Mining continues to be one of the most important economic activities and a key contributor to Chile’s gross domestic product. As Chile possesses one of the largest copper reserves in the world and is the largest producer of this mineral, this has translated into greater development and innovation in the country, through the generation of more employment, greater collection of taxes, and foreign exchange through exports.
The Mining Royalty Law (No. 21,591), published in 2024 by the government of President Gabriel Boric, repealed the previous specific tax on mining activity regulated in articles 64 bis and 64 ter of the Income Tax Law. The aim was to generate greater tax revenue by establishing high tax rates on the annual sale of copper and the operating margins of the country’s largest mining companies.
Tax invariability
Until 2016, investors who were subject to the specific tax on mining activity could enter into various investment contracts with the state of Chile that contained different general tax stability measures by virtue of articles 7 and 11 bis of Decree Law 600 (DL 600) of 1974, also adding invariability in terms of VAT and the tariff regime.
The repeal of DL 600 ended this incentive for investment and the inflow of new foreign capital into Chile by eliminating these invariability regimes. This discouraged investors who were covered by agreements for the promotion and reciprocal protection of investments and free trade agreements that did not contain characteristics such as the tax invariability of the Investment Statute.
The repeal of the decree arose as a response to the economic stability observed in the country, establishing the same tax rules for all investors. Despite the repeal, the contracts signed that established the regime were maintained until the date of termination of the contract.
With the entry into force of Law 21,591, the third transitory article established that mining operators that were subject to invariability would be subject to the regulations prior to the entry into force and until the date on which the investment contract ends. The same article allows taxpayers to voluntarily and in advance avail themselves of the new regulations established by the Royalty Law, waiving the invariability established in their respective investment contracts and submitting to the new tax bases and rates established by law.
New foreign investment statute
The current government has presented a new bill that establishes in its Article 33 a new statute of tax invariability for foreign and local investors, through the execution of investment contracts for amounts exceeding $50 million between the state of Chile and investors, following a model similar to the previous DL 600.
The bill clearly indicates that this mechanism would apply to all those who invest, among others, in mining projects, carrying out the injection of capital within a period that will be established in the respective contract, which may not exceed eight years for mining, although it could be extended for up to 12 years.
In addition, it points out that invariability will be maintained for a period of 25 years, with a total effective income tax burden equivalent to that applicable according to the regulations in force on the date of the respective investment contract, from the ‘start-up’ of the respective company; that is, the year in which gross income belonging to the project’s line of business is received or accrued.
The bill further indicates that it indicates that investors will have the right to have it established in their respective contracts that the tax regime of VAT and the tariff regime applicable to the importation of machinery and equipment that constitute capital goods will remain unchanged for the period in which it takes to make the agreed investment.In addition, in the case of mining projects, everything related to the mining royalty will remain unchanged, with no increase of the rate or expansion of the calculation base. Along with this, special rights of invariability will be generated with respect to the mining royalty, along with avoiding new taxes for mining companies and modifications to exploitation and exploration patents.
The Investment Statute also includes the possibility that companies that receive investment may maintain the same rules of invariability in their related projects, a situation that was enshrined in DL 600 after the modification introduced by Law 20,469 on the taxation of mining activity.
Final comments
Although the bill has just begun its legislative process in Congress, different observations have already been made regarding the consequences of the project, and particularly the establishment of a regime of invariability.
On one hand, there are those who argue that the regime could be a risk to the sovereign taxing power held by the legislator and that for the same reason there should be political consensus instead of establishing invariable laws, in order not to transgress what is enshrined in articles 4 and 5 of the Political Constitution of the Republic of Chile.
On the other, some consider that this new statute seeks to position Chile as a reliable country to invest in, as it aims to be an attractive place that encourages the entry of foreign capital, and promotes economic activity and employment, which are important for tax collection and development.
