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?

Like any other productive activity, mining is subject to income tax and the commercialisation of the minerals are subject to value added tax payable by the purchaser except when minerals are exported, in which case the value added tax is zero. Furthermore, in addition to government mining fees, all mining concessions are subject to the payment of certain fees to the Mexican government, which are based on production.

In accordance with the Federal Duties Law (Duties Law) holders of mining concessions shall pay the following:

  • 7.5 per cent of the income from the sale of minerals extracted from a mining concession minus the authorised deductions, on an annual basis (the government royalty); and
  • in the case of commercialisation of gold, silver or platinum, concessionaires shall pay an additional 0.5 per cent of the income for the sale of such minerals on an annual basis (the extraordinary government royalty).

Finally, holders of mining concessions that do not perform and verify exploration or exploitation works for two consecutive years, during the first 11 years of seniority counted from their issuance, shall pay on a biannual basis, an additional 50 per cent of the corresponding government mining fees in accordance with the quotas stated in the Duties Law or 100 per cent if the concession’s seniority is over 11 years.

Tax advantages and incentives

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

Mexican tax legislation does not grant specific tax incentives to mining companies. However, there are other general tax incentives that can be taken, such as the immediate deduction of some fixed assets, tax credit of the special tax over services and production related to diesel consumption and credit of the fees paid over the use of the mining concession.

Tax stablisation

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

Unfortunately, Mexican tax legislation does not contemplate the tax stability agreement concept, which could support the mining industry in the early years of operation.

The only possibility under Mexican legislation is to negotiate, upfront, the values to be used in transactions between related parties. The period that could be negotiated is up to five years and it is commonly known as an advance price agreement. This negotiation is basically from a transfer pricing perspective.

Carried interest

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

Except for the royalties mentioned in question 16, in accordance with applicable Mexican legislation the government is not entitled to a carried interest in mining projects.

Transfer taxes and capital gains

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

The transfer of mining concessions is subject to taxation in connection with income tax (considering the gain triggered in the sale, similar to a capital gain) and value added tax (similar to a transfer tax) at a rate of 16 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?

Since exploration and exploitation activities conducted by foreign investors in Mexico must be made through Mexican companies, and these companies are considered for all legal effects as Mexican residents, there are no distinctions for duties, royal-ties and taxes payable by Mexican companies with 100 per cent Mexican investment and Mexican companies with 100 per cent foreign investment (see question 10).