Below is a summary of key issues to be considered by prospective mining investors. Reference is made throughout to Chilean agencies involved.
Funds intended for investment in any sector, including mining, can be brought in-country and repatriated as provided for under Decree-Law 600/1974 (as amended by Economic Affairs Ministry Decree-Law 523/1993) and/or Chapter XIV of the Central Bank Compendium of International Regulations.
Operations under Decree-Law 600 require a contract with the Government of Chile. Operations under Chapter XIV require only prior authorization from the Central Bank of Chile.
As most foreign investment proceeds under Decree-Law 600, the procedure is described below.
Who Can Apply?
Any person or entity wishing to bring in freely-convertible foreign currency, investment loans, capitalization of debt or profits, or capitalizable assets or technology.
Who is the Chilean Counterpart?
The Foreign Investment Committee (CIE), a government agency. The CIE oversees foreign investment under Decree-Law 600 and sets terms and conditions for foreign investment contracts.
How Can Investors Apply?
An appointed legal representative submits a Foreign Investment Application to the CIE providing details about the investor, the intended project, and the assets to be brought into the country.
How Does The Approval Process Work?
For mining projects, the CIE forwards the file to the Chilean Copper Commission for review and vetting.
Once concerns, if any, have been addressed, projects under US$5 million can be approved by the CIE Executive Vice President alone. Projects above US$5 million or submitted by foreign government corporations require full Committee approval.
A foreign investment contract is then signed by the investor’s legal representative and the Chilean Government, as represented by the CIE. In the contract, which has the force of law, the government guarantees, for a specified length of time, the benefits granted. The contract irrevocably guarantees the entirety of the rights and obligations contained in Decree-Law 600 and cannot be amended unilaterally.
What Are The Benefits?
Investor rights under the law include:
1.-Unlimited repatriation of profits plus repatriation of capital one year after first entry. In either case investors have unlimited access to the foreign exchange market.
2.-A fixed tax rate (an effective 42 percent) for 10 years and VAT-free import of machinery and equipment not manufactured in Chile. Investors may switch to the 35 percent corporate tax rate in effect for all others but may not switch back.
3.-Investment projects of US$50 million and up are eligible for additional benefits. These include a long-term fixed tax rate, foreign currency accounting, flexible return of export sales proceeds, etc.
4.-Unrestricted access to credit from local commercial banks.
5.-Foreign mining investment projects of US$50 million and up will enjoy the following benefits for a term of 15 calendar years:
a.-A freeze on the specific mining tax required by article 64 bis of the Income Tax Act. Investors will be unaffected by rate increases, expansion of the tax basis, or any other amendments increasing the said tax.
b.-Exemption from new taxes, royalties, levies or other burdens imposed on mining operations based in whole or in part on revenue, investments, or the assets or rights used for mining purposes.
c.-Exemption from increases to the basis for determination of exploration and development licences under Title X of the Mining Code (Law 18248).
d.-The above 15-year term will be deemed to commence at company startup. Baseline for all privileges granted under a foreign investment contract will be tax rates, tax basis and other taxation components in effect at contract execution.
These benefits are mutually exclusive with those in articles 7 and 11 bis of the said Decree-Law.
Chilean law allows both persons and entities to engage in mining activities. Companies wishing to be incorporated in Chile must apply to the Internal Revenue Service for a commencement of business licence and a Tax Registration Number.
Common forms of corporate organization include:
Legal Mining Company
Unlike any other, this type of company results from a factual event that is granted legal status by the law. Such events include two or more individuals filing a mining claim or registering shares in a mining concession previously held by a single individual. ( (Art. 173 et seq., Mining Code).
Contractual Mining Company
These companies are established by agreement of the parties, pursuant to the Mining Code. They require the filing of a public deed with the Mining Titles Registrar in both the principal place of business and the jurisdiction of the mining property. (Art. 200 et seq., Mining Code).
Publicly Held Company
Formed by a common fund supplied by shareholders liable solely to the extent of their own contribution. They are managed by a Board of Directors composed of essentially revocable members. (Law 18046).
Chilean law recognizes both open and closed publicly held companies. The former include those publicly listed, those with 500 or more shareholders, and those where at least 10 percent of underwritten shares are owned by at least 100 shareholders. These must be registered with the Securities Registry and are subject to oversight by the Office of the Superintendent of Securities and Insurance.
The latter, on the other hand, include any publicly held companies not meeting the above requirements. They are not subject to oversight by the Office of the Superintendent of Securities and Insurance.
Limited Liability Company
Collective partnerships with up to 50 members who are liable solely to the extent of their own contribution or any greater amount specified in company bylaws. (Law 3918).
An arrangement by two or more individuals who contribute to a common purpose with a view to sharing in the proceeds.
Anyone can file a mining claim and/or acquire pending or established mining concessions or shares therein.
Mining concessions are real property rights, distinct from and independent of title to surface property. They can be transferred, signed over and mortgaged and generally enjoy the same standing as other real rights contemplated in legal acts or contracts. Mining concessions are regulated by civil laws applicable to all real property.
Exploration and development concessions are awarded by the courts in a non-contentious procedure with no intervention from other authorities or individuals. Concession awards are kept in force by payment of an annual licence.
Application must be made to the civil courts of the jurisdiction of intended exploration or development.
A claim must be filed with the competent court and a one-time processing fee paid.
The Court will direct that a full copy of the claim be filed with the Registry of Discovery of the Mining Titles Registrar, and that a full copy of such filing be published in the Official Mining Bulletin.
The file will be forwarded to the National Geology and Mining Service for review. Unless the Service objects, the Court will award the exploration concession requested. Upon determination, successful applicants will be required to pay an annual licence. The Court will direct that an excerpt of the award be published in the Official Mining Bulletin and filed with the Registry of Discovery of the Mining Titles Registrar.
A claim must be filed with the competent court and a one-time processing fee paid.
The Court will direct that a full copy of the claim be filed with the Registry of Discovery of the Mining Titles Registrar, and that a full copy of the registration be published in the Official Mining Bulletin.
Applicants will then request the Court to order that the claim be surveyed. This application will be published in the Official Mining Bulletin. A period for third parties to file objections will then commence. If none are forthcoming by the end of this period, a mining engineer or other appropriate specialist designated by the applicant will proceed to survey the claim. His report will then be forwarded to the National Geology and Mining Service for review.
Unless the Service objects, the Court will award the development concession requested. The Court will direct that an excerpt of the award be published in the Official Mining Bulletin and that both the award and survey report be filed with the Property Registry of the Mining Titles Registrar.
Companies intending to conduct mining activities in Chile are required under the Charter Law on the Environment (Law 19300) to submit an Environmental Impact Assessment or Declaration, as the case may be. These filings will be reviewed by the Regional Commission on the Environment (COREMA), which has the power to issue or decline approval.
All other operating licences and permits, including those required by the National Geology and Mining Service, the Health Service, the Office of the Superintendent of Water and Sewage, the Agricultural and Livestock Service, local governments, and the Ministry of Transport, must be concurrently applied for.
Water is public property. Consumptive use is granted pursuant to the provisions of the Water Code.
Water use rights granted by the competent authorities constitute a real right holders can use, enjoy and dispose of pursuant to the law. Tenure is acquired following appropriate registration.
Health and Safety
Mining safety regulations set a number of standards protecting the life and health of mineworkers and ensuring the safety of mining operations and associated facilities, machinery, tools, and equipment.
Mining safety regulations are enforced by the National Geology and Mining Service. Applicable provisions are contained in Mining Decree 132(2004) (Mine Safety Regulations) and Decree-Law 3525(1980) (The National Geology and Mining Service Act).
Workplace health and environmental regulations are also an important issue to consider. These provisions regulate permissible exposure to chemical and environmental agents as well as other occupational hazards, including biological. Additional regulations and standards are contained in the Health Code.
Applicable rules and regulations are contained in the Taxation Code, the Income Tax Act (Decree-Law 824/74), and the Goods and Services Sales Tax Act (Decree-Law 825/74 establishing the Value-Added Tax).
The Income Tax Act levies a tax on all income earned from in-country assets and operations, irrespective of the taxpayer’s country of origin or residence. Corporate profits are subject to 17 percent tax.
Individual company owners filing their effective income through full accounting will pay a withholding tax upon withdrawing their profits. Amounts withdrawn by residents or deemed residents are subject to general income tax at progressive rates ranging from 0 to 40 percent. Alternatively, profits repatriated by foreign investors are subject to 35 percent tax.
Individual company owners may claim a credit for taxes paid by their company on profits paid out. Foreign investors operating under a foreign investment contract under Decree-Law 600 pay 42 percent income tax.
The Value-Added Tax Act encumbers any transaction, irrespective of how described by the parties, effectively serving to transfer title to real or movable assets owned by a developer, as well as all acts and contracts conducive to such purposes. The VAT rate is currently 19 percent.
All exports are VAT-exempt. In addition, exporters can claim a full credit for VAT paid on goods and/or services bought for business purposes.
Article 64 bis of the Income Tax Act applies a specific tax on mining operations. Rates are progressive and based on sales amounts. These range from 0.5 to a full 5 percent of operating taxable income for taxpayers having annual sales of 50,000 MT of refined copper and up or its equivalent (Law 20026).
Exports and Imports
Chile imposes few controls on exports and imports. In the case of copper and copper byproducts, the Chilean Copper Commission is required to verify the value of export shipments.
To this effect, exporters are required to submit sales contracts stating terms and conditions to Cochilco. Upon actual shipment, the National Customs Service will forward the Uniform Export Document and a Value Change Report, if applicable, for review. Cochilco will use these to determine if terms and conditions agree with those in effect in world markets. Imports of copper and copper byproducts undergo a similar review.
The Chilean Copper Commission provides Certificates of Origin for copper and copper byproduct exports to all countries except European Union members, whose Certificates are issued by the Foreign Affairs Ministry.
All tariff matters are handled by the National Customs Service. The Service oversees the traffic of goods at all seaports, airports, etc., and collects applicable taxes and duties.
Import duties on capital goods can be deferred for up to seven years (Law 18634).
Chilean legislation provides a number of incentives to exports, notably the range of credits contained in Laws 18480 and 18708.
Law 20235 (and the Regulations contained in Ministry of Mines Decree 76/08) created a Mining Resources and Reserves Competence Board overseeing Competent Specialists in the field. The law contains valuation and reporting guidelines and standards designed to ensure investors are provided with reliable information facilitating investment decisions.