Tax Requirements for Service Companies: Mexican Energy Sector

In 2013, Peña Nieto announced reforms to the energy sector, opening up the industry to foreign investment and diluting the monopolistic domination of the Mexican oil giant Pemex. Oil and gas services have since become one of Mexico’s most important and profitable industries. The most recent figures project up to USD $161 billion in foreign investment by 2025. With more concerted efforts to uproot corruption in the industry, such as through the creation of the SNA (National Anticorruption System) in 2016, it would appear that the attractiveness of this market is firmly on the rise.

In Part 1 of our series on the Mexican energy sector, we looked at the steps involved to register a service company in the energy sector. In Part 2, this article will provide a concise and simple overview of the 3 main taxes that companies hoping to work in the Mexican energy sector will need to pay. As with any industry, it is incredibly important to understand in detail the tax requirements of the local country to ensure full compliance with the law and to avoid receiving sanctions for mismanagement of taxes.

Mexican Tax Requirements for Service Companies in the Energy Sector

IVA

The first tax that a company hoping to register in the Mexican energy sector will need to pay is IVA (Impuesto al Valor Agregado). This tax, the equivalent of VAT (Value Added Tax), is a charge placed on most goods and services that a company will pay for. The current rate of IVA in Mexico is 16%. 

This tax is paid monthly, on the 17th of each month, and will be included in invoices and corporate receipts. 

tax energy sector Mexico

The energy sector is one of the largest industries in Mexico

ISR

The second tax that must be paid is the ISR (Impuesto Sobre la Renta), or Income Tax. This tax is organised into two categories, taxes for natural persons (individuals) and taxes for moral persons (companies, institutions, entities, etc.). For natural persons, the tax is based on personal earnings and is split into different bands of payment. This payment is capped at 35%.

For moral persons, company income has a fixed tax rate of 30%.

IEPS

The final tax that needs to be paid is the IEPS (Impuesto Especial sobre Producción y Servicio – Special Taxes on Production and Services). Similar to the IVA, it is considered an indirect tax as it is a cost that is normally added on to customer invoices, rather than being directly paid by the institution.

This tax is only attached to the importation of certain items and/or services. These include alcoholic beverages, tobacco and crucially for this article, diesel, oil and gas.

There are different rates of tax that need to be paid, depending on the natural resource in question. For example, a company wishing to import or produce diesel will need to pay a tax rate of 5.04 pesos per litre.

Need More Information on Mexican Tax and Accounting Requirements?

At Biz Latin Hub, we understand that properly managing your tax payments in a foreign country can be a complicated, daunting, and at times, frustrating task (there are over 30 different taxes that can be paid in Mexico!!!). We can provide you and your team with tailored tax and importation consultancy services to make setting up an energy service company in Mexico a stress-free process.

Do not hesitate to contact our country manager Alex, here, if you have any queries regarding tax rates, the services that we provide. 

Unsure of your accounting and taxation obligations in Mexico? Need further information to ensure you stay compliant with local authorities? View the short presentation below and stay informed. 

Accounting and Financial Services in Mexico

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