Mexico’s commitment to the reform and opening up of its energy sector was underlined by President Enrique Peña Nieto visit to Aberdeen in the run up to this year’s Offshore Technology Conference (OTC).
He came to speak to energy leaders in business and education, and to witness the signing of a Memoranda of Understanding (MoU):
1.between the Mexico and UK Governments on energy and climate change
2.between UK Export Finance and Mexican State Oil company Pemex on energy financing and business development
3.between the University of Aberdeen and Pemex to help create the right skills and expertise to turn Mexico’s reforms into economic reality.
During his visit, industry workshops were held in on “Building a Sustainable Energy Economy” and “Doing Business in Mexico’s New Energy Sector”.
The message was very clear. Mexico is serious about developing its energy economy, and massive resources are going to be invested in the sector in order to achieve its aims.
On the face of it, the opportunities for Aberdeen based businesses are huge. Firstly, there is a good deal of brown field work to do on extending the useful life of existing oil and gas infrastructure. Further to this, there is the development of Mexico’s massive deep water reserves, and then the region’s equally impressive unconventional reserves. Add to that its solar and geothermal resources and there is much that could keep an Aberdonian busy over the next few years.
A common theme of the presentations at the “Doing Business” workshop was the need for patience and partnership. If you simply “arrive” in Mexico, you are likely to find yourself operating in bell jar with industry whirring away on the other side of the glass, apparently unable to see, hear or do business with you. Mexico boasts a mature oil industry and local partners are required to help you identify your niche and establish your credibility.
Good professional advice is always beneficial. There is a great deal of help at hand with the likes of Promexico, UKTI, and the Mexican Chamber of Commerce offering advice and facilities to encourage direct foreign investment into oil and gas related economic activity in Mexico.
The benefits of local, specialist knowledge are vast and as part of PKF International, a global network of accountancy firms, we works closely with our Mexican counterparts. This means we can offer on-the-ground advice, and get a true feel for the complex regulatory and tax environment our clients are entering.
Mexico is a federal republic and taxes are levied by the federal government and the state governments. Companies are subject to corporate income tax. Employers and employees must make social security contributions. VAT and excise taxes apply. In some cases, municipalities participate in the collection of state government taxes, but they are not constitutionally entitled to impose taxes directly.
Furthermore, a particular feature of Mexico’s corporate tax system is its saber toothed transfer pricing system for cross border transactions with related parties. The compliance and record keeping requirements in Mexico are more onerous than in the UK (where SMEs are generally exempt) and obtaining local help is essential.
If it was easy then perhaps we’d all have done it by now. However there are many examples of UK companies that have made a success of trading in Mexico and, with the right advice and assistance, the future look promising for the oil sector.
Callum Wilson is a tax partner at PKF Johnston Carmichael Ltd.
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