Duties, royalties and taxesDuties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
The Constitution provides that the state is entitled to receive a share of the benefits resulting from the exploitation of non-renewable natural resources, which is to be no less than that received by the concessionaire carrying out the exploitation. The Mining Act, more specifically, establishes that the state’s share consists of:
- various duties;
- taxes and royalties, including annual patent fees;
- income tax;
- VAT; and
- a percentage of the concessionaire’s profits and royalties, depending of the category of the mining title.
Further to the above points, the Guideline for Granting Mineral Mining Concessions establishes that in order to file a request for a new mining concession, it is necessary to pay a fee equivalent to five times the current minimum wage per application. This amount is not subject to reimbursement if the interested party is not awarded the mining concession after going through the tender process established in the Mining Act and the Guideline. If a party is awarded a mining concession, it needs to pay a fee equivalent to twice the current minimum wage in order to register the minute award and the amount of one current minimum wage to register the mining title with ARCOM.
More specifically, mining concessionaires have a number of financial obligations under the Mining Act, including the requirement to pay annual conservation patent fees, except in the artisanal mining category. The conservation patent fees payable for concessions are calculated as follows:
- for small-scale mining - a sum equivalent to 2 per cent of the current minimum wage, multiplied by the number of hectares in the concession;
- for medium-scale mining - a sum equivalent to 2.5 per cent of the current minimum wage, multiplied by the number of hectares in the concession and regardless of the mining phase; and
- for large-scale mining:
- initial exploration phase - a sum equivalent to 2.5 per cent of the current minimum wage, multiplied by the number of hectares in the concession;
- advanced exploration phase - a sum equivalent to 5 per cent of the current minimum wage, multiplied by the number of hectares in the concession; and
- exploitation phase - a sum equivalent to 10 per cent of the current minimum wage, multiplied by the number of hectares.
The minimum wage for 2019 is US$394.
In addition, mining concessionaires are required to pay additional fees for water usage. These fees are set out in the Water Act and the Authorisation for the Use of Water Resolution granted by the National Water Secretariat. The Ministry of the Environment also sets fees with regard to the environmental licence.
Mining concessionaires are also required to pay various taxes, both direct and indirect. Direct taxes include income tax, which is currently 25 per cent and payable on income less expenses. In large-scale mining, the mining concessionaire must pay 3 per cent of their profits to their employees and 12 per cent of their profits to the state, as part of the benefits share system, whereas in medium-scale mining is 5 per cent to the employees and 10 per cent to the state and in small-scale mining is 10 per cent for employees and 5 per cent to the state. Finally, if mining concessionaires send money abroad, a 5 per cent currency exit tax is payable.
As for indirect taxes, VAT, at a rate of 12 per cent, is payable on goods purchased and services rendered. The amendments introduced in December 2015 allow mineral exporters to recover VAT as of January 2018. Finally, the same amendment permits all gold acquisitions by individuals or holders of mining concessions to also have a zero per cent VAT rate as of 1 January 2018.
Customs duties and other charges imposed by customs are payable when importing goods into Ecuador.
Further, with regard to municipal taxes, liability for the following taxes should be borne in mind:
- municipal patent - the maximum annual tax that can be paid, calculated according to a concessionaire’s assets, is US$5,000;
- municipal tax equivalent to 0.15 per cent of the concessionaire’s assets; and
- rural land tax.
Concessionaires are also required to pay a contribution to the Superintendency of Companies, which is currently set at 0.1 per cent of the concessionaire’s real assets.
Capital gains tax is also a variable on this section (see question 23).
With regard to royalties, the Mining Act states that during the exploitation stage, mining concessionaires must pay a royalty depending on the mining category. Artisanal miners do not have to pay any royalty at all. Small-scale mining is required to pay a royalty equivalent to 3 per cent of the sales of the principal and secondary minerals and medium-scale and large-scale mining is required to pay a royalty from 3 per cent to 8 per cent of the sales of the principal and secondary minerals. The General Mining Regulations provide more detail, stating that the royalty is calculated on the gross income, less refining and transport costs.
On the other hand, the percentage of royalties payable by concessionaires carrying out non-metallic mining activities is calculated according to production costs.Tax advantages and incentives
What tax advantages and incentives are available to private parties carrying on mining activities?
Companies that reinvest their profits in the country are entitled to a 10 per cent reduction in the income tax payable on the amount reinvested in production assets, provided the assets are to be used to purchase new machinery or equipment that are used as part of their production activities, such as the purchase of goods related to investigations or technology to improve their productivity, generate production diversity and to increase employment. Further, deductions can be made when activities are carried out in economically depressed areas or frontier zones and citizens resident in such areas are employed.Tax stablisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
The Constitution guarantees the principle of legal certainty, recognising clear, ex-ante legal rules that shall be respected by all the state authorities. Further, after the promulgation of the Organic Code of Production the state allows the possibility of signing ‘investment protection agreements’ with both domestic and foreign investors, in order to provide tax stability and other related incentives.
On 29 December 2014, the government enacted an amendment to the law, which opens up the possibility to investors investing over US$100 million to negotiate and execute a Legal and Tax Stability Agreement, thereby allowing investors to stabilise the regulations during the term of the agreement.Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
According to the Constitution and the Mining Act, the state may participate in mining projects through public or mixed public-private companies in which the state should be the majority shareholder.
With the enactment of the Mining Act the National Mining Company ENAMI-EP was created in order to manage mining activity for the sustainable use of mining resources. The company may carry out its duties independently, or in partnership or association with other entities, public or private, in accordance with the legal provisions.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
The Organic Production Development Law modified the Capital Gains Tax Law, which previously stood at 22 per cent, which now applies a scale ranging from zero per cent to 10 per cent on the earnings obtained from the transfer of shares of mining companies.Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
Domestic and foreign parties are required to pay the same duties, royalties and taxes (see question 19).