Outsourcing in Latin America: How Mexico compares to Brazil, Chile, and Colombia
Outsourcing, also known as subcontracting , has been a key tool for many companies seeking operational efficiency , cost reduction, and greater focus on their core business. However, in Latin America, the regulations, benefits, and risks of this practice vary considerably from country to country.
In this article, we explain how outsourcing works in Mexico , Brazil , Chile , and Colombia , and what you should consider if you’re planning to expand operations or hire staff in any of these countries.
What is outsourcing?
Outsourcing involves delegating certain business functions or processes to specialized external providers. It can range from administrative services to areas such as technology, human resources, or manufacturing.
Although it is a common practice globally, in Latin America it has been the subject of intense debate over its relationship to labor rights, tax evasion, and job insecurity.
Mexico: Recent reforms and restrictions on outsourcing
Since the labor reform of April 2021 , Mexico has toughened its stance on outsourcing. Subcontracting of personnel is no longer permitted, except in cases of specialized services registered with the REPSE (Spanish Employment Service ).
- Subcontracting companies must ensure that their suppliers are registered in the government’s REPSE registry .
- Failure to comply can result in multi-million-dollar fines and even the loss of tax-deductible expenses.
For more information on the Mexican legal framework, see the STPS Guide on Subcontracting
Brazil: Flexible regulation, but high tax burden
Brazil allows outsourcing even for core business activities. A law was passed in 2017 that expanded outsourcing possibilities , but the country is characterized by a high tax burden and tax complexity , which can make its implementation difficult.
- Companies must comply with strict obligations regarding social security and labor rights.
- The outsourcing model can involve higher costs if not managed with an appropriate legal structure.
More about Brazilian legislation on the official Brazilian government website
Chile: Greater freedom, but with clear regulations
Chile allows the outsourcing of both core and secondary activities, but requires the contracting company to be jointly liable in the event of a supplier’s failure to fulfill labor obligations.
- There is a specific subcontracting law (Law No. 20,123) that regulates this practice.
- Unions in Chile have pushed for tighter controls, especially in sectors such as mining and retail.
Learn about Chile’s subcontracting law through the National Library of Congress.
Colombia: Limitations in certain sectors and focus on formality
In Colombia, outsourcing is permitted, but with restrictions on permanent mission activities , especially in sectors such as health and education. The goal has been to combat informality and protect labor rights .
- Improper use of outsourcing may result in sanctions from the Ministry of Labor.
- Colombia has promoted schemes such as union contracts and worker cooperatives, although these are also under review for malpractice.
General Comparison
| País | ¿Permite outsourcing de actividades principales? | Registro obligatorio | Riesgos principales |
|---|---|---|---|
| México | No | Sí (REPSE) | Multas, pérdida de deducción fiscal |
| Brasil | Sí | No | Alta carga tributaria y complejidad legal |
| Chile | Sí | No | Responsabilidad solidaria |
| Colombia | Limitado | No | Sanciones por tercerización indebida |
Conclusion: Which country is best for outsourcing?
The best option depends on the type of operation, industrial sector, and your legal and tax management capabilities in each country. Mexico is ideal for well-defined specialized services, Brazil for operations with greater flexibility, Chile for those seeking a balance between freedom and regulation, and Colombia for companies with a formal structure and rigorous compliance.
If you are considering expanding your operations or hiring staff in Latin America, it is key to evaluate both the regulations and the local operational reality.