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New mining charges approved in Peru
After approximately 3 months of negotiation with the representatives of the Peruvian Mining, Oil and Energy National Society, on 28 September 2011 three Laws providing new charges applicable to the mining industry as from 1 October 2011 were published in the official gazette. Although the Government proposed the creation of a Windfall Profit Tax, during the negotiations this was disregarded, and the Laws approved by the Congress finally established: (i) an Amended Mining Royalty; (ii) the Special Mining Tax; and, (iii) the Special Mining Charge. Taxand Peru looks at the changes to to the law and what they ultimately mean for Peru's mining industry.
Amended Mining Royalties
The Mining Royalty in force in Peru since 2004 and recently amended by Law 29788, is determined over the operating profits obtained by the company on each quarter of the year, considering cumulative progressive rates from 1% to 12%. The Mining Royalties paid are deductible as an expense for determining the Income Tax of the company.
The amendments to the Mining Royalties are not applicable to companies that are signatories to a Mining Legal Stability Agreement (MLSA) currently in force.
Special Mining Tax (SMT)
The SMT, created by Law 29789, is determined quarterly over the operating profits obtained by the company on each quarter of the year, considering cumulative progressive rates from 2% to 8.4%. The SMT paid is deductible as an expense for determining the Income Tax of the company.
Companies that are signatories to a MLSA currently in force will not be subject to the SMT.
Special Mining Charge (SMC)
The SMC, created by Law 29790, is applicable to those mining companies with an MLSA in force that voluntarily agree to pay it and commit to do so by executing an Agreement with the Government.
The SMC is determined on a quarterly basis applying a cumulative progressive rate between 4% and 13.12% on the operating profits obtained by the company on each quarter of the year. The amount paid for Mining Royalties will be deductible for determining the SMC, and the SMC effectively paid will be deductible as an expense for Income Tax purposes.
Companies and investors involved in the Peruvian mining sector must take into account the new charges and determine if they are applicable to the company and what would be their economic impact on the business. According to the Government, it is projected that in 2012, the combined application of the three charges will report a collection of approximately US$1,100,000,000.
The Mining Royalty, the SMT and the SMC will be administrated and collected at the end of each quarter of the year by the Peruvian Tax Administration (SUNAT).