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 main taxes, duties and contributions levied on mining companies operating in Brazil as a condition for them to obtain or continue the mining concession are:
- annual fee per hectare (TAH);
- financial compensation for the exploitation of mineral resources (CFEM);
- payment due in connection with surface rights;
- inspection taxes on mining resources;
- corporate income tax (IRPJ);
- social contribution on profits;
- import duty;
- excise tax (IPI);
- social integration plan (PIS) and social welfare tax (COFINS);
- state VAT (ICMS);
- property tax;
- municipal service tax (ISS);
- financial transaction tax (IOF); and
- payroll taxes.
These taxes, duties and contributions are required to be paid in different moments during the development of the mining activity, depending on the stage of the exploration works or during the entire period of the concession, and all payments have to be made in kind and in Brazilian currency.
Below is a short description of each of the taxes, duties and contributions mentioned above.
A fee owed for purposes of occupation and use of the area, under which all exploration targets are subject to the TAH. Currently the annual fee corresponds to 3.42 reais per hectare covered by a licence for mining exploration, increasing to 5.1 reais per hectare, upon the extension of the licence’s term.
This is a royalty payment serving the purpose of compensating the states and municipalities for the economic use of the mineral resources in their territory, similar to a tax. It is owed by the legal entities that exploit or extract mineral resources, payable upon sale of the mining product from the mine or other mining deposit or beneficiation of the mining product or its consumption by the mining entity. It varies as a percentage of the net revenue from the sale of mineral products, depending on its type. In general, the rates vary from 0.2 per cent to 3 per cent depending on the kind of mineral product. Upon the calculation of CFEM, transport, sales, tax and insurance costs are deducted.
Payment due in connection with surface rights
Brazilian mining law provides that the surface rights holder of the location of the mine has the right to a statutory royalty equivalent to one half of the CFEM (which is calculated as mentioned above).
Inspection taxes on mining resources
It is a tax imposed on mining activities in the states of Pará, Minas Gerais, Mato Grosso and Amapá, levied at amounts of up to approximately US$3 per tonne or exploited ore, payable to the state where the ore is exploited. Some of the mining companies and mining associations are challenging the legality of these state laws in view of the Federal Constitution.
This is the corporate income tax, of which the basic rate calculation is 15 per cent based on yearly or quarterly ‘adjusted actual profits’. When the taxable income exceeds 240,000 reais yearly or 60,000 reais quarterly, an additional 10 per cent rate is added to the standard 15 per cent rate.
Social contribution on profits
This is the contribution payable on profits and the current applicable rate is 9 per cent on yearly or quarterly adjusted book profits for all companies (excepting financial institutions).
Heavy mining equipment brought to Brazil may benefit from tax incentives or full exemption; nevertheless, all products imported are subject to import duty that shall be levied on the ‘customs value’ of such product, pursuant to GATT rules and calculated on the cost insurance and freight value. This duty rate is selective and will depend on the product’s tariff classification.
This the value-added tax paid upon the importation or sale or other transfer of industrialised and partially industrialised products. The rate depends on the type of product.
PIS and COFINS are social contribution taxes levied at different percentages on the company’s gross revenues. There are two applicable regimes: cumulative - rates of 3 per cent and 0.65 per cent, respectively, without any generation or use of credits; or non-cumulative - rates of 7.6 per cent and 1.65 per cent, respectively, with generation of credits in the acquisition of goods or services that can be offset with debts of the same contributions. Such contributions are also levied on the importation of services (with rates of 7.6 per cent and 1.65 per cent) and goods (with rates of 2.1 per cent and 9.65 per cent).
This is levied on the distribution of goods, intercity and interstate transportation and communication services. It is payable during all stages of the product’s sale not only by the producer, but also by the consumer.
In general, there is a levy of rural land tax (ITR) for mining activities, for which the triggering event is the property, usage and possession of real estate located outside the urban area, and its calculation depends on the value of the property alone, without taking into consideration any improvements.
This is a tax imposed on any kind of services performed by companies or self-employed professionals, with a maximum rate of 5 per cent, its assessment being based on the price of each services and also assessed on services provided by non-residents to Brazilian residents (import of services).
This is a tax assessed on certain credit transactions (including loans) and currency exchange transactions, among other financial transactions, being levied at rates that varies according to the nature of the transaction.
Certain taxes and contributions payable by the Brazilian companies in benefit of their employees, depending on the total value of their remuneration, such as social security contributions and severance funds. These taxes and contributions may increase payroll costs by roughly 28 per cent to 35 per cent of gross wages.Tax advantages and incentives
What tax advantages and incentives are available to private parties carrying on mining activities?
Brazilian authorities have the prerogative of granting tax benefits and incentives to private parties executing mining activities. The main incentive programmes available in Brazil at federal level are:
- the Amazon Development Programme, offered by the Amazon Development Agency for mining projects located in the Amazon region;
- the North-east Development Programme for projects in the north-east part of the country, supported by Banco do Nordeste;
- the Special Regime for the Acquisition of Equipment and Machinery by Exporters;
- tax-related programmes to enhance Brazilian exports (eg, the special customs regime of the drawback programme and the internal drawback programme); and
- a regime that allows the reduction of import duties on machinery and equipment not available in Brazil (special customs regime Ex-Tarifário).
Additionally, at state level, the most common tax benefits are related to state tax exemptions (ICMS, ie, state VAT), deferral, assumed credits and suspension or reduction of the assessment basis. State governments also hold the prerogative of granting incentives to mining operations either through a reduction in the taxable base of the ICMS of through deferral.
Further, local tax authorities may grant tax benefits to mining companies on a case-by-case basis through direct negotiations.Tax stablisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
Brazil in principle does not enter into tax stabilisation agreements. The general limits to increase and create taxes are set in the Brazilian Federal Constitution and valid for all taxpayers.Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
The government is not entitled to any carried interest or free carried interest in mining projects in Brazil.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
There is no transfer tax imposed on the transfer of licences. However, there are taxes on capital gains that shall be levied as a withholding tax over the positive difference between the total investment made in connection with a mining licence and the amount obtained with the sale of said licence to any third party. The withholding income tax over capital gains is based on a progressive rate (the rates vary according to the amount of the capital gain, within the range of 15-22.5 per cent).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?
There is no discrimination between the duties, royalties and taxes payable by domestic and foreign parties.