Chile Mining Law & Fiscal Regime

Chile’s legal mining framework is based on 3 pillars:

  • The Political Constitution of the Republic (1980)
  • The Constitutional Organic Law on Mining Concessions Act (1982) – Act #18,097 – which regulates mining concessions and also controls what substances cannot be granted in concession
  • The Mining Code (1983) – Law # 18,248 – which regulates the mining industry, mineral exploration, exploitation and benefit

Other key legal decrees and laws include:

  • The Mining Code Regulation (1987) – Decree # 1
  • Mining Safety Regulation (2004) – Decree # 132
  • Closure of Mining Works and Facilities (2011) – Law # 20,551
  • Regulation of Closure of Mining Works and Facilities (2012) – Decree # 41

In general, the legal property rights of a title holder to a mining concession are protected by the constitutional guarantee of private property rights and cover base metals and precious metals amongst other commodities. However, rights to hydrocarbon deposits, other fossil deposits, mineral sands, lithium and other substances are excluded from exploration and mining concessions and are subject to absolute and exclusive ownership by the State.

The mining industry and related activities are overseen by the government through the Ministry of Mining. Created in 1980, the National Geology and Mining Service (Sernageomin) fulfills the functions of generating and publishing basic geological information, studying geological resources, and delineating geological risks within the national territory (landslides, flooding, volcanic etc). Sernageomin also regulates and supervises compliance with standards and regulations regarding health and safety and mining concessions to ensure a sustainable and socially responsible mining activity. It also prepares the Basic Geological Map of Chile and other themes that complement it such as magnetic, metallogenic, hydrogeological and other geo-technical studies.

Environmental laws for both mining and other industries have been improved in recent years (Law # 19,300) and certain projects must undergo environmental impact assessments at varying levels of detail. Other legal dispositions (as indicated above) govern Health and Safety, Mine Closure, Tailings Disposal, Native Title, and a raft of other aspects such as Labour Law.

In terms of the Chilean fiscal regime, as it is particularly applied to the mining industry, Chile enacted a tax reform in September 2014 (Law No. 20.780), which became fully effective in 2018.

According to the revised bill, Chile changed to a dual corporate tax system from 2017:

  • Attributed Income System: Shareholders are taxed on an accrual basis, with a first category income tax rate of 25% imposed at the level of the operating entity, plus global complementary tax at progressive rates for resident individuals or an additional withholding income tax of 35% for non-resident shareholders (the first category income tax being 100% creditable), resulting in an overall income tax charge of 35% for non-residents. Under this system, profits are required to be attributed to the owners or shareholders, irrespective of whether a distribution actually is made.
  • Semi-Integrated System: Shareholders are taxed on a cash basis (when profits are distributed), but at a first category income tax rate of 27%. This corporate tax still is creditable against the 35% additional withholding income tax, but 35% of the credit has to be paid to the Treasury, so, in practice, only 65% of the corporate tax is creditable. Thus, taxpayers pay for the ability to defer shareholder taxation until profits are actually distributed with a higher overall income tax rate than under the attributed income system. Note that if shareholders are domiciled in countries which have a Tax Treaty in force with Chile (such as Canada), they may use 100% of the first category tax as credit (this provision is known as the “Chile clause”).

Withholding taxes of 35% apply to the distribution of dividends abroad. However, depending on the taxation regime elected (see above), any withholding tax may be totally or partially creditable against income tax.

The mining tax, locally referred as the “mining royalty” tax, was enacted in 2006 and modified in 2010. It applies to commercialization of metallic and non-metallic resources. It is important to highlight that it is not an actual royalty, but rather a progressive tax instrument paid on operating income. The tax is between 0 and 14% depending on the firm’s profit. Small mining firms do not pay this tax. The size of firms is defined as follows:

  • Small mining firms: sales equivalent to 12,000 tons of refined copper per year or less
  • Medium sized firms: sales equivalent to between 12 000 and 50,000 tons per year
  • Large firms: sales equivalent to 50,000 tons of refined copper per year

VAT (IGV) is payable at a rate of 19%.

The Decree Law 600 (DL 600) has been in force since the 1970s and ensures non-discriminatory treatment and tax invariability, through a contract between the foreign investor and the State of Chile. This investment regime has been seen as a guarantee of stability for foreign investors and one of the reasons Chile has been a leader in attracting foreign investment, including in the mining sector. The Tax Reform Law 20.780 of 2014 (see above), repealed the DL 600 effective 1 January 2016. In its place, the Direct Foreign Investment Framework Act (IED Act) was approved and enacted on June 2015, creating the new foreign investment framework under the Tax Reform Act.