The Law for Productive Development, Investment Attraction, Job Creation and Tax Stability was published in Official Register 309 on August 21, 2018 (Law for Productive Development).
This Law is an urgent economic project and has approved amendments to several laws in the Ecuadorian legal system; these include the Mining Law, Internal Tax Regime Law and Amendatory Tax Equality Law. These amendments undoubtedly represent significant progress to encourage investment and support the mining industry in Ecuador.
The following amendments are relevant to the mining industry:1.- Elimination of the Windfall Tax
This tax, created by the Amendatory Tax Equality Law and included in Article 40 of the Mining Law, applied to the difference between the sale price of the extracted mineral and the base price set in the mining contract.
The elimination of this tax is an incentive for greater productivity and investment.2.- Reduction of the Capital Gains Tax
This tax that applies to the profit from the direct or indirect sale of shares, interests, other rights representing capital or rights allowing exploration, exploitation, concession or similar of companies that are registered, or permanent establishments, in Ecuador has been substantially reduced. The amendment establishes a progressive table with rates from 0% to 10% applicable to the profit from such transactions. The rate before the amendment was 22%.
3.- New Percentages and Progressive Calculation of Mining Royalties
Before the promulgation of this Law, the mining royalties for large-scale mining ranged from 5% to 8% on the sale of the mineral. The Law for Productive Development lowers the rate of royalties to between 3% and 8% of sales.
Additionally, a new method of calculating these royalties has been created based on the volumes of production of the mining concessionaire and/or type and price of the extracted minerals, which will be set out in the Regulations to the Mining Law.
Similarly, for medium-sale mining, the royalty was set at 4%, but now it must be calculated under the same parameters as large-scale mining, pursuant to the abovementioned amendment (Art. 93 of the amended Mining Law).
This new calculation will be applied as of the effective date of the Law for Productive Development, and mining concessionaires will be able to negotiate royalties that are more in keeping with their mining projects and contracts.Warning: This newsletter by Pérez Bustamante & Ponce is not and cannot be used as legal advice or opinion since it is merely of an informative nature.