returns, which must include the withholdings done during each period in accordance with procedures laid down in the Income Tax Law and its Regulations. Furthermore, direct sellers must file their annual tax return during April of the following year.
Additionally, direct sellers have the option to tax under the Wages and Salaries Income Tax Regime. In this case the direct seller must communicate in writing to the company his decision to tax under said regime.
In case the aforementioned option is taken, the company acquires the following obligations: (i) perform the corresponding withholdings; (ii) perform advanced payments through provisional tax returns; (iii) calculate and pay the annual tax through a tax return filed on February of the following year, unless the direct seller communicates otherwise, in which case they would have to perform said obligations themselves; (iv) grant to the direct seller electronic tax receipts evidencing the payments and withholdings and (v) file informative returns. Withholdings are considered as advanced payments on account of yearly taxes and must be asserted in accordance with the procedures laid down in the Law and its Regulations.
The annual tax must be calculated and tax returns filed by the company on behalf of each person, taking into account the minimum creditable salary percentage and the amount of advanced payments made.
As of 2022, distributors who act directly as individuals have the possibility of paying taxes under the new “Régimen de Confianza” regime for income tax purposes ($3’500,000 M.N. annual limit). Such regime will allow the distributor to be taxed under their gross income (without deductions), applying a rate of 1% to 2.5% (depending on its monthly income level); the distributors would be obliged to issue CFDIs for the respective income.
The direct sales company would only have the additional obligation of withholding 1.25% on the amount of the payments made to the distributors that choose to be taxed under this regime. It is important to emphasize that, unlike the RIF foreseen until 2021, the new regime does not provide the following limitations: (i) 10 years to be taxed under it and (ii) that its income from intermediation, commission or agency does not exceed 30% of its total income.
Income Tax Law (“Ley del Impuesto sobre la Renta”): http://www.ordenjuridico.gob.mx/
- Value Added Tax
Regarding VAT, in general terms, direct sellers trigger VAT over their commissions, which should be charged to the recipient of the commercial mediation services (i.e., the direct selling company), who usually should perform a 16% withholding of such tax.
However, those direct sellers that request that their income is treated as assimilated to wages and salaries (exclusively for tax purposes), should not trigger VAT over their commissions.
Regarding nutritional supplements, the tax authorities have confirmed in repeated occasions their position in the sense that the sale and/or import of nutritional supplements should trigger VAT at the general rate of 16%, regardless that the corresponding law has not been amended.
Although a binding precedent has not been issued on this matter, the defined position from the courts and the Supreme Court has favored the authorities in this controversy.
Value Added Tax Law (“Ley del Impuesto al Valor Agregado”) http://www.ordenjuridico.gob.mx/
- Tax Receipts
Taxpayers are bound to issue government approved electronic invoices to record all transactions in electronic accounting record systems. Obtaining such invoices is necessary in order for taxpayers to be allowed to take deductions and/or VAT credits, for their incurred expenses.
Transactions with the general public can be documented in sales receipts and global invoices, in which several transactions are recorded in a single transaction (for reporting purposes) under one same invoice.
As of 2018, it is necessary for taxpayers to issue a payment receipt (version 3.3), both for sales invoiced individually, as well as those invoiced in a global invoice.
As of fiscal year, 2017, taxpayers who make commission payments to direct sellers under the Assimilated to Salaries Income Tax Regime, shall issue payroll electronic invoices with a payroll complement to fulfill the corresponding tax requirements.
Federal Tax Code (“Código Fiscal de la Federación”) http://www.ordenjuridico.gob.mx/
- Digital Platforms
Legal persons that provide intermediation services for goods and / or services through digital platforms, whether they are residents in Mexico or abroad, must retain and pay, in relation to income tax, 1% of the total of the income that individuals actually receive through said platforms and with regard to the value added tax, 50% of the transferred tax, provided that the supplier of the good or services is registered in the Federal Taxpayer Registry.
Individuals from whom the rates described in the previous paragraph have been withheld for income tax and value added tax may choose to consider such withholdings as final payment only if they obtain an income that does not exceed $ 300,000.00 pesos per concept of salaries, assimilated to salaries, interests and through digital platforms.
The option to consider the withholdings as definitive payments may not be varied during the 5 fiscal years following the one in which the option began to be exercised.
Legal persons residing abroad that provide the services of intermediation of goods and / or services must additionally comply with certain obligations provided in the Value Added Tax Law, consisting mainly of their registration in the Federal Taxpayer Registry, the issuance of tax receipts, the appointment of a legal representative, process your advanced electronic signature and provide the Service Tax Administration with information related to the operations carried out through their platform.
The failure to comply with these obligations will result in a temporarily blockage regarding the access to the digital platform of the foreign resident who failed to comply with the aforementioned obligations, this blockage will be carried out through the concessionaires of a public telecommunications network in Mexico, until said resident complies with the omitted obligations.
It is important to mention that the following conditions must be met in order for the assumption of provision of intermediation services to be updated: (i) that the legal person is the owner of the digital platform or website, (ii) that through this platform, services of intermediation of goods or services are provided and (iii) that payments are made through said platform.
- Outsourcing
- Mexico City.
As of January 1st 2021, the Mexico City Tax Code establishes a new obligation for people who contract or subcontract personnel services, regardless of the name of the services provided by a contractor (outsourcing), even when the expense for labor remuneration is made through another person, consisting of the presentation of a notice before the Ministry of Finance of Mexico City within 10 days after the contract is signed or modified.
If labor subcontracting contracts were entered prior to 2021 and they are currently in force, in the same way, a notice must be submitted to the Ministry of Finance of Mexico City within the first 30 days since the reform in comment entries into force.
- Federal Level
In November 2020, the Federal Executive Branch presented a reform initiative to the Union which seeks to prohibit labor outsourcing in Mexico. It was decided to postpone its discussion until February 2021 in view of the implications that the mentioned reform would entail, so the nuances of the reform will be defined in the course of the first quarter of 2021, including a possible cap on the Participation of Workers in the Company Profits.
Social Security
- a) General Terms.
The direct sellers are considered as commercial agents (merchants) by the Commercial Code http://www.ordenjuridico.gob.mx/ (“Código de Comercio”) and not like companies’ employees, for this reason they are not subject to Social Security obligatory affiliation. http://www.imss.gob.mx/conoce-al-imss/marco-normativo The Social Security Law is applied only to employees. However, some Social Security authorities have pretended to consider the direct sellers as employees, but up to date there are no official changes in the Federal Labor Law and/or Social Security Law.
For the last twenty (20) years certain companies have executed special agreements with the Mexican Social Security Institute to register some commission agents, under a special system and subject to certain requirements.
As a result of these agreements, amounts to be contributed are based on income for commissions and prizes, gained from their activities as commission agents, whereby their registration with the Social Security Institute is made on a variable income, modified bi-monthly.
Under the Federal Labor Law the courts have ruled that there is no working relationship between the company and the agents.
However, the Mexican Social Security Institute (IMSS, for its acronym in Spanish) has recently maintained a position stating that there is an employment relationship between direct selling companies and their sales force, being a criterion that goes against all literature, case law and indeed the very nature of a direct selling business.
This has been supported by the a Mexican Supreme Court precedent, which establishes that the sales force of a direct selling company has a business and not an employment nature, since such individuals do not comply with any of the labor relationship assumptions set forth in the Federal Labor Law.
- b) Reform Initiative.
In November 2023, a member of the federal congress proposed a reform initiative aimed at regulating the employment status of “Direct Sellers Employees”, with the intention of ensuring the labor rights of these workers.
This Reform initiative entails modifying Article 285 of the Federal Labor Law to classify commercial agents and direct sellers as “employees”. Additionally, it seeks to amend Article 12 of the Social Security Law to mandate companies to provide social security benefits to commercial agents and direct sellers.
The proponent of this initiative argues that Commercial Agents and Direct Sellers should be considered “Employees” due to their adherence to company regulations, which often lead to labor exploitation and violations of labor rights, resulting in a lack of social security guarantees.
We are closely monitoring the legislative process, and it is worth noting that the approval of this reform appears to be highly unlikely, given the inherent nature of the direct selling business.
Data Protection
In accordance with the Protection of Personal Information in Possession of Particulars Federal Law http://www.ordenjuridico.gob.mx/, direct selling companies must use the personal information collected from salespeople only for the specific purposes prescribed in the companies’ privacy policy, ensure that they have adopted sufficient technical, security and administrative measures to safeguard the information, and guarantee that its access is limited to their employees only for the purposes contained in the privacy policy.
Direct sellers have the right to access, ratify, cancel and oppose their consent granted to direct selling companies for the collection and use of their personal information according to the corresponding procedure contained in the privacy policy.
Others
- Mexican Standard Norm NMX-COE-001-SCFI-2018
The basic issue is to avoid creating an employer / employee relationship between company and direct sellers. It is essential to consult labor law experts to draw up contracts that do not fall under Articles 285 and 291 of the Federal Labor Law (commercial agents and others alike) to avoid confusion between agents and employees.
The Mexican DSA works to ensure that in case of any amendment to the Labor Law, it remains established that direct sales do not imply any employer / employee relationship.
On May 2nd, 2019 a Mexican Standard Norm called NMX-COE-001-SCFI-2018 “electronic commerce provisions to be held by those who offer, commercialize or sell goods, products or services”, which intends to regulate the marketing or sale of goods, products or services through electronic, optical or any other technological mean, specifically regulating the characteristics, conditions and terms applicable to the goods or services offered; the mechanisms so that the consumer can verify that the operation reflects its intention to acquire the goods, products or services offered; technical acceptance security mechanisms, and the identity of the parties; personal data protection mechanisms; delivery and payment mechanisms; as well as mechanisms to present doubts, claims, clarifications, cancellations or returns.
NMX-COE-001-SCFI-2018 https://www.dof.gob.mx/nota_detalle.php?codigo=5559015&fecha=30/04/2019
- Publicity Guide for Influencers.
Procuraduría Federal del Consumidor (PROFECO) issued the “Publicity Guide for Influencers” on August 21, 2023. This guide is specifically directed towards content creators on digital platforms and social media, with the intention of ensuring their compliance with relevant laws and regulations pertaining to advertising. It aims to assist influencers in identifying sponsored content on their social media platforms. Notably, this represents the first educational initiative targeted at influencers.
Several key recommendations outlined in this guide include:
- Placing the information identifying the advertisement in a visible and readily accessible location at all times.
- Avoiding the use of multiple hashtags or links that may hinder or confuse the identification of the advertisement; ensuring clear distinction that it is indeed an advertisement.
- In the case of images or videos, including a visible reference to the advertisement throughout its entire duration.
- Ensuring that opinions are based solely on personal experience with the product, service, or brand. It is permissible to express negative experiences as well.
This Guide, is available at the following electronic addresses:
www.profeco.gob.mx/influencers
www.dof.gob.mx/2023/PROFECO/guiainfluencers.pdf
We deem this information crucial due to the potential for influencers to engage in direct selling as commercial agents or third-party representatives for advertising purposes.
Foreign Trade
- Issuance of CFDI with consignment note.
Through various rules of the Miscellaneous Tax Resolution (RMF for its acronym In Spanish), the Tax Administration Service (SAT for its acronym In Spanish) has established the obligation to incorporate to the tax invoices (CFDI for its acronym In Spanish) a consignment note complement to cover the transportation of merchandise, as well as their legal stay and possession in the country.
In general terms, the information that must be included in the CFDI with the consignment note complement corresponds to the type of merchandise, place of transportation, customs information (on merchandise of foreign origin), among others.
The use of the CFDI with a consignment note complement is mandatory since January 1, 2022; however, the regulatory provisions establish a period of non-penalty for those who issue a CFDI that incorporates a consignment note complement that has errors in its filling in accordance with the legal provisions (i.e., filling instructions, catalogs, standards), period that according to the last RMF, was extended until July 31, 2023.
- HS Tariff Classification
On December 12, 2022, the new General Import and Export Law (LIGIE 2022, for its acronym in Spanish) entered into force, through which the Seventh Amendment of the Harmonized System for the Description and Codification of Goods was approved, which implies the modification and updating of tariff items.
On June 27, 2022 the Ministry of Economy published the “AGREEMENT establishing the methodology for the creation and modification of commercial identification numbers.” (NICOS Agreement), which are used to determine the tariff item of products.
On July 14, 2022, the “Agreement by which the correlation tables between the tariff items of the Tariff of the General Import and Export Law (TIGIE) 2020-2022” were published in the DOF, which aims to identify the tariff items of the abrogated General Import and Export Law that changed with respect to the LIGIE 2022.
Likewise, on December 2, 2022, the “AGREEMENT whereby the National Notes of the Tariff of the General Import and Export Law” were published in the DOF, which delimits the scope of the Mexican tariff nomenclature, necessary for the interpretation and application of the Tariff.
- Mexican Official Standards
On July 5, 2022, the Official Mexican Standard “NOM-259-SSA1-2022, Products and services. Good manufacturing practices in cosmetic products” was published in the DOF.
The “Objective” section of the NOM establishes the minimum requirements for good practices for the processing and importation of cosmetic products destined for the final consumer in Mexico.
The “Scope of application” states that this NOM is mandatory for all establishments engaged in the processing and/or importation of cosmetic products marketed in Mexico.
In addition, the NOM establishes that companies must maintain several documents that prove that they comply with the necessary measures regarding “Good Manufacturing Practices” during the process, such as the conditions that must be met by the personnel working, production, control, storage, packaging, sanitary quality, among others.
- Audit Master Plan in Foreign Trade
The Tax Administration System informed its 2023 Master Plan for Auditing and Collection, highlighting the “Foreign Trade Audits” with the support and coordination with the governments of the states of Mexico.
The audit will be focused on the review of foreign trade operations, mainly in the following areas:
I.- Verification of compliance with VAT/IEPS Certifications and Authorized Economic Operator.
II.- Treatment of VAT on temporary imports (Control of Credit Accounts and Guarantees) Annex 30 of the General Rules of Foreign Trade (RGCE for its acronym in Spanish).
III.- Preferential tax regimes such as IMMEX Program, Bonded Warehouse, Strategic Bonded Warehouse.
IV.- Review of compliance with rules of origin of products through verification of origin procedures under Free Trade Agreements.
Contact:
Asociación Mexicana de Ventas Directas (AMVD)
Turanzas, Bravo & Ambrosi S.C. Mexican DSA Legal Advisors
The WFDSA International Guide to Direct Selling Legislation is a guide and is not exhaustive either in terms of subjects presented or for all areas of concern to direct selling companies. It is intended to cover general areas of concern. The Guide is not a substitute for legal counsel but only intended to alert you to the general nature of laws and regulations affecting the direct selling industry in a particular country. Consequently, before beginning an operation in any foreign country, it is strongly recommended that competent legal counsel be consulted. While every effort has been made to insure that the information contained in this Guide is accurate, the variety of sources used makes absolute verification difficult. Further, laws and regulations also can change from time to time without notice. Therefore, the WFDSA cannot be held liable for the information included in this publication.