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Mexico: Mexico Working On Private Oil Tax Regime

Monday, 26 August 2013   (0 Comments)
Posted by: Author: Mike Godfrey
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Author: Mike Godfrey

In an effort to re-invigorate investment in the country's oil industry, and to increase its future production, Mexico's Government is to provide a new tax regime for the state-owned oil and gas company, Petroleos Mexicanos (PEMEX), and for new private corporate investors that will be encouraged into the sector.

In a development that has been causing concern in Mexico as PEMEX provides around one-third of the Government's revenue, petroleum production in Mexico has been falling in recent years, despite the fact that it has substantial deep-water oil and gas reserves off its coast. PEMEX has been lacking the funds and technology for exploration in those areas, and therefore has had to concentrate its production in shallower waters, where reserves are dwindling.

To solve the problem, the Government has indicated that, when it announces its tax reform package next month, the burden on PEMEX will be reduced, "allowing it to be fully competitive, in accordance with international standards," and therefore able to contribute in developing new production areas.

In addition, international private oil companies will be encouraged to form joint ventures with PEMEX to provide know-how and capital for new exploration and eventual production. While PEMEX will not be privatized and will remain 100 percent state-owned, it is proposed that the Mexican Constitution will be changed so as to allow the country's oil and gas reserves (that are also the nation's property) to be the subject of exploration, extraction, refining and transport by foreign private companies.

Foreign firms would thereby help to fund the costs of deep-water exploration in exchange for a share of the profits. It has been reported that their tax treatment will be as competitive as that found in other South American countries, such as Brazil and Colombia, but the details of royalty and corporate tax levels, for both PEMEX and their private contributors, will be provided in the tax reform bill, expected to be presented by President Enrique Pena Nieto on September 8.

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