Law - Civil law
Member of New York Convention - Yes
Foreign investment regulation - Yes
Local party ownership requirement - None
Indigenous and local community rights - Yes
Land tenure - Mining rights are separate from surface rights
Environmental protection regulation - High
Rehabilitation bonds or guarantees - Yes
Exploration license - The license is granted for two years, with extensions of two years, if the licensee drops at least half of the granted area.
Exploitation mining license - Unlimited duration providing mining licenses are duly and yearly paid (referred below as royalty payable to government)
Able to use tenement as security - Yes
Royalty payable to government - Yes. Amount depends on the extension of concession area.
Classification system used - N/A
Mining is the pillar of the Chilean economy, and dramatic growth in the industry over the past 30 years has made Chile the world's top copper exporter, producing over a third of global output. Mining activity is mainly focused in the Atacama Desert in northern Chile, which, in addition to copper, is rich in gold, silver, iron and non-metallic products such as nitrates, boron, potassium, iodine and lithium.
Recent growth in the mining sector can be attributed to the increase in foreign capital. The Chilean government strongly supports external investment and has modified many of its laws to create a favorable investment climate for foreign companies wishing to do business in Chile. In addition, Chile has become the focus of attention for its non-metallic elements, specially lithium and cobalt.
Mining in Chile is governed by the Constitution of Chile and by basic constitutional laws, the Mining Code and regulations, which apply specifically to the mining industry. Chile has a civil-law-based legal system.
According to the Constitution of Chile, all minerals are the property of the state. The Mining Code basically states that to explore for, or mine, any mineral, it is necessary to obtain concession rights from the state.
Such concession rights are granted by a fairly quick process, by the pertinent court of law, and, once incorporated, is a real property right or right in rem.
In view of the fact that some 98% of mining in Chile takes place in deserts or semi-desert areas, the development of a water resource is indispensable. Rights to water, whether surface, underground or marine, are governed by a legislated framework similar to that governing mining.
Until 31 December 2015, foreign investment was regulated principally by the Foreign Investment Statute (Decree Law No. 600) ("Statute") administered by the Foreign Investment Committee, and Chapter XIV of the Foreign Exchange Regulations of the Chilean Central Bank ("Regulations") administered by the Central Bank.
However, as of 1 January 2016, the Statute was replaced with the new foreign investment framework contained in Law No. 20,848 ("New Foreign Investment Law"). The New Foreign Investment Law, among other things, replaced the Foreign Investment Committee established by the Statute with an entity called the Foreign Investment Promoting Agency, which complies with OECD standards.
The New Foreign Investment Law did not modify or alter the Regulations issued by the Chilean Central Bank. In fact, foreign investments that seek to benefit from the New Foreign Investment Law need to be registered first under the Regulations.
Neither the Statute nor the Regulations impose any domestic ownership requirements (i.e., 100% foreign ownership is possible). However, the New Foreign Investment Law imposes a domestic requirement by which the foreign direct investment should, directly or indirectly, give control of at least 10% of voting shares or rights in the Chilean company receiving the foreign investment.
(a) Certificate of foreign investor under the foreign investment law
The New Foreign Investment Law states that the Foreign Investment Promoting Agency is the successor of the Foreign Investment Committee for all legal purposes. The foreign investor may request a certificate from the Foreign Investment Promoting Agency which confirms the status of authorized foreign investor.
The New Foreign Investment Law defines "foreign investor" as any individual or legal entity incorporated abroad, not residing or domiciled in Chile, which performs foreign direct investment in Chile.
The New Foreign Investment Law defines "foreign direct investment" as the transfer of foreign funds or assets to Chile, owned by the foreign investor or a related company, in an amount equal to or greater than USD 5 million, through the transfer of freely convertible foreign currency, contribution of physical goods, reinvestment of profits, capitalization of credits, provision of technology in different ways that can be capitalized, or credits associated with foreign investments of related companies. Further, it is considered foreign direct investment if a foreign investor transfers to Chile an amount equal to or greater than USD 5 million, and accordingly results in the acquisition of at least 10% of the voting shares or rights in the Chilean company recipient of the investment.
The foreign investor's application with the Foreign Investment Promoting Agency shall provide evidence of the materialization of the investment in Chile, and contain a detailed description of the investment, including its amount, purpose and nature of it.
If the foreign investor's application complies with all legal requirements, the Foreign Investment Promoting Agency shall issue the foreign investment certificate within 15 days from the date of the submission of the application.
The New Foreign Investment Law grants certain rights to foreign investors whose investments have been recognized by a certificate issued by the Foreign Investment Promoting Agency, including: (i) the right to remit abroad the transferred capital and net profits generated by the investment, upon fulfillment of the relevant tax obligations; (ii) access to the formal (banking) exchange market to settle or obtain foreign currency; and (iii) the right to not be discriminated against when competing with domestic investors. The New Foreign Investment Law grants the above rights without requiring authorization from any foreign investment regulatory entities.
Until 31 December 2015, under the Foreign Investment Statute (which was administered by a committee chaired by the Minister of Economy), foreign investment had to be reflected in foreign investment contracts signed by the foreign investor and the Chilean state. Foreign investment contracts executed on or before 31 December 2015 are still in full force and effect.
(b) Entry and type of capital contributions
Under the Statute, investments had to be introduced into Chile within a period of three years to obtain foreign investment approval in non-mining related projects (which could be extended to up to eight years for projects over USD 50 million).
Such term was eight years for mining projects (which could be extended to up to 12 years if exploration was required).
The New Foreign Investment Law eliminates such deadlines for the entry of the foreign investment.
(c) Repatriation of capital and profits under the foreign investment law
Under the Statute, foreign investment equity capital had to be remitted overseas one year after entering Chile but only from the proceeds of the sale or liquidation of all or part of the assets, business, shares or rights representing the investment. Capital comprising reinvested profits is not subject to the one-year restriction.
(d) The New Foreign Investment Law eliminates such restrictions on the repatriation of capital
The foreign investor may purchase the foreign currency required to repatriate capital and net profits from the local formal currency market once it has complied with all tax obligations in relation to such repatriation.
Under the New Foreign Investment Law, some important advantages that were guaranteed in the Foreign Investment Statute remain in force. One of these advantages is the prohibition of arbitrary discrimination towards foreign investors. Like the Statute, the Foreign Investment Law prohibits the discriminatory treatment of foreign investments, which are subject to the laws generally applicable to domestic investments. Laws are considered discriminatory if the foreign investor is excluded from all or a major part of a specific productive activity, or if he or she is refused access to a free trade zone or special regime despite complying with the conditions imposed on local investors.
(f) Restrictions on foreign investment
The Foreign Exchange Regulations currently in force maintain the policy of the Central Bank of Chile to liberalize foreign exchange transactions. In fact, only certain foreign exchange transactions are subject to restrictions, which may be classed under the following three categories:
Please note that under Article 49 of the Constitutional Organic Law of the Central Bank of Chile, the Central Bank is entitled to establish restrictions to foreign exchange operations (for example, mandatory repatriation of funds, mandatory conversion of foreign currency into Chilean pesos, and reserve requirements). Hence, pursuant to such article, the Central Bank of Chile may, at any time, re-establish these restrictions.
(g) Special tax treatments
The New Foreign Investment Law does not afford certain tax rights contained in the Statute, such as the VAT stability clause. The New Foreign Investment Law, however, establishes a new exemption for foreign investors in relation to VAT in the import of capital goods for an amount equal to or higher than USD 5 million for mining, industrials, forestry, energy, infrastructure, telecommunications, investigation and technological, medical or scientific projects, among others.
Further, the New Foreign Investment Law sets forth a more expeditious procedure to request VAT exemptions in the import of capital goods.
(h) Applying for a new mining tax stability
Between 1 January 2016 and 31 December 2019, a new regime applies for foreign investors seeking mining tax stability. In this regard, foreign investors with the intent to invest at least USD 50 million in a defined mining project are eligible.
Please note that this new mining tax stability regime will lock in the mining tax regime in force at the time of application (i.e., mining operators with annual mineral sales over the equivalent value of 50,000 metric tons of fine copper may lock in a progressive mining royalty tax of between 5% and 14% for 15 years).
(i) Investment under the Regulations
Foreign investments need to be registered under Chapter XIV of the Regulations. Chapter XIV of the Regulations applies to foreign loans, deposits, investments and capital contributions.
The Regulations essentially impose two requirements to be complied with in connection with foreign loans, deposits, investments and capital contributions: (a) they must be made through the Formal Exchange Market; and (b) the parties must inform the Central Bank of Chile by using the appropriate forms.
The Regulations do not require the foreign investor to enter into a contract with the State of Chile, nor do they limit or restrict the repatriation of the capital invested in Chile or of the profits obtained from such investment.
(j) Minimum investment which may be effected under the Regulations is USD 10,000
Even though no restriction to access the formal exchange market exists today, it is important to consider that registration under the Regulations does not guarantee a foreign investor the right of access to the Formal Exchange Market to repatriate its capital investment and remit profits.
Chile has recognized indigenous people and subscribed to OIT Agreement No. 169. The state recognizes that the indigenous people of Chile are the descendants of the human groups that existed in the country since pre-Columbian times. Preserving their own ethnic and cultural land is important as it is the main foundation of their existence and culture.
Moreover, political agreements to introduce amendments to environmental regulation, combined with recent case law, has raised the requirements for effective communication and notification to indigenous communities that may be affected by the development of a mining project.
The Environmental Act (EA) provides a framework for environmental policy in Chile and establishes the Environmental Impact Assessment System (EIAS) to determine whether the environmental impact of a given activity or project is consistent with this framework. Projects or activities that generate effects contemplated by the EA are subject to the EIAS. Parties planning to undertake activities subject to the EIAS must submit an Environmental Impact Assessment (EIA) or an Environmental Impact Statement (EIS).
In general, if it is anticipated that a project or activity will have any of the following environmental impacts, an EIA must be submitted and approved:
An EIA must provide well-founded background data for predicting, identifying and interpreting the environmental impact of a project or activity and describe the action(s) to be performed to prevent or minimize material adverse effects.
Unlike the EIA, an EIS is a simple description of the contemplated activity.
Under the EIAS, individual and community organizations directly affected are able to make filings and petitions in respect to an EIA or an EIS processes of incorporation. The EIA presupposes liability for environmental damage or the violation rests with the party or parties undertaking the project or activities. Environmental liabilities, which require repair of the damaged environment and civil liability, have a five-year statute of limitation.
Criminal liability for environmental damage exists only in very specific cases where the environmental damage is major and is a result of willful misconduct. However, currently being discussed in Congress is a bill that – among other matters – shall hold the board of directors and/or chief officers of a legal entity criminally accountable if responsible for malicious/wrongful contamination.
The right to explore is given by an exploration concession.
An exploration concession:
Exploration concessions are granted for an initial period of two years, at the end of which an extension of an additional two years is available subject to relinquishment of 50% of the area.
Fees for an exploration concession are approximately one-fifth of those for a mining concession.
Steps to acquire an exploration right
The application for an exploration concession is initiated with the presentation of a Pedimento to the civil judge in a courthouse located within the appropriate jurisdiction, including:
The judge makes a determination within 30 days of any court-authorized copy of the Pedimento being filed with the Custodian of Mines in the corresponding jurisdiction and should be published in the Official Mining Bulletin (Boletín Oficial de Minería).
At the same time, and within the 30-day period, a filing fee (tasa) must be paid, calculated based on the number of hectares being solicited and using the UTM published for the month in question, as well as utilizing a factor developed ad hoc
(Formulario 10) by the treasury of the republic.
Within 90 days and in the same legal (i.e. non-technical portion) application initiated previously, the applicant formally solicits the definitive granting of the concession.
The following documents should accompany the solicitation for the issuance of the concession (signed by a lawyer):
The judge then orders that the application be sent to Sernageomin for technical review of the documentation. Sernageomin has 60 days to complete the review. Once this review is completed, the judge allows 60 days for third parties to file possible complaints with the court of appeals.
At the conclusion of this 60-day period and assuming no complaints have been filed, the judge will issue the final approval of the application, thereby granting the concessions to the applicant.
Once the final approval or final ruling (Sentencia Constitutiva) has been issued by the pertinent court, the applicant must, within a period of 120 days:
Relationship with landowners
The title over a mining concession does not concede any rights over the surface land in Chile.
To develop exploration or exploitation activities, the owner of the mining concession has to purchase the surface land required for the project, execute agreements to obtain the use of the surface (lease) or obtain a legal mining easement. The latter may be incorporated by means of an agreement, or by court ruling.
Obligations of the holder
The mining easement includes determining appropriate compensation for damage caused to the landowner or any person who has an interest in that property.
There is no separate concept of holding tenements. It is possible to skip the exploration concession process and apply directly for an exploitation mining concession.
As long as the annual property tax payments have been made, the system provides the legal tools to maintain (and defend if necessary) the concession in perpetuity.
Rights and obligations
Refer to "Scope" (above).
Development and exploration are carried out under a mining concession.
Exploitation concession (Concesion de Explotacion)
An exploitation concession:
Transition from exploration/holding right to mining right
An exploration concession must be converted to an exploitation concession before it lapses, i.e. within two years or four in the event it was extended.
Steps to acquire a right
The application (Manifestacion) must indicate:
In addition, if the application is to convert a previously existing exploration concession, the mining concession should be located in the same area as previously and occupy the same area (or less). In this manner, the application will have as its initial starting date the pre-existing date of application for the prior exploration concession.
The judge issues a legalized copy of the Manifestacion which has been approved by court within a period of 30 days after receiving the application. This document is registered with the Custodian of Mines located in the appropriate jurisdiction and must also be published in its entirety in the Official Mining Bulletin, which is also located in the appropriate jurisdiction. The fee is calculated based on the number of hectares being solicited and using the UTM published for the month in question as well as utilizing Formulario 10 by the treasury of the republic.
Subsequent steps include:
Relationship with landowners
Development and exploration are carried out under a mining concession.
The title over a mining concession does not concede any rights over the surface land in Chile. To develop exploration or exploitation activities, the owner of the mining concession has to purchase the surface land required for the project, execute agreements to obtain the use of the surface (lease) or obtain a legal mining easement. As already stated, said legal mining easement may be incorporated by means of an agreement, or by court ruling.
The mining easement includes appropriate compensation for the injury caused to the landowner or any person who has an interest in that property.
Obligations of the holder
Notable obligations include the obligation to employ 85% Chilean nationals or residents.
Foreign ownership restrictions and government participation
There are no restrictions on foreign acquisition of mining concessions, except where the mining concession is located near the Chilean border. Then it may unfold into a national security issue.
Assignment of an interest in tenements does not require approval of the authority. The assignment of the rights arising from tenements are governed by the civil rules of Chilean immovable assets or right in rem, therefore it must be registered before the Custodian of Mines.
The Chilean Mining Code allows the granting of security over mining tenement and over the minerals extracted from it. The security may be registered before the Custodian of Mines.
Mining royalty tax (Impuesto Específico a la Actividad Minera) is levied on the annual "operational income" derived from a metal mining activity obtained by a mining operator. This tax applies as a function of the size and profitability of the mining operator. Law No. 20.469 of 2010 overhauled the mining royalty tax regime.
Large mining operators with a mining operational margin of 85% or more will be subject to a 14% mining royalty tax rate. Moreover, operators with a mining operational margin of 35% or less will be subject to a 5% mining royalty tax rate. Lastly, those with a margin of between 35% and 85% will be subject to marginal tax rates between 5 and 14%.
The "operational income" of the mining activity is calculated following certain rules established by law (add-backs or deductions from the company's corporate taxable income, as provided by law).
A mining operator refers to all individuals or legal entities that extract mineral substances and sell them in any state of production.
Law No. 20.235 creates the Public Registry of Qualified Persons in Resources and Mining Reserves to register natural persons who meet the requirements set forth therein, to issue technical or public reports certification in relation to the characteristics of a particular mine site. The requirements are to have a professional degree related to the mining industry, and have work experience of at least five years.
Registration will be mandatory if the technical report is intended to raise capital or debt in the capital markets of the country.
New mining site closure regulations
Pursuant to Law No. 20.551, upon the closure of any given mining site, there are several obligation for the sponsors of the project to comply with (financial, environmental, regulatory, etc.).
Currently there is a bill of law (fairly advanced in the legislative process) which shall reform said Law No. 20.551.
Accordingly, the reform intends to un-restrain financial resources that would otherwise be tied up in a closure of site guarantee, allowing mining companies to further invest into their projects. Furthermore, the reform will allow projects that have stagnated and are currently unable to continue their EISs approved due to lack of funding, to make substantive progress towards exploitation of their projects.
In addition, the reform mandates that prior authorization be sought from the National Service of Geology and Mining (Sernageomin) to renew, substitute or replace financial instruments, either for increase or decrease of securities or conditions or when executing a transfer to another custodian.
New Electronic Procedural Law
Both exploration and exploitation licenses, as being incorporated by means of a process before a court of Law, are – since 2016 – subject to the Electronic Procedural Law (No. 20.886).
In such sense, incorporation of mining property has become friendlier for mining venturers, considering that there is substantially more control and efficiency upon said incorporation processes.
For example, most of documentation may be submitted to court digitally, therefore discarding the necessity to forward large amount of records to distant courts in northern Chile.
Usual structure of venture
Under the Mining Code, the registration of a mining concession in two or more names creates a Legal Mining Company (LMC) by operation of law. LMCs have a formal legal structure which often makes them unsuitable for a structure that needs to be tailor made.
More commonly found are Chilean Contractual Mining Companies (SCMs), which are used for exploration or exploitation and allow more flexibility in terms of structuring.
Other structures available are limited liability partnerships (Sociedad de Responsabilidad Limitada), corporations (Sociedad Anonimas) and stock companies (Sociedad por Acciones (SPAs)).
Protection for foreign investors
The Foreign Investment Statute guarantees that restrictions applicable to the remittance of capital and profits will not be less favorable than those applying the acquisition of foreign currency to pay for imports.
The Foreign Investment Statute prohibits the discriminatory treatment of foreign investments, which are subject to laws generally applicable to domestic investments. Laws are deemed discriminatory if the foreign investor is excluded from all or a major part of a specific productive activity, or if he or she is refused access to a free trade zone or special regime despite complying with the conditions imposed on local investors. However, the Statute provides that the restriction of foreign investors' access to local credit will not be considered discriminatory. No general legislative restriction of this type currently exists, and foreign investment contracts which allow maintenance of offshore accounts normally do not limit local financing (see "Exchange Controls - Formal and Informal Currency Markets").
The Foreign Investment Statute sets out a procedure for challenging discriminatory conduct through the Foreign Investment Committee and the courts.
With regard to tax, the Foreign Investment Statute allows foreign investors to choose to be subject to an overall income tax rate of 42%, fixed for 10 years (rather than the normal 35% rate which may change).
In the case of investments exceeding USD 50 million in industrial or extractive projects, such as mining, investors may also be entitled to:
Exploration for and exploitation of lithium and, with some limited exceptions, gaseous and liquid hydrocarbons, is reserved to the state of Chile. However, private investors may enter into "risk contracts" with the government for the exploration or exploitation of specific areas, giving the investor a right to participate in exploration and exploitation income.
The Chilean Government also has a first option to purchase minerals containing uranium or thorium.