Duties, royalties and taxes

Duties, 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 general tax regime applicable to mining activity is dependent on the size of the operation.

Small mining operations with a maximum of five employees are subject to an overall income tax with a fixed rate calculated according to a formula that takes into account the average price of copper and the company’s sales.

Larger companies, for instance stock corporations or limited responsibility partnerships, whose annual sales do not exceed 36,000 tonnes of metallic non-ferrous minerals or 2,000 annual tax units, regardless of the type of mineral, are considered to be medium-scale.

Medium-scale mining operations are subject to a presumptive tax regime, under which the taxable income of the period is presumed to be a certain percentage of their net sales, being subject to the general tax rates. This percentage ranges from 4 per cent to 20 per cent according to the average copper price during the tax period.

Companies exceeding the previous criteria are considered large mining operations. These entities will be subject to the general income tax regime. As such, they are subject to income tax, which since 2016 is 24 per cent, and a global complementary or additional tax, depending on whether the contributor is a Chilean or foreign national.

There is a royalty, or specific mining tax, over mining activities that covers any concessionaire who extracts and commercialises minerals in any type of production. The rate of this tax is progressive and follows the volume of the company’s production. The rule is the following:

  • companies whose annual sales exceed the equivalent of 50,000 tonnes of fine copper pay a progressive rate of between 5 per cent and 14 per cent;
  • companies whose annual sales are between the equivalent of 12,000-50,000 tonnes of fine copper pay a progressive rate of between 0.5 per cent and 4.5 per cent; and
  • companies whose annual sales are equal to or less than 12,000 tonnes of fine copper are exempt from the royalty.

The value upon the tonnes of fine copper is calculated as according to the average value of grade A copper registered at the London Metal Exchange.

Finally, other duties and fees applying to any business are also applicable to mining activities. As such, these companies are subject to municipal and stamp duties and VAT.

Tax advantages and incentives

What tax advantages and incentives are available to private parties carrying on mining activities?

There is no cohesive body of legislation for the incentives to the mining activities to be found. The most relevant investment incentive is the one contained in Law No. 20,848, described in question 21.

There is a special tax regime and other minor benefits granted for mining and industrial activities operating in isolated provinces of the northern and southern regions of the country.

Other incentives, contained in the general tax regulation include accelerated depreciation of assets, VAT refunds in qualified cases and deferred payment of custom duties over the importation of certain goods, among others.

Tax stablisation

Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?

Since 1974, most foreign investors in the country choose the rights granted by Decree-Law No. 600. Under these rights, investors bringing capital, physical goods or any other kind of investment from abroad could choose to sign a foreign investment contract with Chile. According to the statistics issued by the Foreign Investment Committee, by 2011, at least 56.5 per cent of the capital brought in from abroad used this mechanism.

One of the features of this scheme was the existence of a stabilisation clause. Under this special tax regime investors could choose either to be subject to the standard tax regime or to choose a special regime that sets an invariable rate of additional tax on profit remittances at 42 per cent, unmodified for a period of 10 years. The investor could exit from this regime at any time in favour of the standard regime, but could not subsequently return to the special regime.

This latter structure was replaced by Law No. 20,848. This new legislation is applicable to foreign direct investment, which is defined as ‘the transference to the country of foreign capital or assets owned by a foreign investor or controlled by it, for a total amount equivalent to or higher than US$5 million or its equivalent in another currency, implemented through convertible foreign currency, physical assets in any state or form, earning reinvestments, credit capitalisation, technologies in its diverse forms capable of being capitalised or credits associated to foreign investment coming from related companies’.

Foreign investors shall be protected by the applicable Chilean law and no new stabilisation clauses shall apply. However, the ones already executed by the Chilean state shall remain in force.

Law No. 20,848 mandates that the president issue the Fostering and Promotion Strategy for Foreign Investment. This strategy seeks to spur and streamline foreign investment in Chile, positioning the country as an international hub for business and investment. This strategy will consist of a examination of Chile’s international competitiveness, including an evaluation of the capacity of the Chilean economy to add value in the production of goods and services through the promotion of foreign investment, along with the definition of long- and mid-term recommendations.

In order to promote and simplify foreign investment in Chile, the new legal regime sets up the creation of the Foreign Investment Promotion Agency, which will be charged with promoting and attracting foreign investment and implementing the Fostering and Promotion Strategy for Foreign Investment. This agency will be the legal successor of the current Foreign Investment Committee.

Carried interest

Is the government entitled to a carried interest, or a free carried interest in mining projects?

There is no governmental entitlement to a carried interest or free carried interest in mining projects.

Transfer taxes and capital gains

Are there any transfer taxes or capital gains imposed regarding the transfer of licences?

There is no specific tax regarding the transfer of licences. However, there must be considerations regarding the rules about capital gains contained in the Income Tax Law as licences have regulations similar to the transfer of real state property rights.

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 distinction between Chilean nationals and foreign nationals concerning the taxes they must pay.