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 Mining Code provides for an exhaustive customs and tax regime for mining activities with the inclusion of all taxes, charges, royalties and other fees owed to the Treasury by mining title holders in respect of their mining activities, to the exclusion of any other form of taxation. This principle does not, however, prevent the tax agencies from often claiming additional taxes. When applicable, the tax provisions of the Mining Code refer to the general tax legislation. Second, the Mining Code provides a certain guarantee of stability - the existing tax, customs, exchange and other benefits applicable to mining activities remain in effect for five years in favour of each concerned mining title holder in the event that the Mining Code is amended.Tax advantages and incentives
What tax advantages and incentives are available to private parties carrying on mining activities?
The Mining Code provides for a wide range of incentives for private parties carrying mining activities, as set out below.
The tax and customs regime that applies to mining activities is exhaustive - the Mining Code provides for all the taxes, charges, royalties and other fees owed to the Treasury by mining title holders in respect of their mining activities, to the exclusion of any other form of taxation.
The Mining Code also provides a certain guarantee of stability - the existing tax, customs, exchange and other benefits applicable to mining activities remain in effect for five years in favour of each concerned mining title holder in the event that the Mining Code is amended.
A mining royalty is owed as from the date of commencement of effective exploitation. The rate of the mining royalty is:
- zero per cent for commonly used building materials;
- 1 per cent for industrial minerals, solid hydrocarbon and other substances not listed;
- 1 per cent for iron or ferrous metals;
- 3.5 per cent for non-ferrous metals;
- 3.5 per cent for precious metals;
- 6 per cent for precious and colour stones; and
- 10 per cent for the strategic substance (the mining regulation will specify the nature of the strategic substance).
A professional tax on benefits at the preferential Mining Code rate of 30 per cent (instead of the 35 per cent corporate tax rate) is levied on the net profits from exploitation determined in accordance with the accounting and tax legislation in force.
Furthermore, a special tax on ‘super profits’ has been embedded and can be defined as income earned when commodity prices increase to 25 per cent above the levels included in a project’s feasibility study.
Sales and revenue-based taxes
The sales tax system is now set in a way that the turnover tax has been replaced since 1 January 2012 with a value added tax.
This tax is a consumption tax essentially paid for by the end-consumer and is recoverable by the economic operators in between. A single rate of 16 per cent applies on imports and on sales of goods and services, while a rate of zero per cent is applied on exports. For mining activities, exemptions are provided for the import and purchase of equipment, materials, reagents and other chemical products that are exclusively destined for prospecting, exploration and research.
Withholding tax on interest and dividends
The 20 per cent standard rate of withholding tax is not applied to interest paid on loans contracted abroad in foreign currency. In addition, loans from affiliates must be on interest rates and other conditions as favourable or better than those of loans that could be obtained from third parties to benefit from this exemption.
Dividends and other distributions are subject to the preferential Mining Code withholding tax at the rate of 10 per cent.
Withholding tax on salaries
Rights holders are liable to pay the standard withholding tax on salaries payable by their employees at the progressively increasing standard rate ranging from 3 per cent to 50 per cent, capped at a total tax of 30 per cent of taxable income.
The rights holder is liable to pay a 10 per cent tax on indemnities paid as the result of the termination of employment or the breach of the employment contract or contract for the hiring of services.
Exceptional tax on expatriates’ salaries
Before the 2018 revision, the rights holder was liable to pay the exceptional tax on expatriates’ salaries at the preferential Mining Code rate of 10 per cent, instead of the 25 per cent standard rate. Nevertheless, this tax benefit has been modified with the 2018 revisions. The rights holder must now comply with a 12.5 per cent rate for the first 10 years. Once this period has lapsed, the 25 per cent standard rates shall apply.
The rights holder is liable to pay the tax on real estate property as determined by general tax legislation, except for buildings situated inside the mining perimeter, which are subject to the tax on the surface area of mining concessions.
Tax on the surface area of mining concessions
A research permit holder is liable for the tax on the surface area of mining concessions at the rates of US$0.02 per hectare for the first year, US$0.03 for the second year, US$0.035 for the third year and US$0.04 for each subsequent year.
An exploitation permit holder is liable for this tax at US$0.04 per hectare for the first year, US$0.06 for the second year, US$0.07 for the third year and US$0.08 for subsequent years.
Annual surface duty per square
A special surface duty, payable annually to the Mining Registry, is levied on the number of squares held by a title.
Duties charged by the customs service
Before the effective commencement of exploitation work, all goods and products imported strictly for mining use are subject to import duties at the preferential rate of 2 per cent, as long as these goods appear on a ‘list of assets benefiting from the preferential regime’ approved beforehand by a joint decree issued by the ministers of mines and finance.
From the effective commencement of exploitation work, and during a period ending at the close of the third year from the date of first production, the import duty rate of 5 per cent applies under the same conditions.
All intermediates goods are subject to import duties of up to 10 per cent and oil and lubricants are subject to a 5 per cent rate.
The title holder is fully exempted from all customs duties and other taxes, regardless of their nature, for exports in relation to the mining project. Remuneration fees for official services on exports are capped at 1 per cent of the export value. However, the cap of 1 per cent is not complied with by the various state agencies involved with export formalities and the total fees often amount to 2 per cent or more of the export value.Tax stablisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
The Mining Code provides for a five-year warranty of no parliamentary amendment. This five-year period commences from:
- the enactment of Law No. 18/001, dated 9 March 2018, for mining titles existing at this date;
- the granting of an exploitation permit.
Is the government entitled to a carried interest, or a free carried interest in mining projects?
If a company wishes to obtain an exploitation permit, then 10 per cent of its share capital must be transferred to the state for free. Furthermore, 5 per cent of the mining company’s share capital must be transferred to the state at each renewal of the exploitation permit.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
The transfer of licences is not subject to any form of transfer of taxes or capital gains.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?
On paper, no distinction is made between the duties, royalties and taxes payable by domestic parties and foreign parties, but in practice when concluding a joint venture with a local business partner, the foreign party is expected to provide a certain number of advantages to the domestic party, such as the transfer of bonus and royalty on sales.