analysis of tax regimes

ANALYSIS OF TAX REGIMES ANNEX

AUGUST 28, 2020

Report: Final draft

For the International Seabed Authority By RMG Consulting

Annex: Analysis of Tax Regimes – ISA RMG Consulting

Final draft 2

Table of Contents

1 Annex ......................................................................................................................... 8

2 Australia (Queensland) ............................................................................................... 9

2.1 Royalties ....................................................................................................................... 9 2.1.1 Threshold exemption for relevant minerals ................................................................................... 9 2.1.2 Deductions for mining royalty ........................................................................................................ 9 2.1.3 Processing discounts ..................................................................................................................... 10

2.2 Mineral taxes other than royalties ................................................................................ 10

2.3 Administrative fees ...................................................................................................... 10 2.3.1 Exploration .................................................................................................................................... 10 2.3.2 Mineral Development License fees............................................................................................... 10 2.3.3 Mining lease .................................................................................................................................. 11

2.4 Environmental levies .................................................................................................... 12

2.5 Corporate income tax ................................................................................................... 12 2.5.1 Tax losses ...................................................................................................................................... 12

2.6 Deductible items (royalties, environmental and administrative fees) ............................ 12 2.6.1 Depreciation ................................................................................................................................. 13 2.6.2 Instant asset write-off ................................................................................................................... 13 2.6.3 Mining exploration ....................................................................................................................... 13 2.6.4 Start-up expenses ......................................................................................................................... 13

2.7 Other taxes ................................................................................................................... 13 2.7.1 Land tax ......................................................................................................................................... 13

2.8 References – Australia (Queensland) ............................................................................ 15

3 Brazil (Minas Gerais) ................................................................................................. 16

3.1 Royalties ...................................................................................................................... 16 3.1.1 Landowner Royalty ....................................................................................................................... 16


3.3 Administrative fees ...................................................................................................... 16

3.4 Environmental levies .................................................................................................... 16 3.4.1 Rehabilitation funds ...................................................................................................................... 17


3.6 Deductible items (royalties, environmental and administrative fees) ............................ 18 3.6.1 Depreciation ................................................................................................................................. 18

3.7 Other taxes and incentives ........................................................................................... 18

3.8 References – Brazil (Minas Gerais) ................................................................................ 19

4 Canada (Ontario) ...................................................................................................... 20

4.1 Royalties ...................................................................................................................... 20



4.4 Corporate income tax ................................................................................................... 21


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4.5 Deductible items .......................................................................................................... 21

4.6 Deductible items (royalties, environmental and administrative fees) ............................ 21

4.7 References – Canada (Ontario) ..................................................................................... 22

5 Chile .......................................................................................................................... 23

5.1 Royalties ...................................................................................................................... 23





5.6 Deductible items (royalties, environmental and administrative fees) ............................ 24 5.6.1 Depreciation ................................................................................................................................. 24 5.6.2 Start-up expenses ......................................................................................................................... 25

5.7 References – Chile ........................................................................................................ 26

6 China ........................................................................................................................ 27

6.1 Royalties ...................................................................................................................... 27




6.5 Corporate income tax ................................................................................................... 28 6.5.1 Restrictions of use of tax losses .................................................................................................... 28

6.6 Deductible items (royalties, environmental and administrative fees) ............................ 28 6.6.1 Depreciation ................................................................................................................................. 28 6.6.2 Accelerated depreciation .............................................................................................................. 29 6.6.3 Start-up expenses ......................................................................................................................... 29

6.7 Other taxes ................................................................................................................... 29 6.7.1 Land use tax .................................................................................................................................. 29 6.7.2 City maintenance and construction tax ........................................................................................ 30

6.8 Special arrangements for the mining industry ............................................................... 30

6.9 References – China ....................................................................................................... 31

7 Democratic Republic of the Congo (DRC) ................................................................... 32

7.1 Royalties ...................................................................................................................... 32





7.6 Deductible items (royalties, environmental and administrative fees) ............................ 33 7.6.1 Depreciation ................................................................................................................................. 33 7.6.2 Start-up expenses ......................................................................................................................... 33



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7.8 References – Democratic Republic of the Congo (DRC) ................................................. 34

8 Indonesia .................................................................................................................. 35

8.1 Royalties ...................................................................................................................... 35





8.6 Deductible items (royalties, environmental and administrative fees). ........................... 36 8.6.1 Tax holidays .................................................................................................................................. 36 8.6.2 Tax allowances .............................................................................................................................. 37 8.6.3 Tax incentives ............................................................................................................................... 37 8.6.4 Depreciation ................................................................................................................................. 37

8.7 Other taxes ................................................................................................................... 37 8.7.1 Export ban ..................................................................................................................................... 38

8.8 References – Indonesia ................................................................................................. 39

9 Jamaica ..................................................................................................................... 40

9.1 Royalties ...................................................................................................................... 40




9.5 Corporate income tax ................................................................................................... 41 9.5.1 Restrictions of use of tax losses .................................................................................................... 41

9.6 Deductible items (royalties, environmental and administrative fees) ............................ 41 9.6.1 Depreciation ................................................................................................................................. 41


9.8 References – Jamaica .................................................................................................... 43

10 Japan ........................................................................................................................ 44

10.1 Royalties ...................................................................................................................... 44


10.3 Administrative fees ...................................................................................................... 44 10.3.1 Exploration ............................................................................................................................... 44 10.3.2 Mining area tax ........................................................................................................................ 44


10.5 Corporate Income Tax .................................................................................................. 45

10.6 Deductible items (royalties, environmental and administrative fees) ............................ 45 10.6.1 Depreciation ............................................................................................................................. 45 10.6.2 Start-up expenses .................................................................................................................... 46

10.7 References – Japan ....................................................................................................... 47

11 Papua New Guinea ................................................................................................... 48

11.1 Deep-sea mining projects ............................................................................................. 48


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11.2 Royalties ...................................................................................................................... 48



11.5 Environmental levies .................................................................................................... 49 11.5.1 CEPA Administration / Recurrent Fees .................................................................................... 49 11.5.2 CEPA Operational / Technical Fees .......................................................................................... 50


11.7 Deductible items (royalties, environmental and administrative fees) ............................ 50

11.8 References – Papua New Guinea .................................................................................. 51

12 Peru .......................................................................................................................... 52

12.1 Royalties ...................................................................................................................... 52



12.4 Deductible items (royalties, environmental and administrative fees) ............................ 54 12.4.1 Depreciation ............................................................................................................................. 54

12.5 References – Peru ......................................................................................................... 55

13 Philippines ................................................................................................................ 56

13.1 Royalties ...................................................................................................................... 57


13.3 Environmental levies .................................................................................................... 57 13.3.1 Social Development Management Programmes ..................................................................... 58


13.5 Other taxes ................................................................................................................... 58 13.5.1 Incentives ................................................................................................................................. 59

13.6 References – Philippines ............................................................................................... 60

14 Poland ...................................................................................................................... 61

14.1 Royalties ...................................................................................................................... 61 14.1.1 The Mining Concession/usufruct Fee ....................................................................................... 61 14.1.2 Mining Exploitation Fee ........................................................................................................... 62




14.5 Corporate income tax ................................................................................................... 64 14.5.1 Restrictions of use of tax losses ............................................................................................... 64


14.7 Other taxes ................................................................................................................... 65

14.8 References – Poland ..................................................................................................... 67

15 Russian Federation ................................................................................................... 68


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15.1 Royalties ...................................................................................................................... 68




15.5 Corporate income tax ................................................................................................... 68 15.5.1 Restrictions of use of tax losses ............................................................................................... 69


15.7 Other taxes ................................................................................................................... 69 15.7.1 Export duties ............................................................................................................................ 69

15.8 References – Russian Federation .................................................................................. 70

16 South Africa .............................................................................................................. 71

16.1 Royalties ...................................................................................................................... 71 16.1.1 Refined ..................................................................................................................................... 71 16.1.2 Unrefined ................................................................................................................................. 71

16.2 Administrative Fees ...................................................................................................... 72



16.5 Deductible items (royalties, environmental and administrative fees) ............................ 73 16.5.1 Depreciation ............................................................................................................................. 73 16.5.2 Start-up expenses .................................................................................................................... 73

16.6 References – South Africa ............................................................................................. 75


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Table of tables Table 1. Australian processing discounts (%). ....................................................................................... 10 Table 2. Main features of exploration permits in Queensland (Australia). .......................................... 10 Table 3. Main features of Mineral Development License in Queensland (Australia). .......................... 11 Table 4. Main features of mining leases in Queensland (Australia). .................................................... 11 Table 5. Australia, total taxable value of land (AUD). ........................................................................... 14 Table 6. China corporate income tax rates by industry (%). ................................................................. 28 Table 7. China, examples of useful lives of assets (years). ................................................................... 29 Table 8. DRC, examples of depreciation rates (%). ............................................................................... 33 Table 9. Indonesia, tax holiday per investment (IDR & USD). ............................................................... 37 Table 10. Jamaican administrative fees (JMD). ..................................................................................... 40 Table 11. Japanese useful lives of assets (years). ................................................................................. 46 Table 12. Papua New Guinea administrative fees (PGK). ..................................................................... 49 Table 13. Peru, Modified Mining Royalty rates (%). ............................................................................. 52 Table 14. Peru, Special Mining Tax rates (%). ....................................................................................... 53 Table 15. Peru, Special Mining Burden rates (%). ................................................................................. 54 Table 16. Polish metal mining royalty rates (PLN & USD). .................................................................... 62 Table 17. Selected depreciation rates in Poland used for CIT purposes (%). ....................................... 65 Table 18. Russian export custom duty rates for various minerals (% & EUR) ...................................... 69 Table 19. South Africa, application fees (ZAR). ..................................................................................... 72 Table 20. South Africa, prospecting fees (ZAR). .................................................................................... 72 Table 21. South Africa, fees for renewed prospecting right or exploration right (ZAR). ...................... 72


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1 Annex

1. This annex presents all background material and data which has been collected for the 15 countries included in the study Analysis of Tax Regimes – comparative analysis of tax regimes of land-based mining in 15 countries.

• Australia (Queensland)

• Brazil (Minas Gerais)

• Canada (Ontario)

• China

• Chile

• Democratic Republic of the Congo

• Indonesia

• Jamaica

• Japan

• Papua New Guinea

• Peru

• The Philippines

• Poland

• Russian Federation

• South Africa

2. The availability of relevant material has naturally varied from country to country but as far as possible, within the timeframe given and the resources at hand, we have tried to present similar material for all countries. For some countries more detailed material has been easily available and, in these cases, we have chosen to include it in this Annex. For acronyms please see the main report.

3. The material is up-dated as of the first half of 2020.

4. The material is structured in the same way as in the main report. Countries are listed in alphabetical order and for each country the following main headings, all with suitable sub-headings, are introduced:

• Royalties

• Other mineral taxes

• Administrative fees divided into exploration and exploitation fees

• Environmental levies

• Corporate Income Taxes with survey of rules for deductions, depreciation, losses etc.

• Other taxes affecting the mining industry

• References with legislation, case law examples and other sources


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2 Australia (Queensland)

6. The main piece of legislation ruling the mining industry is the Mineral Resources Act, 1989 and the Mineral Resources Regulations, 2013.

7. Australian dollar (AUD) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = AUD 1.4.

2.1 Royalties

8. Depending on the mineral, the royalty rate payable under the Mineral Resources Regulation 2013 is either a percentage of the value of the mineral or a flat rate per tonne. The value of a mineral (other than coal seam gas) is calculated by determining the gross value of the mineral and deducting certain permitted expenses. Royalty rate for base and precious metals, which includes cobalt, copper, gold, lead, nickel, silver and zinc, varies between 2.50% and 5.00% (varying in 0.02% increments) of value, depending on average metal prices.

9. Royalty rates for manganese, molybdenum, rare earths, tantalum and tungsten is 2.7% of value. Processing discount applies (except rare earths). Royalty-free threshold applies.1

2.1.1 Threshold exemption for relevant minerals

10. No royalty is payable on the first AUD 100,000 of the combined value of a relevant mineral, mined under a mining operation, that is sold, disposed of or used in a financial year. Relevant mineral includes cobalt, copper, manganese and nickel.2

2.1.2 Deductions for mining royalty

11. Where royalty is calculated as a percentage of a mineral's value, some expenses can be deducted from the gross value. These deductions include:

• Late dispatch costs (coal only). o Cost relating to the late dispatch of coal from a port.

• Ocean freight and insurance. o Freight and or insurance costs relating to the transport, by water, of the

mineral (or oil processed from the oil shale) to a port outside Queensland.

• Loss of metal content. o Certain metals only. An amount to be subtracted from the gross value to

allow for the loss of metal content in the processing of the mineral.

• Other approved deductions. o The amount of any cost that we decide is a type of cost that should be

subtracted from the gross value.

1 For more royalties and details please see: https://www.business.qld.gov.au/industries/mining-energy-water/resources/minerals-coal/authorities-permits/payments/royalties/calculating/rates 2 For a detailed list of relevant minerals please see https://www.business.qld.gov.au/industries/mining-energy-water/resources/minerals-coal/authorities-permits/payments/royalties/calculating/royalty-free-threshold

https://www.business.qld.gov.au/industries/mining-energy-water/resources/minerals-coal/authorities-permits/payments/royalties/calculating/rates

https://www.business.qld.gov.au/industries/mining-energy-water/resources/minerals-coal/authorities-permits/payments/royalties/calculating/rates

https://www.business.qld.gov.au/industries/mining-energy-water/resources/minerals-coal/authorities-permits/payments/royalties/calculating/royalty-free-threshold




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2.1.3 Processing discounts

12. A royalty discount applies to base metals processed within Queensland to a particular metal content. Processing includes leaching, refining, smelting and solvent extraction electro winning (SX-EW). The discount is applied to the royalty payable.

Table 1. Australian processing discounts (%).

Mineral Minimum metal content

Discount on processed mineral

Cobalt 50% 20%

Copper, iron ore 95% 20%

Lead 95% 25%

Tantalum, zinc 95% 35%

Manganese 75% 35%

Molybdenum 56% 20%

Nickel 70% 20%

Tungsten 89% 20% Source: Queensland government, RMG Consulting (2020).

2.2 Mineral taxes other than royalties

13. There are no mineral taxes other than royalties in Queensland.

2.3 Administrative fees

2.3.1 Exploration

14. Within Queensland an administrative fee related to exploration is levied as a rent of AUD 164.9 for each sub block (roughly 3 km2) and an application fee of AUD 1,000.

Table 2. Main features of exploration permits in Queensland (Australia).

Feature Exploration permit minerals (EPM)

Specified mineral Any mineral other than coal

Duration Up to 5 years

Size* 100 sub-blocks

Renewable Yes

Rent Per sub-block: AUD 164.90 (excl. GST)

Application fee Max. 4 sub-blocks in restricted areas: AUD 334.80 (excl. GST). Other: AUD 1,000.00 (excl. GST)

*Other size restrictions may apply in restricted areas or due to specific legislative requirements. Note: A sub-block is approximately 3 square km. Source: Queensland government, RMG Consulting (2020).

2.3.2 Mineral Development License fees

15. A mineral development license (MDL) is issued so that a company can evaluate the development potential of the defined resource. A mineral development license can be


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granted if the company hold an exploration permit where there is a significant mineral occurrence of possible economic potential.

16. The mineral development license allows the conduct of geoscientific programs (e.g. drilling, seismic surveys), mining feasibility studies, metallurgical testing and marketing, and environmental, engineering and design studies.

Table 3. Main features of Mineral Development License in Queensland (Australia).

Feature Description

Specified mineral Any mineral

Prerequisite authority Exploration permit over the area

Duration Up to 5 years

Size No size restriction

Renewable Yes

Rent Yes

Application fee Coal: AUD 2,678 Other: AUD 2,678

Source: Queensland government, RMG Consulting (2020).

2.3.3 Mining lease

17. A mining lease allows to machine-mine for specified minerals and conduct other activities associated with mining or promoting the activity of mining. Mining leases cannot be granted or renewed unless compensation for landholders has been settled, either through a compensation agreement or Land Court determination.

Table 4. Main features of mining leases in Queensland (Australia).

Feature Description

Specified mineral Any mineral

Prerequisite authority Prospecting permit, exploration permit or mineral development licence (for coal mining lease)

Duration Depends on identified reserves and projected mine life

Size No size restriction, except in restricted areas.

Renewable Yes

Rent Variable rate: AUD 63.70 (excl. GST) per hectare A fixed rate may be determined by special agreement

Application fee

Coal: AUD 4,687.00 (excl. GST) Corundum, gemstones and other precious stones: AUD 835.00 (excl. GST) Eluvial, colluvial, alluvial gold or tin: AUD 835.00 (excl. GST) Other: AUD 1,671.00 (excl. GST)



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2.4 Environmental levies

18. In Queensland, it is required to apply for an environmental authority (EA) to perform an environmentally relevant activity (ERA). environmentally relevant activities are industrial or intensive agricultural activities with the potential to release contaminants into the environment. There are 2 categories of environmentally relevant activities – resource activities and prescribed environmentally relevant activities.

19. The annual fee for each ERA is a standard minimum fee of AUD 689 where the risk is limited. The annual fee where there is an elevated risk, is the Aggregated Environmental Score (AES) multiplied by a fee unit of, for a resource activity with an AES of 120 or more, AUD 829. Annual fees for environmentally relevant activities are for example:

• mining copper ore 179,064 AUD/a

• mining nickel ore 132,640 AUD/a; and

• Mining metal ore, other 130,982 AUD/a.

Further costs may apply in relation to the activity, for example processing of ore.3

2.5 Corporate income tax

20. Corporate income tax (CIT) is 27.5% for base rate entities and 30% for other companies. A base rate entity is a company that both:

• has an aggregated turnover less than the aggregated turnover threshold – which is AUD 25 million for the 2017–18 income year; and

• 80% or less of their assessable income is base rate entity passive income – this replaces the requirement to be carrying on a business.

Base rate entity passive income is:

• corporate distributions and franking credits on these distributions;

• royalties and rent;

• interest income (some exceptions apply);

• gains on qualifying securities;

• a net capital gain;

• an amount included in the assessable income of a partner in a partnership or a beneficiary of a trust, to the extent it is traceable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.

2.5.1 Tax losses

21. Losses may be carried forward indefinitely. Losses may not be carried back.

2.6 Deductible items (royalties, environmental and administrative fees)

22. Where royalty is calculated as a percentage of a mineral's value, some expenses can be deducted from the gross value. Deductions must be claimed on a GST-exclusive basis.

3 For more information https://environment.des.qld.gov.au/__data/assets/pdf_file/0025/88702/era-is-summary-annual-fees.pdf

https://environment.des.qld.gov.au/__data/assets/pdf_file/0025/88702/era-is-summary-annual-fees.pdf



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2.6.1 Depreciation

23. The general depreciation rules set the amounts that can be claimed, based on the asset's effective life. The effective life of mining equipment is generally set between 15-30 years.4

2.6.2 Instant asset write-off

24. Under instant asset write-off eligible businesses can:

• immediately write off the cost of each asset that costs less than the threshold; and

• claim a tax deduction for the business portion of the purchase cost in the year the asset is first used or installed ready for use.

Instant asset write-off can be used for both new and second-hand assets. Some exclusions and limits apply.

2.6.3 Mining exploration

25. The full cost of depreciating assets used for exploration or prospecting for minerals (including petroleum) or quarry materials may be deductible in the year in which a company start to use them.

26. An immediate deduction may also be available for capital expenditure that doesn't form part of the cost of a depreciating asset but is incurred on:

• exploration or prospecting for minerals (including petroleum) or quarry materials; and

• rehabilitation of mining or quarrying sites.

2.6.4 Start-up expenses

27. Certain start-up expenses, such as costs of company incorporation or costs to raise equity, may qualify for a five-year straight-line write-off to the extent that it is capital expenditure in relation to a current or prospective business that is, or is proposed to be, carried on for a taxable purpose. An immediate deduction is available to a small business entity for a range of professional expenses (e.g. legal and accounting advice) and taxes or charges to an Australian government agency associated with starting a new business.

2.7 Other taxes

2.7.1 Land tax

28. A company is liable for land tax if the total taxable value of owned land, comprising land solely owned and their share in land owned jointly with others, is AUD 350,000 or more. The rates below apply to the total taxable value of land owned at midnight 30 June by a company or trustee.

4 A Detailed list of depreciation for the mining industry can be accessed here: https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20195%2FNAT%2FATO%2F00005

https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20195%2FNAT%2FATO%2F00005


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Table 5. Australia, total taxable value of land (AUD).

Total taxable value (AUD) Rate of tax

0–349,999 AUD 0

350,000–2,249,999 AUD 1,450 plus 1.7 cents for each AUD 1 more than AUD 350,000

2,250,000–4,999,999 AUD 33,750 plus 1.5 cents for each AUD 1 more than AUD 2,250,000

5,000,000–9,999,999 AUD 75,000 plus 2.25 cents for each AUD 1 more than AUD 5,000,000

10,000,000 or more AUD 187,500 plus 2.75 cents for each AUD 1 more than AUD 10,000,000



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2.8 References – Australia (Queensland)

Mineral resources Act 1989, Mineral Resources Regulation 2013: https://www.legislation.qld.gov.au/view/pdf/inforce/current/sl-2013-0170 accessed 1 June 2020 Australian Government, Australian Taxation Office, Company tax rates, https://www.ato.gov.au/Rates/Company-tax/, accessed 1 June 2020 Queensland Government, Business Queensland, https://www.business.qld.gov.au, accessed 1 June 2020 Queensland Government (2020) Environmentally relevant activities Summary of fees for environmentally relevant activities (ERAs) https://environment.des.qld.gov.au/__data/assets/pdf_file/0025/88702/era-is-summary-annual-fees.pdf, accessed 1 June 2020 Guj, Pietro (2012) Mineral royalties and other mining-specific taxes, International Mining for Development Centre. http://im4dc.org/wp-content/uploads/2012a/01/UWA_1698_Paper-01_-Mineral-royalties-other-mining-specific-taxes.pdf, accessed 1 June 2020 Guj, Pietro (2015) Outline of the Australian Mining Taxation Regime. https://www.imf.org/external/np/seminars/eng/2015/natrestax/pdf/guj.pdf, accessed 1 June 2020 PwC (2019) Worldwide Tax Summaries – Australia. https://taxsummaries.pwc.com/australia, accessed 12 May 2020.

https://www.legislation.qld.gov.au/view/pdf/inforce/current/sl-2013-0170

https://www.ato.gov.au/Rates/Company-tax/

https://www.business.qld.gov.au/



http://im4dc.org/wp-content/uploads/2012a/01/UWA_1698_Paper-01_-Mineral-royalties-other-mining-specific-taxes.pdf

http://im4dc.org/wp-content/uploads/2012a/01/UWA_1698_Paper-01_-Mineral-royalties-other-mining-specific-taxes.pdf

https://www.imf.org/external/np/seminars/eng/2015/natrestax/pdf/guj.pdf

https://taxsummaries.pwc.com/australia


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3 Brazil (Minas Gerais)

29. The main piece of legislation is the Mining code (Decreto Federal no 227 1967). There have been long political discussions starting in 2011 to modernize this legislation but so far no new legislation has been promulgated.

30. Brazilian real (BRL) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = BRL 5.5.

3.1 Royalties

31. Financial Compensation For Exploiting Mineral Resources (CFEM) was established by the 1988 Federal Constitution and regulated by law nº 8.876/94. Its calculation base is the net revenue from the sale of the mineral product, understood as the total of sales less sale tax (Brazilian equivalent to Value Added Tax) according to the mineral product.

32. Royalty rates in Brazil are: cobalt (2%); copper (2%); manganese (3%); nickel (2%).

3.1.1 Landowner Royalty

33. A royalty must also be paid to the landowner if the surface rights does not belong to the mining title holder. This royalty amounts to 50% of the CFEM.


34. There are no mineral taxes other than royalties in Minas Gerais.


35. Annual Tax per Hectare (TAH) is to be paid by the holder of an exploration rights at the federal level. The amount to be paid is BRL 3.55 per hectare during the original (first) period of the exploration rights. During the eventual extension period the amount is BRL 5.33 per hectare.5

36. Annual Tax to control and monitoring the mining activity (TRFM – Taxa de controle, acompanhamento e fiscalização das atividade de pesquisa, lavra, exploração e aproveitamento de recursos minerários). This tax is imposed by some states, including Minas Gerais (Decreto no. 45.936/12).6 The fee is 40% of UFEMG (fiscal unit of the state of Minas Gerais) to be paid by tonne of ore extract. For 2020, the value of the fee is BRL 1.48/t of ore.


37. The federal government (IBAMA) has established the Tax for Environmental Control and Surveillance (TCFA). It addresses potential polluters activities as well those activities that use natural resources. This tax must be paid by all business site each quarter. The value

5 For more information on the fee structure : https://blog.jazida.com/resolucao-anm-23-atualizacao-valores-emolumentos-tah-multas/ 6 For more information : http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/taxas/tfrm.html

https://blog.jazida.com/resolucao-anm-23-atualizacao-valores-emolumentos-tah-multas/


http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/taxas/tfrm.html


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to be paid depends of the size of the business site as well as the kind of activity in terms of risk.

38. During 2019 the value of the TCFA was established at the interval: BRL 129 for micro business until BRL 4,486.67 for very large ones. This is to be paid every quarter and there is no deduction.7

39. Minas Gerais state has established the Tax for Environmental Control and Surveillance of the State of Minas Gerais (TFAMG). TFAMG is similar to TCFA. The tax must be paid by each business site each quarter. The value depends of the size of the business site as well as the kind of activity in terms of risk. The values are limited to 60% of the values paid to IBAMA.

40. During 2019 the value of the TFAMG was established at the interval: BRL 77.29 for micro business until BRL 3,478.04 for very large ones. This is to be paid every quarter and there is no deduction.8

3.4.1 Rehabilitation funds

41. In relation to mining closure, the fundamental legal obligation is the rehabilitation of the areas impacted by the mine activity according to the Plano de Recuperação de Áreas Degradadas – PRAD (Plan for Recovery of Degraded Areas) in accordance with the Decree nº 97.632, dated April 10th of 1989. This Decree established the requirement to present the PRAD when submitting the reports relative to the EIA (Environmental Impact Assessment) and the RIMA (Environmental Impact Report). As such, PRAD must be integrated to EIA and RIMA and be approved previously to the start of the mine. In this sense, PRAD has been understood as the mine closure plan. Along the production life of the mine, PRAD can be revised and/or changed to incorporate new issues in the mines’ development.

42. In spite of this legal framework, Brazilian environmental legal framework does not have in place an environmental trust fund or bond surety initiative.


43. The corporate income tax is levied at 15% on the book taxable income assessed at the end of each tax period. A surtax will apply at 10% on any portion of the annual book taxable income above BRL 240,000. Book taxable income stands for the company’s net book income adjusted by the statutory additions, exclusions and deductions. In practice, the book taxable income is determined by deducting a company’s costs and expenses from its gross income. In practice the top rate approaches 25%.

44. However, it deserves to be registered that Brazilian companies are also subject to the Social Contribution on Net Profits (Contribuição Social sobre o Lucro Líquido – CSLL). This contribution is levied at 9% and to be paid after the Income tax so it is added to the CIT. At the end of the day, in terms of direct tax incidence the top rate is around 34%.

7 See https://www.gov.br/ibama/pt-br/acesso-a-informacao/perguntas-frequentes/tcfa 8 See http://www.fazenda.mg.gov.br/empresas/taxas/tfamg/apresenta.html

https://www.gov.br/ibama/pt-br/acesso-a-informacao/perguntas-frequentes/tcfa

http://www.fazenda.mg.gov.br/empresas/taxas/tfamg/apresenta.html


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3.5.1 Tax losses

45. There are no restrictions in time related to the use of tax losses. The company can use all the accumulated tax loss of previous years by carrying over the negative tax bases reported in past periods. However, the amount that can be used per year is limited to 30% of the annual taxable income.


46. Royalties, environmental levies and administrative fees are all deductible and can be used to calculate book taxable income. In the specific case of mining, in addition to depreciation, amortization of pre-operating expenses, any expenses incurred during the exploration stage and when expanding the reserves of the mine can be deducted as working expenses.

47. On the other hand, a depletion amount (% basis) calculated over the volume of annual production in relation to the mine’s known reserves, having as base of calculus the cost of acquiring or obtaining the mining rights or, if the company is not the holder, the duration of the mine’s leasing.

3.6.1 Depreciation

48. The rates of depreciation are linear and fixed according the economic life of the asset under consideration. Depending of the asset and the number of hours (8; 16; 24) of operation the company can duplicate or triplicate the rate to use. The usual rates are:

• Buildings: 4%

• Plant & Installations: 10%

• Machinery & Equipment: 10%

• Vehicles: 20%

• Off road Vehicles: 25%

3.7 Other taxes and incentives

49. There are no tax stabilisation agreements or contracts in Brazil.

50. Brazil doesn´t tax mineral exports. The Kandir Law (No. 87/1996) exempted minerals from ICMS (state tax like VAT).

51. There are regional related incentives. The objective is the promotion of the economic development of certain regions of the country. The incentives cover the states of Amazonas, Amapa, Acre, Roraima, Rondonia, Pará, Tocantins Maranhão, Piaui, Ceara, Rio Grande do Norte, Paraiba, Pernambuco, Alagoas, Sergipe, Bahia and the northern region of Minas Gerais and Mato Grosso. They are administered by the Northeast Development Agency (SUDENE) and the Amazon Development Agency (SUDAM). These incentives offer income tax reduction or exemption. The income tax reduced (saved) constitutes a capital reserve to be applied in the project or other projects located at the area. It was created by the Decree 756/1969, 08/11/1969. The Law 13.799/2019 has extended the duration of the incentive programme until exercise 2023.


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3.8 References – Brazil (Minas Gerais)

DECRETO Nº 44.045, DE 13 DE JUNHO DE 2005. http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/decretos/d44045_2005.pdf, accessed 28 August 2020. IBAMA (n.a.) Taxa de Controle e Fiscalização Ambiental (TCFA) https://www.gov.br/ibama/pt-br/acesso-a-informacao/perguntas-frequentes/tcfa, accessed 28 August 2020. Secretaria de Estado de Fazenda (n.a.) Taxa de Controle, Monitoramento e Fiscalização das Atividades de Pesquisa, Lavra, Exploração e Aproveitamento de Recursos Minerários http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/taxas/tfrm.html, accessed 1 June 2020 Secretario de Estado de Fazenda (n.a.) UFEMG – unidade fiscal do estado de Minas Gerais http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/resolucoes/ufemg.html, accessed 28 August 2020. Jazida (2020) Resolução ANM N° 23, de 30 de Janeiro de 2020 – atualização de valores. https://blog.jazida.com/resolucao-anm-23-atualizacao-valores-emolumentos-tah-multas/, accessed 28 August 2020. Pwc (2020) Worldwide Tax Summaries – Brazil. https://taxsummaries.pwc.com/brazil, accessed 24 June 2020.

http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/decretos/d44045_2005.pdf

https://www.gov.br/ibama/pt-br/acesso-a-informacao/perguntas-frequentes/tcfa

http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/taxas/tfrm.html

http://www.fazenda.mg.gov.br/empresas/legislacao_tributaria/resolucoes/ufemg.html


https://taxsummaries.pwc.com/brazil


Final draft 20

4 Canada (Ontario)

52. Exploration and extraction of minerals is regulated in the Mining Act (Revised Statues of Ontario. (1990), Chapter M.14).

53. Canadian dollar (CAD) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = CAD 1.3.

4.1 Royalties

54. All provinces and territories within Canada with significant mining activities impose mining taxes and/or mining royalties or mineral land taxes on mining operations within their jurisdictions. This is a third level of taxation, separate and distinct from federal and provincial/territorial income taxes. These mining levies are intended to compensate the province or territory for the extraction of non-renewable resources owned by it.

55. Essentially all provinces and territories impose mining taxes on defined mining profits. The mining taxes are conceptually levied on profits derived from the operations at the mining stage only. Practically, since no fair market value of production can reasonably be established at the mining stage, the starting point of the tax computation is generally the profits from both mining and processing operations, usually with the deduction of a processing allowance (except in British Columbia, Alberta, Saskatchewan, and Prince Edward Island) that removes from taxable profits a given return on the investment in processing assets. The processing allowance is computed as a given percentage (representing the allowed rate of return on processing investment) of the original cost of the processing assets. There are provisions that the allowance cannot exceed a stated percentage (usually 65%) of the combined mining and processing income calculated before the processing allowance. In some cases, a minimum percentage of mining and processing profits is allowed when this calculation yields a higher deduction than the one given by the application of the allowed percentage of the processing asset cost.

56. Ontario uses a Mining Tax. For mines that are not remote mines, the rate is 10% of an operator's profit in excess of CAD 500,000 for 2004 and subsequent years. The annual profit exemption of CAD 500,000 must be shared by associated corporations. The mining tax rates are prorated for taxation years which straddle the effective dates. There are adjustments for part ownership of a mine or a short production year.

57. In the case of a new non-remote mine or a major expansion of a non-remote existing mine, the tax exemption is up to the first CAD 10 million of profits from the mine which must be claimed within the first 36 months of the new mine or major expansion of an existing mine, whichever occurs first. In the case of a new remote mine, the tax exemption is up to the first CAD 10 million of profits from the mine which must be claimed within the first 120 months of the new mine, whichever occurs first. After the tax exemption of profits for a new remote mine has been claimed, a tax rate of 5% is charged on profits derived from the operation of a remote mine.

58. Royalty rates in Ontario are: cobalt (5% or 10%), copper (5% or 10%), manganese (5% or 10%) and nickel (5% or 10%).


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59. There are no mineral taxes other than the one described above in Ontario.


60. There are no specific environmental levies for the mining industry in Ontario.


61. Federal rates, the basic rate of tax is 38% of taxable income, 28% after federal tax abatement. After the general tax reduction, the net tax rate is 15%. For Canadian-controlled private corporations claiming the small business deduction, the net tax rate is:

• 9% effective January 1, 2019

• 10% effective January 1, 2018

• 10.5% before 2018

62. Provinces or territories generally have two rates of income tax – a lower rate and a higher rate. The lower rate applies to the income eligible for the federal small business deduction.

63. The Ontario General corporate income tax rate is currently 11.5%.

64. Corporations involved in manufacturing and processing, fishing, farming, mining and logging in Ontario may qualify for a tax credit that reduces the corporate income tax rate to 10%.

4.5 Deductible items

65. Mining taxes and royalties paid to a province or territory with respect to income from a mineral resource are fully deductible when computing income for federal income tax purposes.


66. Generally, mining and oil and gas companies are allowed a 100% deduction for grassroots exploration costs. Other development costs are deductible at the rate of 30% on a declining-balance basis.

67. Provinces levy mining taxes on mineral extraction and royalties on oil and gas production. Most are deductible for income tax purposes.


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4.7 References – Canada (Ontario)

Ontario government. https://www.fin.gov.on.ca/en/tax/cit/index.html, accessed 1 June 2020. Government of Canada. https://www.canada.ca/en.html, accessed 1 June 2020. Natural Resources Canada. https://www.nrcan.gc.ca/home, accessed 1 June 2020. Natural Resources Canada (n.a.) Provincial and Territorial Mining Taxes and Royalties Deduction. https://www.nrcan.gc.ca/our-natural-resources/minerals-mining/mining/taxation/mining-taxation-canada/mining-specific-tax-provisions/8892#a1, accessed 1 June 2020. Johnson, Ericsson & Löf (2016). Tillstånd och miljöprövning för att öppna gruvor – en internationell utblick. PM 2016:05. Myndigheten för tillväxtpolitiska utvärderingar och analyser. Östersund. https://www.tillvaxtanalys.se/download/18.62dd45451715a00666f1ff87/1586366202694/pm_2016_05_Tillst%C3%A5nd%20och%20milj%C3%B6pr%C3%B6vning%20f%C3%B6r%20att%20%C3%B6ppna%20gruvor.pdf, accessed 1 June 2020. PwC (2020) Worldwide Tax Summaries – Canada. https://taxsummaries.pwc.com/canada, accessed 24 August 2020.

https://www.fin.gov.on.ca/en/tax/cit/index.html

https://www.canada.ca/en.html

https://www.nrcan.gc.ca/home

https://www.nrcan.gc.ca/our-natural-resources/minerals-mining/mining/taxation/mining-taxation-canada/mining-specific-tax-provisions/8892#a1

https://www.nrcan.gc.ca/our-natural-resources/minerals-mining/mining/taxation/mining-taxation-canada/mining-specific-tax-provisions/8892#a1

https://www.tillvaxtanalys.se/download/18.62dd45451715a00666f1ff87/1586366202694/pm_2016_05_Tillst%C3%A5nd%20och%20milj%C3%B6pr%C3%B6vning%20f%C3%B6r%20att%20%C3%B6ppna%20gruvor.pdf



https://taxsummaries.pwc.com/canada


Final draft 23

5 Chile

69. The mining industry is regulated by two main acts:

• The Mining Concession Act no 18,097 (1982) which deals with mining concessions and the rights and obligations which follow with a concession.

• The Mining Code Law no 18,248 (1983) and its Regulations (Decree no 1/1989) which prescribe how mining activities exploration, exploitation shall be carried out.

70. Chilean peso (CLP) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = CLP 778.9.

5.1 Royalties

71. There is no reference in current laws to royalties in Chile. However, there is a specific tax on the mining industry. The tax is a profit-based tax and is applied over the operational mining income of a company. The rate of the tax depends on the annual sales and on the mining operational margin of the taxpayer, according to the following:

• the taxpayers are exempt if the annual sales are inferior to the equivalent of 12,000 refined copper tons;

• the rate ranges from 0.5% to 4.5% if the annual sales are superior to 12,000 but inferior to the equivalent of 50,000 refined copper tons;

• the rate ranges from 5% to 14% if the annual sales are superior to 50,000 refined copper tons. In this last case, the determination of the rate depends on the mining operational margin.

72. The tax payable is calculated at the applicable tax rate on the net operating income of the mining company. This mining tax is deductible for Chilean income tax purposes.

73. However, according to an article in BN Americas published 20 January 2020 (BN Americas 2020) lawmakers voted to introduce a new royalty tax of 3% on the value of the minerals extracted in the case of companies that produce over 12,000t of fine copper or 50,000t of lithium a year.


74. While it can be discussed whether or not the Chilean tax is a royalty or not, it is described above and treated as a royalty within this report.


75. The maintenance of a mining concession is subject to the payment of annual licences (Article 142, Mining Code). The annual payment of these fees to the National Treasury is required to keep the mining concession in good standing. The annual license fee is one fiftieth of a Monthly Tax Unit, for each full hectare, in the case of a concession to explore. The annual license fee is one tenth of a Monthly Tax Unit, for each full hectare, in the case of a concession to mine.


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76. The Monthly Tax Unit / Unidad Tributaria Mensuel (UTM) is defined by the government. For the month of September 2020, the UTM was CLP 50.322 and the Annual Tax Unit / Unidad Tributaria Annual (UTA) was CLP 603.864.9


77. Chile has no specific environmental levies.


78. The basic tax on income of a legal entity domiciled or resident in Chile and engaged in commerce, mining, fishing, or industrial activities is the First Category Tax (FCT), which is assessed at a 25% rate for small and medium enterprises (SME) and 27% rate for entities subject to the partially integrated system (PIS) on the entity's worldwide income.

79. FCT is totally creditable against final tax in the SME regime but only partially in the PIS (only 65% is creditable). However, foreign owners of a PIS entity that are resident in double tax treaty jurisdiction are entitled to full credit as well.

80. For large enterprises the current Partially Integrated Regime of taxation is applicable – i.e., 27% Corporate Income Tax (CIT) rate and shareholder’s taxation on a cash basis with full or partial CIT credit depending on whether the non-resident shareholders are resident or not in countries with which Chile has a double tax treaty in force.

5.5.1 Tax losses

81. Losses can only be deducted from current-year earnings. Any balance can be carried forward indefinitely. The carrying back of tax losses is not allowed. The transfer of tax losses from one taxpayer to another is not allowed.

82. The carrying forward of tax losses may be limited in the case of a change in control.


83. Under Chilean tax legislation, income is defined as gross income, generally received or accrued by the taxpayer, minus direct costs and expenses as long as they comply with deductibility requirements (generally, expenses must be related to the entity's business activity, necessary to produce taxable income, not deducted as part of the direct cost of goods or services, actually incurred in the relevant taxable period, whether paid or accrued, and adequately supported by appropriate documentation).

5.6.1 Depreciation

84. Depreciation rates are calculated based on the asset’s estimated useful life. The useful life is provided by the Chilean tax authorities. Example of the normal depreciation terms for new assets are as follows: heavy machinery, 15 years; trucks, 7 years; factory buildings, in general, 20 years to 40 years. At the request of the Foreign Investment Committee or the taxpayer, the Chilean tax authority may reduce the normal useful life.

9 See http://www.sii.cl/valores_y_fechas/utm/utm2020.htm for latest fees.

http://www.sii.cl/valores_y_fechas/utm/utm2020.htm


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85. Annual depreciation is calculated based on the straight-line method. However, taxpayers may recover capitalised costs by using the accelerated depreciation method for up to one-third of the normal useful life regarding new or imported fixed assets, provided that the normal period of depreciation is at least three years.

86. Immediate expensing of 50% of the value of capital assets acquired for investment projects to be undertaken within the country until 31 December 2021 is being proposed for congressional approval.

87. For tax purposes, depletion for natural mineral resources is allowed on a unit-of-production basis.

88. SMEs are entitled to faster types of depreciation methods (even instant depreciation) which they can use, provided certain requirements are met.


89. Start-up expenses must be capitalised and considered as an asset for tax purposes. However, they can be amortised over a six-year period counted from the year in which they were incurred or the start-up of commercial activities.


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5.7 References – Chile

Mining code https://www.cochilco.cl/Lists/Leyes%20Destacadas%20Ingls/Attachments/3/mining_code.pdf, accessed 2 June 2020 BN Americas (2020a) Chile lawmakers approve bill to up mining royalties, 20 January 2020. https://www.bnamericas.com/en/news/chile-lawmakers-approve-bill-to-up-mining-royalties, accessed 1 June 2020 BN Americas (2020b) Snapshot: Mining taxes in Chile and Argentina, 6 March 2020. https://www.bnamericas.com/en/features/snapshot-mining-taxes-in-chile-and-argentina, accessed 1 June 2020 KPMG (2014) Chile Country mining guide http://www.iberglobal.com/files/2016/chile_mining_kpmg.pdf, accessed 1 June 2020 Pelerí, Loreto & Parodi, Bernardita (2020) Chilean 2020 tax reform: Modernising the tax system. https://www.internationaltaxreview.com/article/b1l9lgr6mg7988/chilean-2020-tax-reform-modernising-the-tax-system, accessed 2 June 2020 PwC (2019) Worldwide Tax Summaries – Chile. https://taxsummaries.pwc.com/chile, accessed 1 June 2020. PwC (2012) Corporate income taxes, mining royalties and other mining taxes A summary of rates and rules in selected countries, June 2012 https://www.pwc.com/gx/en/energy-utilities-mining/publications/pdf/pwc-gx-miining-taxes-and-royalties.pdf, accessed 1 June 2020

https://www.cochilco.cl/Lists/Leyes%20Destacadas%20Ingls/Attachments/3/mining_code.pdf

https://www.cochilco.cl/Lists/Leyes%20Destacadas%20Ingls/Attachments/3/mining_code.pdf

https://www.bnamericas.com/en/news/chile-lawmakers-approve-bill-to-up-mining-royalties

https://www.bnamericas.com/en/news/chile-lawmakers-approve-bill-to-up-mining-royalties

https://www.bnamericas.com/en/features/snapshot-mining-taxes-in-chile-and-argentina

http://www.iberglobal.com/files/2016/chile_mining_kpmg.pdf

https://www.internationaltaxreview.com/article/b1l9lgr6mg7988/chilean-2020-tax-reform-modernising-the-tax-system

https://www.internationaltaxreview.com/article/b1l9lgr6mg7988/chilean-2020-tax-reform-modernising-the-tax-system

https://taxsummaries.pwc.com/chile

https://www.pwc.com/gx/en/energy-utilities-mining/publications/pdf/pwc-gx-miining-taxes-and-royalties.pdf

https://www.pwc.com/gx/en/energy-utilities-mining/publications/pdf/pwc-gx-miining-taxes-and-royalties.pdf


Final draft 27

6 China

91. The Mineral Resources Law (1986 amended 1996 and 2009) is the national law governing exploration and exploitation of minerals.

92. Chinese yuan (CNY) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = CNY 6.9.

6.1 Royalties

93. Within China entities and individuals engaged in exploiting various taxable mineral resources or producing salt are subject to royalties.

94. The royalty is an ad valorem tax or per unit tax depending on the resource. Some examples include:

• crude oil: 6% of gross sales;

• natural gas: 6% of gross sales;

• coking coal and other coal: 2%-10% of gross sales;

• iron (concentrate): 1%-6% of gross sales;

• gold (bullion): 1%-4% of gross sales;

• copper (concentrate): 2%-8% of gross sales;

• nickel (concentrate): 2%-6% of gross sales;

• graphite (concentrate): 3%-10%;

• diatomite (concentrate): 1%-6%; and

• kaolin (ore): 1%-6%.


95. There are no other mineral taxes in China.


96. China levies a prospecting right user fee. For the first three years, the permit holder must pay CNY 100 per km2 each year, increasing by an additional CNY 100 per km2 each year from the fourth year onwards. The maximum fee is capped at CNY 500 per km2 each year.

97. China also levies an extraction right user fee. This fee is CNY 1,000 per km2 per year.

98. However, under the Plan to Reform the Regime of Assignment of Mining Rights, prospecting right user fee and extraction right user fee will be replaced with mining right occupancy fee which will be subject to dynamic adjustment based on the price of relevant mineral resources and economic development needs.


99. China levies an environmental protection tax. Enterprises, public institutions and other producers and operator that directly discharge pollutants to the environment within the territory of the People's Republic of China and or sea areas under the jurisdiction of the People's Republic of China are subject to the tax. Tax amounts are based on air pollutants, water pollutants, solid waste and noise pollution.


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100. An enterprise is resident in China if it is established in or if its place of effective management is in China. Effective management is defined as substantial and overall management and control over manufacturing and business operations, human resources, financial and property aspects of the entity. A foreign company will also be subject to tax in China if it has an establishment in China or if it derives income from China. The definition of an establishment is broad and includes also independent agents. When a foreign company has an establishment in China, it will be subject to Chinese tax on all income effectively connected with that establishment.

101. The standard CIT rate is 25% but various industries receive a lower CIT rate, see table 6 below.

Table 6. China corporate income tax rates by industry (%).

Industry %

Standard rate 25%

Small-scale enterprises (annual taxable income of less than CNY 1 million) 10% (from 1 January 2018 to 31 December 2020)

High-technology enterprises (HNTE) 15%

Technology-advanced service enterprises 15%

Companies engaged in encouraged industries in certain regions (e.g. Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone, Zhuhai’s Hengqin New Area, Pingtan Comprehensive Experimental Zone, Western Regions)

15%

Key software production enterprises and IC design enterprises 10%

Source: PwC, RMG Consulting (2020).

6.5.1 Restrictions of use of tax losses

102. Losses may be carried forward for five years, which may be extended to 10 years for qualifying new/high-technology enterprises and middle/small-size technology enterprises. The carry back of losses generally is not permitted.


103. Royalties are deductible in CIT calculation.

6.6.1 Depreciation

104. Fixed assets with useful lives of more than 12 months must be capitalised and depreciated in accordance with the CIT regulations. Generally, depreciation is calculated by the straight-line method. Shorter tax depreciation life or accelerated depreciation may be allowed due to advancement of technology or suffering from constant vibration or severe corrosion. Production-nature biological assets, such as livestock held for breeding and commercial timber, also have to be capitalised and depreciated using the straight-line method.


Final draft 29

105. Under the straight-line method, the cost of an item, less its residual value, is depreciated over the useful life of the asset. Residual value should be reasonably determined based on the nature and usage of the asset. The CIT law specifies minimum useful lives for certain assets.

Table 7. China, examples of useful lives of assets (years).

Assets Years

Buildings and structures 20

Aircraft, trains, vessels, machinery, mechanisms, and other production equipment 10

Appliances, tools, and furniture etc. related to production and business operations 5

Means of transport other than aircraft, trains, and vessels 4

Electronic equipment 3

Production-nature biological assets in the nature of forestry 10

Production-nature biological assets in the nature of livestock 3


106. From 1 January 2018 to 31 December 2020, newly acquired fixed assets, other than real estate properties, with unit value not exceeding CNY 5 million are allowed to be expensed-off in one lump sum in the year of acquisition.

6.6.2 Accelerated depreciation

107. Shorter tax depreciation life or accelerated depreciation is allowed for particular types of fixed assets (e.g. fixed assets that need to be replaced more frequently due to advancement of technology, fixed assets that suffer from constant vibration or severe corrosion).

108. New fixed assets acquired by companies engaging in manufacturing industries and new fixed assets and equipment acquired specifically for R&D purposes may be depreciated over a shorter period or under an accelerated depreciation method.

109. Where a shorter depreciation period method is applied, the minimum depreciation period cannot be less than 60% of the minimum depreciation period as prescribed in the CIT Law; where an accelerated depreciation method is applied, the double-declining-balance method or sum-of-years-digits method can be used.


110. Organisational and start-up expenses are tax deductible fully in the first year of operation.

6.7 Other taxes

6.7.1 Land use tax

111. For a mine, the mining yard, gangue storehouse, dynamite storehouse, waste disposal site and roads used to transport ore are exempt from land use tax. Other functions within the mine site must pay a Land Use Tax according to the following rates:

• large cities: CNY 1.5 to CNY 30;

• medium cities: CNY 1.2 to CNY 24;


Final draft 30

• small cities: CNY 0.9 to CNY 18;

• counties, towns and industrial and mining areas: CNY 0.6 to CNY 12.

6.7.2 City maintenance and construction tax

112. For taxpayers located in cities, the rate is 7%. For taxpayers located in counties or towns, the rate is 5%. For taxpayers located in other places, the rate is 1%.

6.8 Special arrangements for the mining industry

113. Tungsten, tin, antimony and ionic rare earth are categorised as special ores subject to protective extraction measures. The sale of these minerals and related products is strictly controlled and administered by the provincial government and State Council. They must be sold only to entities designated by the provincial government and no other entities are allowed to purchase them or their related products.


Final draft 31

6.9 References – China

State Taxation Administration of the People’s Republic of China http://www.chinatax.gov.cn/eng/c101270/c101272/c5094513/content.html, accessed 3 June 2020. Deloitte (2019) International Tax China Highlights 2019 https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-chinahighlights-2019.pdf?nc=1, accessed 3 June 2020. Yin, Xiong & Chai, Jie (2019) The Mining Law Review – ed. 8 China https://thelawreviews.co.uk/edition/the-mining-law-review-edition-8/1209356/china, accessed 3 June 2020. PwC (2019) Worldwide Tax Summaries – China, People’s Republic of. https://taxsummaries.pwc.com/peoples-republic-of-china, accessed 3 June 2020. Wu, Guohua & Li, Yingnan & Tongda, Jincheng (2018) Mining in China: overview https://uk.practicallaw.thomsonreuters.com/w-011-1348?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1#co_anchor_a238230, accessed 3 June 2020

http://www.chinatax.gov.cn/eng/c101270/c101272/c5094513/content.html

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-chinahighlights-2019.pdf?nc=1

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-chinahighlights-2019.pdf?nc=1

https://thelawreviews.co.uk/edition/the-mining-law-review-edition-8/1209356/china

https://taxsummaries.pwc.com/peoples-republic-of-china

https://uk.practicallaw.thomsonreuters.com/w-011-1348?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1#co_anchor_a238230




Final draft 32

7 Democratic Republic of the Congo (DRC)

115. The mining industry is governed by the 2002 Mining Code (Law no 007/2002 as amended 2018) and the 2003 Mining Regulation (Decree 038/2003 as amended in 2018).

116. Congolese franc (CDF) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = CDF 1,952.8.

7.1 Royalties

117. Royalties in the DRC are based on gross commercial value. Generally, the royalty rate is 3.50%. This rate applies to amongst others copper, manganese and nickel. The new mining code that was adopted in 2018 included changes in the royalty rate for what was termed strategic substances. These materials, that include cobalt, now have a royalty of 10%.


118. The Democratic Republic of Congo applies a super profits tax when commodity prices exceed a base value (the price used in the feasibility study) by 25%. The tax rate on super profits is set at 50% and income subject to the super profit tax is not subject to CIT. The tax base, the super profit, is determined from the gross operating surplus.

119. Revenues subject to the super profit tax are exempted from corporate income tax.


120. Administrative fees in the DRC includes an annual surface duty at USD 5.89 /km2 applicable both for prospecting and mining. Further an operating license of USD 424.78 /km2 is levied. There is also an exploitation permit fee. The fee is USD 0.04 /ha for the first year, USD 0.06 /ha for the second year, USD 0.07 /ha for the third year and USD 0.08 /ha from the fourth year.

121. It should be noted that there seems to be different information on the rates of fees related to surface occupied by mining activities, sometimes called area rights. Some of these are levied by provincial governments and it is possible that rates may vary.


122. The DRC has no specific environmental levies related to emissions. However, the country levies a corporate social responsibility charge to local communities of 0.3% of turnover. Further, a 0.5% of turnover goes to a rehabilitation fund.


123. The standard CIT in the DRC is 35%, mining companies are however subject to a reduced CIT rate of 30%. Losses can be carried forward for five years.


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124. The withholding tax rate payable on dividends is set at 10% of the gross amount and the withholding tax on interest is levied at the rate of 20% on the gross amount.

125. Royalties are deductible using a straight-line basis.

7.6.1 Depreciation 126. To arrive at taxable income, a taxpayer may deduct all costs actually incurred and which have served in the production of income of the company during the year. Depreciation of fixed assets used in the company’s operations may be deducted. Examples of rates are found in table 8.

Table 8. DRC, examples of depreciation rates (%).

Assets %

Buildings 2.5-5

Plant and equipment 10-15

Furniture and fittings 10-15

Vehicles 20

Computers and IT equipment 33



127. Start-up expenses are deductible, provided they are staggered over three or four years.


128. The government has a right to a 10% free interest, which is increased by 5% at each renewal of the mining permit (the first permit has a life of 25 years, successive ones are valid 15 years).


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7.8 References – Democratic Republic of the Congo (DRC)

Government of the Democratic Republic of Congo, 2018. Journal Officiel de la République Démocratique du Congo. Loi n°18/001 du 09 mars 2018 modifiant et complétant la Loi n° 007/2002 du 11 juillet 2002 portant Code minier. 28 mars 2018. https://www.mines-rdc.cd/fr/wp-content/uploads/Code%20minier/J.O._n%C2%B0_spe%C3%ACcial_du_28_mars_2018_CODE_MINIER%20DE%20LA%20RDC.PDF, accessed 29 May 2020. Ernst & Young, 2018. Democratic Republic of Congo reforms Mining Code. https://www.ey.com/Publication/vwLUAssets/Democratic_Republic_of_Congo_reforms_Mining_Code/$FILE/2018G_02215-181Gbl_Democratic%20Republic%20of%20Congo%20reforms%20Mining%20Code.pdf, accessed 22 May 2020. Lexology, 2019. Mining duties, royalties and taxes in Democratic Republic of Congo. 4 July. https://www.lexology.com/library/detail.aspx?g=245d47c6-1472-4251-98d7-14a36a64e474, accessed 22 May 2020. Mining Review Africa, 2019. DRC: Revised Mining Code lacks taxation clarity. May 29. https://www.miningreview.com/energy/drc-revised-mining-code-taxation/, accessed 22 May 2020. The Mining Law Review, 2019. Edition 8. The Democratic Republic of Congo. October. https://thelawreviews.co.uk/edition/1001413/the-mining-law-review-edition-8, accessed 22 May 2020. PwC (2019) Worldwide Tax Summaries – Congo, Democratic Republic of the https://taxsummaries.pwc.com/democratic-republic-of-the-congo, accessed 24 August 2020.

https://www.mines-rdc.cd/fr/wp-content/uploads/Code%20minier/J.O._n%C2%B0_spe%C3%ACcial_du_28_mars_2018_CODE_MINIER%20DE%20LA%20RDC.PDF



https://www.ey.com/Publication/vwLUAssets/Democratic_Republic_of_Congo_reforms_Mining_Code/$FILE/2018G_02215-181Gbl_Democratic%20Republic%20of%20Congo%20reforms%20Mining%20Code.pdf



https://www.lexology.com/library/detail.aspx?g=245d47c6-1472-4251-98d7-14a36a64e474

https://www.lexology.com/library/detail.aspx?g=245d47c6-1472-4251-98d7-14a36a64e474

https://www.miningreview.com/energy/drc-revised-mining-code-taxation/

https://thelawreviews.co.uk/edition/1001413/the-mining-law-review-edition-8

https://taxsummaries.pwc.com/democratic-republic-of-the-congo


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8 Indonesia

130. Indonesia has one of the most advanced off-shore mining industries with state-controlled tin producer PT Timah mining tin-sand on relatively shallow waters.

131. A new mining law (the “Mining Bill”) was passed by the parliament on 12 May 2020. The new law introduces three kinds of mining license:

• Mining Business License (Izin Usaha Pertambangan or “IUP”);

• Community Mining License (Izin Pertambangan Rakyat or “IPR”); and

• Special Mining Business License (Izin Usaha Pertambangan Khusus or “IUPK”).

132. Within this study, only the IUP, which is the type of license that will be issued to large scale commercial mining operations in the future, and the IUPK, which will be applied to holders of existing Contracts of Work, CoWs10, are relevant.

133. The main development in recent years concerning the mining sector in Indonesia is the ban on exports of unprocessed minerals that was introduced in 2014. The ban has been subject to several amendments.

134. Following the payment of export duties under the relevant laws and regulations, and the fulfilment of the minimum domestic processing and refining requirements, certain approved quantities of semi-processed products may be exported for a period of five years, from 11 January 2017. Specific rules are applicable to metal minerals with particular criteria, particularly nickel with a content of < 1.7%.

135. Indonesian rupiah (IDR) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = IDR 14.6.

8.1 Royalties

136. Royalties are payable, in theory, quarterly to the Government based on the actual volume of the production or the sales according to the provisions that are set out in individual contracts. However, in practice, the royalty is to be paid to the Government prior to shipment.

137. The royalty is an ad-valorem royalty. The benchmark price serves as the floor price for the Government Royalty calculation. If the actual sales price is higher than the benchmark price, then the Government Royalty will be based on the actual sales price. If the actual sales price is below the benchmark price, then the Government Royalty should be based on the benchmark price.

138. The benchmark prices for metal minerals and coal are based on the benchmark price formula, which takes certain factors into account. For metal minerals, these factors include, but are not limited to, the value/content of the metal mineral; the Mineral Reference Prices (Harga Mineral Acuan or “HMA”); corrective factors; treatment costs; and refining charges.

10 Contracts of Work (CoWs) were standardized contracts that were used for commercial mining operations in the past. They were approved by Parliament and had the force of law, which made them difficult to changer. Accordingly, they provided investors with a high degree of stability. The CoWs were issued in several “generations” with some differences in the standard conditions. They were discontinued in 2009, when the last CoW was issued, and a new mining law entered into force.


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139. Currently, a range of percentages on the sale proceeds apply to different types of mineral mining. For example: copper 4% and nickel ore 10%, nickel pig iron 5% and other nickel products 2%. No specific royalty is set for cobalt nor manganese. Holders of an IUPK will be required to pay an additional royalty of 10% of the net profit. The Central Government is entitled to receive 40% of this additional royalty, while the balance is to be shared between the relevant province and regencies.


140. While there are no other mineral taxes in Indonesia the country applies export restrictions on unprocessed minerals.


141. Indonesia charge USD 4 /ha both for exploration licenses and for mining claims.


142. Indonesia has no specific environmental levies.


143. Resident corporations are taxed based on worldwide income. A foreign company carrying out business activities through a PE in Indonesia will generally be required to assume the same tax obligations as a resident taxpayer.

144. A flat CIT rate of 25% applies to net taxable income up to fiscal year 2019. For fiscal year 2020-2021, a flat CIT rate of 22% applies to net taxable income. For fiscal year 2022 onwards, a flat CIT rate of 20% applies to net taxable income.

145. Public companies on the Indonesia stock exchange that satisfy a minimum listing requirement of 40% and certain other conditions are entitled to a tax discount of 5% off the standard rate, providing an effective tax rate of 20% for fiscal year up to 2019. Starting fiscal year 2020, the discount will be 3% off the standard rate, providing an effective tax rate of 19% for fiscal year 2020-2021 and 17% for fiscal year 2022 onwards.

8.6 Deductible items (royalties, environmental and administrative fees).

8.6.1 Tax holidays

146. For the mining sector, the tax holiday is available for an integrated upstream basic metal industry (with or without its integrated derivative product processing facilities). Many smelter companies expect to be eligible for the tax holiday facility. So far, no tax holiday facility has been granted for a smelter company.


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Table 9. Indonesia, tax holiday per investment (IDR & USD).

Investment in IDR Investment in USD Tax holiday

500 billion up to 1 trillion 34,186 – 68,373 5 years

1 trillion up to 5 trillion 68,373 – 341,862 7 years

5 trillion up to 15 trillion 341,862 – 1,025,588 10 years

15 trillion up to 30 trillion 1,025,588 – 2,051,177 15 years

≥ 30 trillion > 2,051,177 20 years

Source: PwC & RMG Consulting (2020).

8.6.2 Tax allowances

147. Smelters are included in the separate tax allowance incentive. If tax allowances are used, the tax holiday cannot apply.

148. The tax allowances consist of:

• A reduction in net taxable income of up to 30% of the amount that has been invested, in the form of qualifying fixed assets (including land), prorated at 5% for six years, and provided that the assets that have been invested in are not being misused or transferred out within a certain period;

• Accelerated depreciation and amortisation;

• Withholding tax on the dividends that are paid to non-residents, at 10%;

• An increased loss carry-forward period, from five years to a maximum of ten years.

8.6.3 Tax incentives

149. Mining sector tax incentives are available, subject to the satisfaction of certain criteria, for:

• Basic iron and steel manufacturing; • Gold and silver processing and refining; • Certain brass, iron ore, uranium, thorium, tin, lead, copper, aluminium, zinc,

manganese and nickel processing and refining activities.

8.6.4 Depreciation

150. Either diminishing or straight-line depreciation can be chosen. Amortization generally is over 4, 8, 16 or 20 years depending on the item/building/machinery. Special transition regulations for CoWs are applicable in some cases.

8.7 Other taxes

151. A mining company may be liable for a number of Regional Taxes and Retributions (except the first-generation CoW). The rates range from 1.5% to 35% of a wide number of reference values determined by the relevant regional Government.

152. The Government also requires holders of CoWs to make the following “share” payment:

• State share due at 4% of net profit – as per the Mining Law and regulations; • Regional Government share due at 6% of net profit – as per the Mining Law and

regulations.


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153. The above obligations are applicable from the calendar year following the issue of the IUPK-OP (Operation Production Special Mining Business Licence). The net profit is determined after deducting CIT and based on the audited financial statements. These obligations are regarded as profit distributions and therefore are not deductible.

154. The State and Regional Government payment calculations appear to follow accounting profit rather than taxable income.

8.7.1 Export ban

155. In December 2018, the physical progress stages of the refining facility’s development were amended from the previous four stages to the following three stages:

• Stage I – the level of the physical progress of the development is not more than 30% of the total development;

• Stage II – the level of the physical progress of the development is more than 30% but not more than 50% of the total development; and

• Stage III – the level of the physical progress of the development is more than 50% of the total.

156. These stages determine the rate of the export duty. For copper concentrate and manganese, the duty is 5% at Stage I, 2.5% at Stage II and 0 at Stage III. For nickel, only nickel concentrate with a Ni content of less than 1.7% is subject to export duty, of 10%.


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8.8 References – Indonesia

Lexology (2019) Mining duties, royalties and taxes in Indonesia. https://www.lexology.com/library/detail.aspx?g=0bbf66b1-fd7e-46a7-acd4-975717cf4b2b, accessed 21 May 2020. PwC (2019) Mining in Indonesia. Investment and Taxation Guide. https://www.pwc.com/id/en/energy-utilities-mining/assets/mining/mining-guide-2019.pdf, accessed 21 May 2020. PwC (2019) Worldwide Tax Summaries – Indonesia. https://taxsummaries.pwc.com/indonesia, accessed 12 May 2020. SSEK Legal Consultants (2020) Indonesia Introduces Significant Changes to Mining Law. 23 May. https://www.ssek.com/blog/indonesia-introduces-significant-changes-to-mining-law, accessed 26 May 2020. SteelGuru (2019) Indonesia to Change Royalty Structure on Nickel Products and Bauxite. https://steelguru.com/metal/indonesia-to-change-royalty-structure-on-nickel-products-and-bauxite/553729, accessed 21 May 2020.

https://www.lexology.com/library/detail.aspx?g=0bbf66b1-fd7e-46a7-acd4-975717cf4b2b

https://www.pwc.com/id/en/energy-utilities-mining/assets/mining/mining-guide-2019.pdf

https://taxsummaries.pwc.com/indonesia

https://www.ssek.com/blog/indonesia-introduces-significant-changes-to-mining-law

https://steelguru.com/metal/indonesia-to-change-royalty-structure-on-nickel-products-and-bauxite/553729

https://steelguru.com/metal/indonesia-to-change-royalty-structure-on-nickel-products-and-bauxite/553729


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9 Jamaica

158. The Mining Act (1947) and Regulations (1947) under the Act both as amended are the main laws ruling the mining industry in Jamaica.

159. Jamaican dollar (JMD) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = JMD 150.0.

9.1 Royalties

160. Presently there is a 5% royalty charge on the sale of minerals extracted from the land. Jamaican royalty is calculated as a percentage using the gross sales price as its basis.


161. There are no other mineral taxes in Jamaica.


162. Administrative fees are applicable within Jamaica according to the table below.

Table 10. Jamaican administrative fees (JMD).

# Permits, Licenses, Rights Rate (JMD)

1 Prospecting Right or renewal thereof 5,000

2 Exclusive Prospecting License 10,000

3 Renewal of Exclusive Prospecting License 5,000

4 Surrender of transfer of Exclusive Prospecting:

1,000 - License and Special Exclusive Prospecting

- License or any share or interest therein

5 Surrender or transfer of Mining Lease or any share or interest therein 5,000

6 Temporary permission to mine or renewal thereof 10,000

7 Sanction to group Exclusive Prospecting Licenses or Mining Leases 5,000

8 Export Permit 1,000

9 Mineral Dealers License 5,000

10 Search of register 500

11 Surrender of transfer of Special Mining Lease 5,000

12 Addition of minerals to Prospecting Licenses or Mining Leases

- For a single mineral 2,000

- For each additional mineral 1,000

13 Special Exclusive Prospecting Licenses (per m2 or part thereof) 600

14 Renewal of Special Exclusive Prospecting License (per m2 or part thereof) 400

15 Mining Lease (per m2 or part thereof) 1,200

16 Renewal of Mining Lease (per m2 or part thereof) 600

17 Special Mining Lease (per m2 or part thereof) 1,200

18 Special Mining Lease for bauxite or laterite (per m2 or part thereof) 1,200

19 Addition to Special Mining Lease (per m2 or part thereof) 1,200

20 Renewal of Special Mining Lease (per m2 or part thereof) 1,200 Source: Government of Jamaica, RMG Consulting (2020).


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163. National Environment and Planning Agency (NEPA) imposes environmental levies. However, no information is available at this time as to the rates. Further a restoration bond of USD 40,000 per hectare is required upon the granting of a mining license.


164. A resident corporation is taxable on its worldwide income. Non-resident companies are subject to tax on Jamaican-sourced income. A Regulated Company pays 33.33% CIT and an Unregulated Company pays 25%.

165. A “regulated company” means a company that is regulated by any of the following:

a) the Financial Services Commission; b) the Office of Utilities Regulation; c) the Bank of Jamaica; and d) the Minister with responsibility for finance.


166. Losses can be carried forward indefinitely. The first five years after the year of commencement 100% of. From then on, a claim for deduction of tax losses incurred in a prior year will be capped at 50% of the taxpayer’s chargeable income (before deduction of tax losses carried forward) of the year in which the claim is being made. Tax losses are not available for carry back. Certain anti-avoidance provisions restrict the ‘purchase’ of accumulated tax losses.

167. In respect of the bauxite industry Income tax paid, may be credited against levy payable.


168. Royalties and other levies are not deducible from profits in computing corporate tax.

9.6.1 Depreciation

169. Capital allowances are granted in lieu of depreciation.

• Buildings: o Initial Allowance (IA): 20% industrial buildings; o Annual Allowance (AA): Building or Structure 4% to 12.5% depending on

construction material,

• Plant and Machinery: o Initial Allowance (IA): 0, 25%; o Annual Allowance (AA): 12.5%, 20%.

Depreciation should use the straight-line method. Bauxite companies are allowed to use internal depreciation rates based on specific concession agreements.


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170. Within the Jamaican legislation there is the possibility for tax stabilisation agreements which vary according to contract/concession agreements.

171. At this time there are no incentive agreements for mining minerals offshore.


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9.8 References – Jamaica

Bevon Sinclair, Interview 1 June 2020, Chief Technical Advisor, Commissioner General's Executive Office, Tax Administration Jamaica Jamaican government, Mines & Geology Division, Ministry of transport and mining http://mgd.gov.jm/, accessed 24 June 2020.

PwC (2020) Worldwide Tax Summaries – Jamaica. https://taxsummaries.pwc.com/jamaica, accessed 24 June 2020.

http://mgd.gov.jm/

https://taxsummaries.pwc.com/jamaica


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10 Japan

173. The basic laws regulating mining activities are:

• Mining Act (no 289 1950), which deals with land-based mining, and the

• Act on Interim Measures for Deep Seabed Mining (no 64 1982) for mining and exploration on or below the ocean floor in areas not subject to the sovereignty of any country.

174. Japanese yen (JPY) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = JPY 105.5.

10.1 Royalties

175. The mining tax is regulated in articles 519 and 520 of the Local Tax Code. It is levied on the mining business of minerals on the basis of the price obtained by the mining company when selling the product as a tax base. The tax rate is as follows and are to be paid to the municipalities:

• Standard tax rate of 1% and restricted tax rate of 1.2% for workplaces with monthly production of more than JPY 2 million; and

• Minerals monthly production rate of 0.7% or less for business sites with a monthly production of JPY 2 million or less, limited tax rate of 0.9%.


176. There are no other mineral taxes than royalties in Japan.


10.3.1 Exploration

177. The amount to be paid for an exploration or mining permit is divided into two parts. These are paid to central government:

• Mining application fee: JPY 112,600-109,100 /application; • Registration license tax: JPY 180,000 /application.

10.3.2 Mining area tax

178. Mining area tax according to Article 178 of the Local Tax Code is payable when an area has been granted a mining area. The tax is paid to local prefectures according to the following:

• Exploration block: JPY 200 per year for every 100 ares (10,000 square meters); • Mining area: JPY 400 per year for every 100 ares (10,000 square meters); • Sand field (both trial and mining): JPY 200 per year for every 100 ares (10,000

square meters); and • For oil and flammable natural gas fields, two-thirds of the above tax rates are used

for both trial and mining.


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179. There are no environmental levies in Japan specific for the mining industry.

10.5 Corporate Income Tax

180. The taxes levied in Japan on income generated by the activities of a corporation include corporate tax (national tax), local corporate tax (national tax), corporate inhabitant tax (local tax), enterprise tax (local tax), and special local corporate tax (a national tax, although filings and payments are made to local governments along with enterprise tax).

181. Corporate inhabitant taxes are levied not only on income but also on a per capita basis using the corporation's capital and the number of its employees as the tax base. Corporations having paid-in capital of more than JPY 100 million are subject to enterprise tax on a pro forma basis.

182. Simplified the rate of the corporate tax for “other than small and medium sized companies” is 29.7% and the rate of the corporate inhabitant tax and the other taxes not related to profits are on a “pro forma basis” which is applied to companies which have a capital exceeding JPY 100 million is as follows:

• Income levy > 8 million yen/year – 0.7 %

• Added value levy – 1.2 %

• Capital levy – 0.5 %

• Special local corporate tax – 414.2% of income levy calculated by standard rate.

The exact percentages can vary depending on local government regulations.

183. The “Per capita levy on corporate inhabitant tax” varies with size of the company and number of employees. Highest rate for > 50 employees and > JPY 5 billion is JPY 3.8 million.


10.6.1 Depreciation

184. Depreciation is deductible in the calculation of taxable income for corporation tax purposes. Depreciable assets include tangible property (e.g. buildings, attachments to buildings, structures, machinery and equipment). Certain intangible assets are also eligible for amortisation (e.g. goodwill, patents, trademarks).

185. With regard to depreciation methods, a taxpayer may adopt one of the allowable methods for each of the type of depreciable property, except for buildings and structures and attachments to buildings. For selected structural improvements acquired on or after 1 April 2016, only the straight-line method will be permitted (i.e. the declining-balance accelerated depreciation method will no longer be allowed). Tangible property is generally depreciated using either the straight-line method or the declining-balance method. Intangible property is generally amortised under the straight-line method.

186. Useful lives for assets are set forth on the table in detail. For reference, the following is the brief table of useful lives for typical assets.


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Table 11. Japanese useful lives of assets (years).

Types of assets Useful lives (years)

Concrete buildings 21 to 50 (depending on uses)

Metal building 12 to 38 (depending on uses)

Electrical facilities and lighting 15

Heating and air conditioning 15

Motor vehicles 3 to 6 (depending on uses)

Personal computers 4

Digital telephone equipment 6

Machinery and equipment 3 to 22 (depending on uses)

Patents 8

Software 3 or 5 (depending on uses)

Source: RMG Consulting (2020).


187. Start-up expenses, such as corporation organisation costs and opening costs (i.e. costs to begin business after the corporation is established), are treated as deferred assets and allowed to be amortised on a voluntary basis.


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10.7 References – Japan

Mining Act http://www.japaneselawtranslation.go.jp/law/detail_main?re=01&vm=04&id=29, accessed 1 June 2020. Corporate Tax Act https://www.sozeishiryokan.or.jp/corporation_tax/corporation_tax2019e.html, accessed 1 June 2020. Corporate Income Tax https://www.jetro.go.jp/en/invest/setting_up/section3/page3.html, accessed 1 June 2020. Japanese related law: general http://www.japaneselawtranslation.go.jp/rel_info/info_transinformation?re=02, accessed 1 June 2020. PwC (2020) Worldwide Tax Summaries – Japan. https://taxsummaries.pwc.com/japan, accessed 24 June 2020.

http://www.japaneselawtranslation.go.jp/law/detail_main?re=01&vm=04&id=29

https://www.sozeishiryokan.or.jp/corporation_tax/corporation_tax2019e.html

https://www.jetro.go.jp/en/invest/setting_up/section3/page3.html

http://www.japaneselawtranslation.go.jp/rel_info/info_transinformation?re=02

https://taxsummaries.pwc.com/japan


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11 Papua New Guinea

188. The principal laws that regulate mining activities in Papua New Guinea are:

• Mining Act 1992, which sets out how mining projects should be administered and regulated;

• Mining (Safety) Act 1977, which stipulates safety requirements on mine sites, provides for investigations and inquiries into mine accidents and establishes a regime for certification of prescribed mining roles;

• Mining (Ok Tedi Agreement) Acts, which govern the operation and development of mineral deposits in relation to the Ok Tedi mine;

• Mining (Bougainville Copper Agreement) Act 1967, which governs the Panguna mine on Bougainville. Note that separate mining legislation exist for the Autonomous Region of Bougainville – the Bougainville Mining Act 2015, which was passed by the Autonomous Bougainville Government in 2015. The relationship between these respective pieces of legislation is unclear as the former has not been repealed, nor have the references to it in the Mining Act been amended.

189. Oversight, administration and enforcement of these acts and associated agreements, as well as any other legislation related to mining, is the responsibility of the Mineral Resources Authority. The Mineral Resources Authority is established under the Mineral Resources Authority Act 2005. During 2018, the Mineral Resources Authority Act 2005 was repealed and replaced with the Mineral Resources Authority Act 2018 made by the National Parliament on 14 February 2018, by an absolute majority in accordance with the Constitution.

190. Papua New Guinea kina (PGK) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = PGK 3.5.

11.1 Deep-sea mining projects

191. Canadian company Nautilus Minerals which has develop the Solwara deep-sea mining project outside Papua New Guinea went bankrupt in 2019. This was the most advanced sea-floor mining project in deep-sea waters within national jurisdiction.

11.2 Royalties

192. Papua New Guinea charges 2% royalty on net smelter returns (production sales). Royalties are collected by the State and apportioned to relevant landowners and provincial governments.


193. Production levy (applicable to mining projects) is 0.5% of assessable income (primarily, but not exclusively Free on Board). The production levy applicable to mining projects is used to fund the activities of the Mineral Resources Authority. The new Mineral Resources Authority Act 2018, certified in July 2018, increased the production levy to 0.5%.

194. The Internal Revenue Commission collects and manages taxes paid to the central government. The Mineral Resources Authority are the institution responsible for collecting


Final draft 49

fees for mining. Provincial and local governments, as well as landowner groups, receive subnational payments. According to Extractive Industries Transparency Initiative (EITI) the extractive sector contributed to 10.1% of government revenues in 2018.


195. Administrative fees are charged for all exploration and mining activity. Mining lease fees are based on the size of the operation.

196. Exploration licence (including extensions) PGK 5,000 (≈USD 1,435).

197. Mining lease 5-10 ha PGK 2,500 (USD 718), 10-50 ha PGK 5,000 (≈USD 1,435), 50-500 ha PGK 10,000 (≈USD 1,870), special mining lease PGK 500,000 (≈USD 143,505). Alluvial mining lease PGK 250 (≈USD 72). Mining easement PGK 10,000 (≈USD 1,870). Extension for leases 50% of grant application fee.

Table 12. Papua New Guinea administrative fees (PGK).

Application for grant or extension of term of: Fees (PGK)

Exploration licence (including extensions) 5,000

Mining lease up to 5 ha 400

over 5 up to 10 ha 2,500

over 10 up to 50 ha 5,000

over 50 up to 500 ha 10,000

over 500 ha 50,000

Special Mining Lease 500,000

Alluvial Mining Lease 250

Lease for Mining Purposes 10,000

Mining Easement 10,000

Application for consolidation of tenements 1,000

Extension of term for lease (other than exploration Licenses) - at 50% of grant application fee.

Source: Papua New Guinea government & RMG Consulting (2020).


198. Under the current Environment Management Fees Regulations, 2015, there are two categories of fees for all sectors including Mining Sector. Both are managed by the Conservation & Environment Protection Authority (CEPA).

11.5.1 CEPA Administration / Recurrent Fees

199. This fee is charged to all permit holders every year and it represent portion of CEPA's budget: mining projects range from Level 2 (Alluvial Mining) to Level 3 (Mining and Extraction) activities:

• The Alluvial Mining Activity fall under Fee Category (2.2) which is PGK 17,327; • Some Mechanized Mining Activity (depending on the scale of the operation) fall

under Fee Category (2.3) which is PGK 37,760; and


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• The Mining & Extraction Activity fall under Fee Category 3.2, the fee is PGK 250,430; or Fee Category 3.3, the fee is PGK 543,170.00 or Fee Category 3.4 PGK 1,054,053, again depending on the scale: • For Exploration Activities which are Level 2 Activities, their fees fall at Fee

Category 2.3;

These annual fees are likely to change (increase/decrease) each year depending on the number of permits CEPA have under each of the fee category.

11.5.2 CEPA Operational / Technical Fees 200. These fees are charged Permit Holders or Proponents who are applying for permits (New/Amendment/Renewal/Transfer/etc.). The fee is charged for the assessment of these applications. 201. These fees are also charged existing Permit Holders for Annual Compliance Monitoring and Enforcement in regard to for example environment auditing.


202. Corporate income tax is standardised to 30% for mining and non-resource companies. Corporate tax is levied on taxable income, that is, assessable income less deductions allowed under the Tax Act. The taxation regime for extractive industries is designed such that a resource company is taxed on a project basis (‘ring fencing’), effectively taxing each project like a separate taxpayer. This means that revenue, expenses and losses from each project are effectively quarantined from each other, with any expense attributable to more than one project apportioned to the projects on a reasonable basis. However, the regime does allow some concessions to ring fencing with respect to exploration expenditure and expenditure carried forward from discontinued projects.


203. The deduction allowed each year due to exploration costs is limited to the lesser of 25% of the total balance of the exploration pool or the amount that would reduce the income tax otherwise payable for that year by 10% in the case of oil and gas companies or 25% in the case of mining companies. During the production phase, ordinary operating and administrative expenses can be immediately deducted, but there are deduction limits in relation to certain expenditure such as interest and management fees. Exploration expenditure, as well as capital expenditures, are written off over the life of the project and deductions allowed each year are limited such that it does not create a tax loss.


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11.8 References – Papua New Guinea

Papua New Guinea National Gazette 3 December 2015, No G792, accessed 1 June 2020 Papua New Guinea National Gazette 23 June 2016, No G393. https://mra.gov.pg/Portals/0/docs/New%20Application%20Fees%20for%20Special%20Mining%20Lease.pdf?ver=1980-01-01-000000-000, accessed 28 August 2020. EITI (2019) Papua New Guinea Extractives Industries Transparency Initiative (PNG EITI) 2018 report. 20 December 2019. https://eiti.org/files/documents/2018-png-eiti-report.pdf, accessed 1 June 2020 PwC (2020) Worldwide Tax Summaries – Papua New Guinea. https://taxsummaries.pwc.com/papua-new-guinea, accessed 24 June 2020.

https://mra.gov.pg/Portals/0/docs/New%20Application%20Fees%20for%20Special%20Mining%20Lease.pdf?ver=1980-01-01-000000-000

https://mra.gov.pg/Portals/0/docs/New%20Application%20Fees%20for%20Special%20Mining%20Lease.pdf?ver=1980-01-01-000000-000

https://eiti.org/files/documents/2018-png-eiti-report.pdf

https://taxsummaries.pwc.com/papua-new-guinea


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12 Peru

204. The General Mining Law (Supreme Decree no 014-92-EM (1992)) with Regulations and ancillary rules govern mining activities in Peru.

205. Peruvian sol (PEN) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = PEN 3.6.

12.1 Royalties

206. Mining producers are required to pay some taxes unique to the mining sector, such as the Modified Mining Royalty, Special Mining Tax (SMT) or Special Mining Burden (SMB).

207. Each of these mining taxes is calculated on operating income as determined for book purposes, not income tax purposes. Operating income is defined as revenues generated from the sale of mineral resources less (i) cost of goods sold (COGS) and (ii) operating expenditures.

208. Some companies will be subject to the Modified Mining Royalty and Special Mining Tax. These taxes are imposed in parallel, which means that for purposes of calculating the total tax burden, the sum of the two taxes should be counted. Companies with pre-2011 tax stabilization agreements do not pay the Modified Mining Royalty and Special Mining Tax. They are, however, subject to the Special Mining Burden.

209. The Modified Mining Royalty applies on companies’ operating income. Modified Mining Royalty rates range from 1% to 12%. An “operating income” to “mining operating revenue” measure (operating profit margin) is calculated each quarter and depending on operating profit margin the royalty rate increases as the operating margin increases. The system has been designed to provide both a minimum royalty and an additional amount based on the profitability of the project. The company must always pay at least the minimum royalty rate of 1% of sales. The Modified Mining Royalty is deductible against corporate income tax. The following table shows the rates.

Table 13. Peru, Modified Mining Royalty rates (%).

Profit margin Royalty rate

0-10% 1%

10-15% 1.75%

15-20% 2.5%

20-25% 3.25%

25-30% 4%

30-35% 4.75%

35-40% 5.5%

40-45% 6.25%

45-50% 7%

50-55% 7.75%

55-60% 8.5%

60-65% 9.25%

65-70% 10%

70-75% 10.75%

75-80% 11.5%

More than 80% 12%


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Source: Government of Peru & RMG Consulting (2020).

210. The Special Mining Tax is a tax imposed in parallel with the Modified Mining Royalty. It applies to the operating profit derived from sales of metallic mineral resources. The Special Mining Tax is applied on operating margin based on a sliding scale, with progressive marginal rates ranging from 2% to 8.40%. The Special Mining Tax is deductible against corporate income tax. The following table shows the rates.

Table 14. Peru, Special Mining Tax rates (%).

Operating margin Rate of tax

0-10% 2%

10-15% 2.4%

15-20% 2.8%

20-25% 3.2%

25-30% 3.6%

30-35% 4%

35-40% 4.4%

40-45% 4.8%

45-50% 5.2%

50-55% 5.36%

55-60% 6%

60-65% 6.4%

65-70% 6.8%

70-75% 7.2%

75-80% 7.6%

80-85% 8%

More than 85% 8.4%

Source: Government of Peru & RMG Consulting 2020.


211. The Special Mining Burden, 4-13.12% of operating income, is applicable for companies with mining stabilization agreements before 1 October 2011. The Special Mining Burden is not a tax as determined by general legal principles given that it is not a compulsory payment imposed under Peru’s authority to levy taxes. The Special Mining Burden is considered a “voluntary” payment. Mining companies with pre-2011 fiscal stabilization agreements may elect to pay it on a voluntary basis to help build schools, hospitals, roads, electricity and water supplies that are much needed to reduce infrastructure bottlenecks. The following table shows the rates.


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Table 15. Peru, Special Mining Burden rates (%).

Operating margin Rate

0-10% 4%

10-15% 4.57%

15-20% 5.14%

20-25% 5.71%

25-30% 6.28%

30-35% 6.85%

35-40% 7.42%

40-45% 7.99%

45-50% 8.56%

50-55% 9.13%

55-60% 9.7%

60-65% 10.27%

65-70% 10.84%

70-75% 11.41%

75-80% 11.98%

80-85% 12.55%

More than 85% 13.12%

Source: Government of Peru & RMG Consulting 2020.

212. The Special Mining Burden is computed on a quarterly basis also based upon operating income, with marginal rates ranging from 4% to 13.12%. Mining royalty payments, if applicable, are creditable against Special Mining Burden payments.


213. Standard CIT is 29.5% in Peru. 2% extra is charged for companies with stability agreements. There is also an obligatory 8% additionally in workers' participation, a profit-sharing system. The workers participation fee is a sort of fund for the benefit of the workers and can for example be used for further education.


214. Modified Mining Royalty, Special Mining Tax, Special Mining Burden and workers' participation are all deductible. Losses may be either:

1. carried forward four years or 2. offset against 50% of losses any year and carried forward indefinitely.

12.4.1 Depreciation

215. Depreciation uses the straight-line method with a declining balance. Examples of depreciation include:

• Buildings 5%. • Machinery and equipment 20%. • Data processing equipment 25%.


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12.5 References – Peru

SUNAT (2012) INFORME N.° 014-2012-SUNAT/4B0000. http://www.sunat.gob.pe/legislacion/oficios/2012/informe-oficios/i014-2012.pdf, accessed 30 May 2020. SUNAT (2012) Tasa efectiva aplicable y determinacion del Impuesto Especial a la Minería – IEM. http://orientacion.sunat.gob.pe/images/anexo_IEM_impuesto_especial_a_la_mineria.pdf, accessed 30 May 2020. Government of Peru (1992) Texto Unico Ordenado de la Ley General de Mineria. Decreto Supremo No 014-92-EM. http://www2.congreso.gob.pe/sicr/cendocbib/con3_uibd.nsf/89E200B65DCF6DE9052578C30077AC47/$FILE/DS_014-92-EM.pdf, accessed 21 May 2020. Government of Peru (2012) Ley que establece el Marco Legal del Gravamen Especial a la Mineria. https://www.presidencia.gob.pe/documentos/leyes/Ley%20que%20establece%20el%20Marco%20Legal%20del%20Gravamen%20Especial%20a%20la%20Miner%c3%ada.pdf, accessed 30 May 2020. Ernst & Young (2020) Peru’s mining & metals investment guide 2019/2020. http://www.embajadadelperu.org.co/docs/Mining%202019%20-%202020.pdf, accessed 22 May 2020. Lexology (2019) Mining duties, royalties and taxes in Peru. 4 July. https://www.lexology.com/library/detail.aspx?g=889619e6-1732-42a9-a670-11e7d89b05ae, accessed 22 May 2020. PwC (2019) Worldwide Tax Summaries – Peru. https://taxsummaries.pwc.com/peru, accessed 24 June 2020.

http://www.sunat.gob.pe/legislacion/oficios/2012/informe-oficios/i014-2012.pdf

http://orientacion.sunat.gob.pe/images/anexo_IEM_impuesto_especial_a_la_mineria.pdf

http://www2.congreso.gob.pe/sicr/cendocbib/con3_uibd.nsf/89E200B65DCF6DE9052578C30077AC47/$FILE/DS_014-92-EM.pdf

http://www2.congreso.gob.pe/sicr/cendocbib/con3_uibd.nsf/89E200B65DCF6DE9052578C30077AC47/$FILE/DS_014-92-EM.pdf

https://www.presidencia.gob.pe/documentos/leyes/Ley%20que%20establece%20el%20Marco%20Legal%20del%20Gravamen%20Especial%20a%20la%20Miner%c3%ada.pdf

https://www.presidencia.gob.pe/documentos/leyes/Ley%20que%20establece%20el%20Marco%20Legal%20del%20Gravamen%20Especial%20a%20la%20Miner%c3%ada.pdf

http://www.embajadadelperu.org.co/docs/Mining%202019%20-%202020.pdf

https://www.lexology.com/library/detail.aspx?g=889619e6-1732-42a9-a670-11e7d89b05ae

https://www.lexology.com/library/detail.aspx?g=889619e6-1732-42a9-a670-11e7d89b05ae

https://taxsummaries.pwc.com/peru


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13 Philippines

216. The Regalian Doctrine is the fundamental law governing public domain. It gives the government the full control in the exploration, development and utilization of the country’s natural resources. The Indigenous People’s Rights Act of 1997 recognizes the rights of indigenous peoples to own their ancestral domains and to require free prior and informed consent (FPIC) before resources are extracted in their areas.

217. The Mining Act of 1995 is the main law that governs large scale mining in the country. It includes provision on the revenue sharing between national and local governments, environmental and social responsibilities of mining operations and the protection of rights of indigenous peoples.

218. The Constitution sets some limitations on the government’s capacity to enter into agreement with private enterprise in the exploration, development and utilization of natural resources. The private enterprise should be 60% Filipino owned. The duration of the agreement should be 25 years and can be renewed for another 25 years subject to the conditions of the law.

219. The Constitution also allows the government to enter into an agreement with foreign owned corporations on financial and technical assistance (FTAA). This agreement allows 100% foreign-owned companies to conduct large-scale exploration, and extraction of minerals in the country.

220. The following are the four modes of mineral agreement for large scale mining operations:

1. Mineral Production Sharing Agreement (MPSA) –the Government grants the contractor exclusive right to conduct mining operations within a contract area and share in the gross output. The contractor provides the financing, technology, management and personnel necessary for the implementation of this agreement. (mostly on both metallic and non-metallic minerals with 60% Filipino ownership).

2. Co-production agreement – the Government provides inputs to the mining operations other than the mineral resource as compared with the MPSA. The share of the Government on the gross output shall be negotiated by the Government and the Contractor.

3. Joint-venture agreement – this is an agreement where a joint-venture company is set up by the Government and the contractor with both parties having equity shares. Aside from earnings in equity, the Government shall be entitled to a share in the gross output.

4. Financial or Technical Assistance Agreement (FTAA) – this is a mining contract for large scale mining operation that allows 100 percent foreign equity participation/ownership and requires the approval of the President upon recommendation of a negotiating panel.

221. Currently, the government has approved MPSAs and FTAAs only. The capital requirement for FTAA is PHP 500 million.

222. Philippine peso (PHP) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = PHP 48.4.


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13.1 Royalties

223. Taxes and royalties are levied on gross revenues and profits of mining companies and based on the market value of the gross output. The royalty is divided into two parts an Excise Tax payable by all mineral producers and a Royalty levied dependent on landowners. The excise tax was named as such (but is a royalty) to distinguish it from the royalty payments from those located in mineral reservations.

• Royalty from operations in mineral reservation areas11 is 5% of the market value of the gross output.

• Excise tax (4% of the market value of the gross output.

224. All MPSA and FTAA contractors have to pay:

• 4% excise tax plus

a. 5% royalty (if mining areas are located in mineral reservations) or

b. 1%-1.5% (paid only if mining areas are located in Indigenous People areas ancestral land/domain or

c. 2% Royalty (paid only if mining areas have surface owners).

Thus, maximum royalty is 9% (4% plus 5%), paid by those in mineral reservations; minimum royalty is 5% (4% plus 1%-1.5%), paid by those in Indigenous People areas.

225. Both IP and surface owner’s royalties are negotiated. Land cannot be both mineral reservation and IP land or have surface owners.


226. Exploration fee is PHP 300 per hectare. For those in operation there is an occupation fee PHP 75 (USD 1.5) per hectare outside mineral reservations, PHP 100 (USD 2) per hectare inside mineral reservations including offshore areas. Registration and permit fees also apply.


227. Environment-related capital expenditure should be 10% of the total capital/project cost. Initial environment-related capital expenditures may include environmental studies and design cost, waste area preparation, tailings/slime containment/disposal system, mine waste disposal system, wastewater/acid mine drainage treatment plants, dust control equipment, air pollution control facilities, drainage system and other environment-related mitigating measures and capital expenditures.

228. Annual Environmental Protection and Enhancement Programme (AEPEP) should be three to five percent (3-5%) of the direct mining and milling cost. The AEPEP should include rehabilitation, regeneration, revegetation and reforestation of mineralize areas, slope stabilization of mined-out and tailings covered areas, aquaculture, watershed development,

11 Mineral reservations are areas established by the President of the Philippines when national interest so requires such that when there is a need to preserve strategic raw materials for industries critical to national development or certain minerals for scientific, cultural and ecological values. All offshore areas are considered mineral reservations.


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water conservation and socioeconomic development. Companies are also required to “technically” and “biologically” rehabilitate the excavated and mined out areas to the condition of environmental safety. The 3-5% are funds allocated by the mining contractor for the AEPEP or the Annual Environmental Protection and Enhancement Programme. This is not paid to the government but is monitored by the Mines & Geo-sciences Bureau (MGB). The AEPEP is reviewed by the Multipartite Mining Monitoring Team (MMT) and approved annually by the MGB.

229. Several funds are further created for the benefit of the environment, mine closure etc. Examples include:

• Contingent Liability Rehabilitation Fund (CLRF)

• The Mine Rehabilitation Fund (MRF)

• Monitoring Trust Fund

• A Rehabilitation Cash Fund (RCF)

• Mine Waste and Tailings Reserve

• Final Mine Rehabilitation and Decommissioning Fund

• A Mineral Reservation Trust Fund (MRTF)

13.3.1 Social Development Management Programmes

230. Mining contractors are further expected to contribute to the development of their host communities. During exploration, permit holders are required to formulate their Community Development Programme (CDP) which should be at least 10% of the budget for the approved 2-year exploration work.

231. Contractor should also develop a Social Development and Management Programmes (SDMP) that promotes the general welfare of the host and neighbouring communities and develop mining technology and geoscience. The minimum allotment is 1.50% of the mining company’s direct mining and milling cost for the SDMP.


232. A domestic corporation is subject to tax on its worldwide income while a foreign corporation is subject to tax only on income from Philippine sources. The CIT in the Philippines is 30%.

233. The Corporate Income Tax and Incentives Reform Act provides for an across-the-board cut in the corporate income tax rate from 30% to 25% starting 2021. An enhanced net operating cost carry over is extended from 3 to 5 years for losses incurred in 2020, applicable to all businesses that are not large taxpayers. Further, flexible incentives can be applied which will allow the government to tailor-fit tax and non-tax incentives to attract specific companies. This Bill, which was revised into another bill has yet to be passed into a law this year (2020).

13.5 Other taxes

234. Other national government taxes and fees applicable to the mining industry are amongst others:

• Customs duties and fees on imported capital equipment;


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• Value-added tax on imported goods and services (12% of the value of good);

• Withholding tax on interest payments on foreign loan (10%, 20% if payable to non-resident foreign corporations);

• Withholding tax on dividends to foreign stockholders (30%);

• Documentary stamps taxes (varies depending on the document being taxed); and

• Capital gains tax (varies depending on the asset being taxed).

13.5.1 Incentives

235. Incentives provided by the Omnibus Investments Code of the Philippines are:

• Income Tax Holiday (ITH) of four (4) to eight (8) years reckoned from the scheduled start of commercial operation;

• Duty free importation of capital equipment under Executive Order No. 528;

• Exemption from wharfage dues and export tax, duty impost and fees;

• Tax credit on raw materials and supplies that form part of the exported product;

• Additional Deduction for Labour Expense (ADLE) within five (5) years from start of commercial operations;

• Importation of consigned equipment for a period of 10 years from the date of registration, subject to posting of a re-export bond;

• The privilege to operate a bonded manufacturing/ trading warehouse subject to customs rules and regulations;

• Income tax incentive to carry forward losses and accelerated depreciation under the Mining Act of 1995; and

• A net operating loss without the benefit of income tax-accelerated depreciation incurred in any year during the first ten (10) years of the Contractor's operation which may be carried over as a deduction from taxable income for the next five (5) years immediately following the year of such loss.


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13.6 References – Philippines

Article XII Section 2 of the 1987 Constitution, accessed on 1 June 2020. La Bugal B’laan Tribal Association Inc. v. Secretary of the Environment G.R. No. 127882. December 1, 2004 7 Mining Act of 1995, accessed on 1 June 2020. Philippine Mining Act of 1995 and its Implementing Rules and Regulations, accessed on 1 June 2020. Department of Environment and Natural Resources, 2007. Revised Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance Agreements (FTAA). DAO 2007-12, accessed on 1 June 2020. Department of Environment and Natural Resources, 2005. Administrative Order No. 2005-08: Providing for New Fees and Charges for Various Services of the Mines and Geosciences Bureau, accessed on 1 June 2020. Administrative Order No. 2010-21, Revised rules and regulations of the Philippine Mining Act of 1995 IRR of Mining Act, DENR DAO 2007, accessed on 1 June 2020. Local Government Code of 1991, accessed on 1 June 2020. Omnibus Code of 1987, Exec. Order No. 226 as amended, accessed on 1 June 2020. The Tax Reform for Acceleration and Inclusion (TRAIN LAW) R. A. 10963 – Dec. 2017. BIR (RR) 13-2018 – Implementing Rules and Regulations of the Train Law, accessed on 1 June 2020. TRAIN 2 or CITIRA- Comprehensive Income Tax and Incentives Rationalization Act --Reducing the corporate income tax to 20% and rationalizing fiscal incentives (yet to be approved – refiled as CREATE bill), accessed on 1 June 2020. Philippine Extractive Industries Transparency Initiative Report FY 2012. Manila, Philippines: Department of Finance. Philippine EITI (2015), accessed on 1 June 2020. PwC (2019) Worldwide Tax Summaries – Philippines. https://taxsummaries.pwc.com/philippines, accessed 12 May 2020.

https://taxsummaries.pwc.com/philippines


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14 Poland

236. Exploration and extraction of minerals are mainly regulated by the Prawo geologiczne i górnicze 2011 (Mining Act) which is continuously updated and has been adapted to current EU legislation in particular as far as environmental issues are concerned.

237. Poland applies at least 30 different taxes and fees for companies engaged in mining. Most of these are not mining-specific but apply to companies in different sectors.

238. Polish zloty (PLN) to US dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = PLN 4.0.

14.1 Royalties

239. Poland operates a two-tier royalty system (with a third layer added for copper and silver)12:

• Mining Concession Fee usually translated from Polish as the ‘mining usufruct fee’ (opłata za użytkowanie górnicze) is based on the value of the deposit.

• Mining Exploitation Fee (opłata za użytkowanie górnicze) is based on the volume of the mining production (a proper royalty).

14.1.1 The Mining Concession/usufruct Fee

240. The Mining Concession/usufruct Fee is made up of two components:

• The fixed element is a small percentage of the value of the deposit based on its proven reserves and varies depend on mineral from 0.0005% of the deposit in-situ value to 0.1%. For metallic ores it is 0.005%. The commodity price used for this calculation is published annually by the Treasury. In production years beyond year one a depletion correcting factor is also used to reflect the diminishing resource.

• The variable element is calculated as a fraction (5-50%) of the exploitation fee paid by the miner in the preceding year. For metal mining it is 30%. This means that the royalty (the Mining Exploitation Fee) is paid twice – once in its own right in a given year, and the second time (as a fraction) in the following year as part of the concession fee.

241. The Mining Concession/usufruct Fee is also payable at the exploration stage when no production is taking place. The calculation rules are different then (as no value of the deposit is known). The fee is calculated by multiplying the exploration licence area in square km by a fee published annually by the Government. In 2020 these fees are (per km2):

• For coal and uranium – PLN 609.47 (≈USD 150);

• For lignite – PLN 243.81 (≈USD 60); • For all other minerals, including metallic ores – PLN 121.93 (≈USD 30);

• For hydrocarbons – PLN 229.15 (≈USD 57).

242. The variable element does not apply in case of exploration entities. Annual fee beyond year three of exploration licence is escalated according to a table reaching 400% of

12 See 14.2 Mineral taxes other than royalties below.


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standard fees in year five and up to 800% in year eight in case of the advanced exploration licence.

243. The full set of rules for calculating the mining usufruct fee described above is 22-pages long.

14.1.2 Mining Exploitation Fee

244. The Mining Exploitation Fee (a proper royalty) is based on the production volume. It is calculated by multiplying the volume of mineral produced (tonnage of metal contained) by a tax rate set annually by the Polish Government. The full royalty rates table is 61 items long, but it only lists five metals by name (see below). All other metals fall into the “other extractable minerals” category.

Table 16. Polish metal mining royalty rates (PLN & USD).

Mineral Unit of production Rate per unit

Magnesite (MgCO3) metric ton PLN 5.63 (≈USD 1.40)

Zinc and Lead Ores metric ton PLN 1.37 (≈USD 0.34)

Copper ores metric ton PLN 3.70 (≈USD 0.92)

Gold ores gram PLN 0.52 (≈USD 0.13)

Uranium ores kilogram PLN 9.90 (≈USD 2.45)

Other minerals (incl. Co, Ni, Mn) metric ton PLN 4.25 (≈USD 1.05)

Source: Government of Poland, RMG Consulting (2020).

245. The royalty for the by-products (e.g. silver in case of copper mining for example) are reduced by 50%. This fee is payable every six months.

246. The Mining Exploitation Fee can be partially treated as an environmental levy, as 40% of it is paid into a special governmental environmental fund13. The remaining 60% is paid to local authorities of the mine location.


247. The Special Mining Tax introduced in 2012 and officially known as the “Tax on Certain Extracted Minerals” (Podatek od Niektórych Kopalin) is de-facto the third tier of the royalty system in Poland. It only applies to copper and silver and – at present – only applies to one company, the copper & silver combine KGHM Polska Miedz.

248. The tax is based on the volume of production of copper and silver contained in concentrates (or in the mined ore if concentrates are not produced) and the average monthly price of copper (as quoted on the London Metal Exchange) and silver (as published by the London Bullion Market Association). For avoidance of doubt both prices are officially re-published in Polish zloty by the Ministry of Finance. The tax rate grows exponentially when the prices of metals grow and is calculated by two formulae:

• For copper:

13 The National Fund for Environmental Protection and Water Management (Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej)


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- If the average monthly copper price is greater than PLN 15,000 (≈USD 3,700 /t) then the tax rate is:

• Tax Rate = [0.033 × Cu Price + (0.001 × Cu Price)2.5] × 0.85 (a maximum rate of PLN 16,000 /t is applied)

- If the average monthly copper price is smaller than PLN 15,000 (≈USD 3,700 /t) then the tax rate is:

• Tax Rate = (Cu Price – PLN 12,000) × 0,374 (a minimum rate of 0.5% of Cu Price is applied)

• For Silver: - If the average monthly silver price is greater than PLN 1,200 /kg (≈USD 9.25

/troy oz) then the tax rate is: • Tax Rate = [0.125 × Ag Price + (0.001 × Ag Price)4] × 0.85 (a maximum

rate of PLN 2,100 /kg is applied) - If the average monthly silver price is smaller than PLN 1,200 /kg (≈USD 9.25

/troy oz) then the tax rate is: • Tax Rate = (Ag Price – PLN 1,000) × 0.638 (a minimum rate of 0.5% of

Ag price is applied)

249. The taxpayer is required to self-calculate the tax due and pay it monthly to the local Customs Authorities. If the company is loss-making it can subtract the accumulated losses from the tax due, insofar as these losses can be attributed to the copper and silver production only. It can only subtract such losses if:

• They have not been already subtracted from the income tax (corporation tax); and • In normal accounting loss carry forward is limited to 5 years, but in this case losses

beyond 5 years can be subtracted.

250. Originally (in 2012) the above tax rates were higher but they were reduced in 2019.


251. Some of the elements of what is described above under the heading royalties could be treated as administration fees. This applies mostly to the exploration licence fees, but the way they are constructed and where they sit in the legal system (together with mining exploitation fees) makes them part of the royalty system.

252. One fee which is clearly mining-sector-specific is the fee for using geological information (a payment for data). The rationale behind this fee is that if government had spent millions in the past to obtain the geological data through drilling, geophysics etc, it has the right to recoup at least part of this cost by selling the data. These fees should reflect the cost of obtaining the data discounted by the passage of time (drilling data obtained in say 1930s might not be as accurate as those from recent years).


253. The Polish Mining Law (the Mining Code) does not list any environmental levies specifically relating to mining. Instead it prefers to deal with environmental matters by a system of environmental permits, without which mining licences are invalid.


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254. Part of the Mining Exploitation Fee (royalty) is paid into a special governmental environmental fund, this part (40%) could be treated as an environmental levy of sorts. However, since it is levied as a royalty it will be treated as a royalty.

255. Mining operations are obliged to create and maintain a Mine Closure Fund (Fundusz Likwidacji Zakładu Górniczego). Such fund is held by the company in its own bank account and can consist of cash or interest-paying Government bonds. Strictly speaking it is not a levy nor tax, as it is not paid into the state budget.

256. The fund value is calculated as follows:

• For open pit operations – 10% of the Mining Exploitation Fee • For underground operations – 3% of CAPEX depreciation as calculated for the

purposes of the income tax (corporation tax).

257. Mining operations also pay general environmental levies as required by various environmental regulations, but these levies are not specific to the mining sector. They are jointly known as “fees for using the environment” (Opłaty za korzystanie ze środowiska) and are applied in case of:

• Emissions of harmful gases or particulate matter (dust) into the atmosphere; • Discharge of sewage to the river system or to the ground; • Water usage; and • Solid waste storage.

258. There is also a charge in case of changing of the intended use of agricultural land or forests. If a local zoning plan designated a piece of land as ‘agricultural land’ or a ‘forest’ and somebody (a mining company in this case) wants to use if for another purpose (mining) it has to pay an exemption fee which is proportional to the area of the land in question and its quality (soil class or type of wood).


259. Broadly speaking Polish CIT rules are in line with other EU countries. The CIT rules are not identical with the general accountancy rules – usually a modification to general accounting rules are required to calculate profits for the purpose of CIT.

260. The CIT in Poland has two rates:

• Standard flat rate of 19%; and • Reduce rate of 9% for ‘small taxpayers’ – entities with a turnover of less than EUR

1.2 million (including VAT).

261. The scope of the tax is broad – it applies to all types of income, including capital gains (there is no separate capital gains tax). If the taxpayer is domiciled in Poland the tax applies to its worldwide income. There is no ‘windfall tax’ or ‘super-profits tax’.


262. Tax losses from a given year can be carried forward for up to five years. The accumulated loss from the last five years can be set against profits of the current year but in a proportion not greater than 50% of the accumulated loss (i.e. the shortest period in which the losses can be offset is 2 years).


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263. Losses older than 5 years can be offset against the “Tax on certain commodities” currently applicable to copper and silver.


264. Most costs incurred in the normal course of business are deductible for CIT calculation purposes, but there are some exceptions. The full list of exceptions contains 62 items. Most notable exception are the financing costs, deductibility of which can be restricted.

265. Deductibility restrictions are applicable both to internal and external financing costs (not only interest). The deductibility limit for the excess of financing costs over financing revenue is set at 30% of tax EBITDA. The limit applies if the excess is over PLN 3 million.

266. Interest and royalties are subject to standard tax rates at payee level and are generally deductible for the payer.

267. Expenses incurred in connection with the acquisition of fixed and intangible assets (e.g. licences, trademarks, know-how) are not directly deductible. Instead, the acquired assets are subject to depreciation.

268. Exploration expenses are allowable against tax, but there might be special rules about timings of such deduction.

14.6.1 Depreciation

269. Assets which have a useful life of more than one year are subject to depreciation. Tax depreciation is often different from book depreciation. Tax depreciation rates are specified in tax law and cannot be exceeded. Both straight line and reducing balance methods are allowed (the latter applies only to machinery and equipment, except for passenger cars). In certain circumstances, accelerated tax depreciation can be applied. Land is not depreciated. Low value assets (up to PLN 3,500 net) may be written off immediately. Depreciation write-offs are treated as a tax-deductible cost.

Table 17. Selected depreciation rates in Poland used for CIT purposes (%).

Assets Depreciation rate (%)

Various buildings and constructions 1.5 to 10

Machinery and equipment (general) 7 to 20

Machinery for road building and construction 18 to 20

Machinery for paper industry 14

Office equipment 20

Computers 30

Source: RMG Consulting (2020).

14.7 Other taxes

270. There are no special tax stabilisation agreements, or other mining-specific incentives in Poland. There are no mineral export duties, expect for VAT chargeable on exports is goods are exported to countries outside the European Union.


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271. Dividends and royalties paid to entities outside Poland are subject to withholding tax, unless the Double Taxation Treaty with the country in question states otherwise. The withholding tax rates are:

• 19% for dividends; and • 20% for royalties.

272. Payments of dividends are exempt from corporate withholding taxation when:

• The recipient of the payment is a tax resident of any EU member state (+Switzerland and European Economic Area (EEA));

• The recipient of dividends holds at least 10% (25% in the case of Switzerland) of shares in the Polish subsidiary for an uninterrupted period of two years.


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14.8 References – Poland

“Daniny i Podatki płacone przez górnictwo w Polsce” in Wspolne Sprawy, Nr 3 (263), March 2015 (Biuletyn Zarządu Głównego Stowarzyszenia inżynierów i techników górnictwa), accessed 1 June 2020. “Podatki i opłaty w polskim górnictwie” (Taxes and fees in Polish mining industry) in PRZEGLĄD GÓRNICZY, Issue 5/2016, accessed 1 June 2020. PwC (2019) Worldwide Tax Summaries – Poland. https://taxsummaries.pwc.com/poland, accessed 12 May 2020.

https://taxsummaries.pwc.com/poland


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15 Russian Federation

273. The main acts regulating mining in the Russian Federation are:

• The Subsoil Law (Russian Federation Law no 2395-1 2018) and

• the Federal Law on Precious Metals and Precious Stones.

274. Russian rubel (RUB) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = RUB 74.5.

15.1 Royalties

275. Royalty rates in the Russian Federation are: cobalt 8.00%, copper 8.00%, manganese 4.80% and nickel 8.00%. The tax base is the value of the extracted mineral based on quantity and either sales price net of VAT, customs duty, and customs clearance fees (reduced by freight costs and refining costs) or the cost of production, as per the tax accounting records maintained for profit tax purposes.


276. There are no other mineral taxes in the Russian Federation.


277. Licenses are issued by auction to the highest bidder. Bid fee to participate in a tender or auction and signing bonus for award of the subsoil license applies. License fees are prescribed by specific terms of any license agreement.

278. One-time payments that become due if a certain event specified in the subsoil licence occurs (such as reaching a certain level of production, a discovery of a deposit, or commencement of exploration of a deposit).

279. Regular payments for the use of the subsoil for purposes other than production of mineral resources established separately for each stage of geological process. These other purposes include, works related to exploration of the deposit, appraisal of the deposit, use of subsoil for construction of facilities on the deposit and so on. The regular payments are paid quarterly, and their amount depends on the size and the specific geological and economic features of the subsoil deposit.


280. The Russian Federation has no specific environmental levies.


281. The maximum CIT rate is 20%. 2 percentage points payable to the federal budget. 18 percentage points are payable to the regional budget. The tax base is defined as total income received by a taxpayer minus related expenses and allowable deductions.


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282. There is no time limitation on utilization of losses. In 2017-2020, the amount of utilized loss carry forwards cannot exceed 50% of the tax base for the current period.


283. Royalty is deductible in the CIT calculation.

15.6.1 Depreciation

284. Depreciation of fixed assets is classified in one of ten groups depending on useful life. Two methods of calculating depreciation expenses are available, the straight-line method and the reducing balance method.

285. Useful life examples: metalworking tools/machinery 1-2 years, heavy trucks 7-10 years, blast furnace 20-25 years.

15.7 Other taxes

15.7.1 Export duties

286. There is an export tax on certain mineral compounds.

Table 18. Russian export custom duty rates for various minerals (% & EUR)

Type of mineral resource Export custom duty rate

Coke and semi-coke manufactured from coal, lignite or peat 6.5%

Diamonds 6.5%

Precious and semi-precious stones (excl. diamonds) 6.5%

Copper, various types 5% or 10%

Copper waste and scrap EUR 30, but not less than EUR 252 /t

Nickel waste and scrap EUR 16.66, but not less than EUR 400 /t

Aluminium alloys 2.5%

Aluminium waste and scrap EUR 30, but not less than EUR 228 /t

Lead waste and scrap EUR 22, but not less than EUR 77 /t

Zinc waste and scrap EUR 22, but not less than EUR 132 /t

Source: Deloitte, RMG Consulting (2020).


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15.8 References – Russian Federation

Federal tax service of Russia https://www.nalog.ru/eng/companies/tax_ind/akciz/, accessed on 1 June 2020. Bartholomy, Marc & Omelchenko, Ella & Tolkachev, Dmitrii & Chivragova, Maria (2019) Environmental law and practice in the Russian Federation: overview https://uk.practicallaw.thomsonreuters.com/w-013-5609?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1#co_anchor_a117997, accessed on 1 June 2020. Deloitte (2017) Doing business in Russia. https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/tax/doing_business_in_russia_2017_web.pdf, accessed on 1 June 2020. Josefson, Jennifer & Rotar, Alexandra & Lewis, Morgan (2019) Mining in the Russian Federation: overview https://uk.practicallaw.thomsonreuters.com/w-011-1888?transitionType=Default&contextData=(sc.Default)&bhcp=1, accessed on 1 June 2020. PwC (2019) Worldwide Tax Summaries – Russian Federation. https://taxsummaries.pwc.com/russian-federation, accessed 1 June 2020.

https://www.nalog.ru/eng/companies/tax_ind/akciz/




https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/tax/doing_business_in_russia_2017_web.pdf

https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/tax/doing_business_in_russia_2017_web.pdf

https://uk.practicallaw.thomsonreuters.com/w-011-1888?transitionType=Default&contextData=(sc.Default)&bhcp=1

https://uk.practicallaw.thomsonreuters.com/w-011-1888?transitionType=Default&contextData=(sc.Default)&bhcp=1

https://taxsummaries.pwc.com/russian-federation


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16 South Africa

287. Mineral and Petroleum Resources Development Act (no 28 2002) including regulations with amendments 2005 and 2008 are the main laws regulating mining in South Africa.

288. Diamonds are mined on the west-coast of South Africa in shallow water in the Atlantic Ocean outside Alexander Bay.

289. South African rand (ZAR) to United States dollar (USD) conversions (for illustrative purposes only) were done at the foreign exchange rate of USD 1 = ZAR 16.7.

16.1 Royalties

290. A person that wins or recovers a mineral resource from within the country must pay a royalty for the transfer of that mineral resource. The rates vary with refinement of the mineral/metal.

16.1.1 Refined

291. The royalty of a refined mineral resource is determined by multiplying the gross sales of the extractor in respect of that mineral resource during the year of assessment by the percentage determined in accordance with the formula below.

292. The percentage mentioned above is: 0.5 + [earnings before interest and taxes / (gross sales in respect of refined mineral resources x 12.5)] x 100. The percentage determined must not exceed 5%.

293. The refined condition of mineral resources for cobalt, copper and nickel are:

• Cobalt is refined once processed into cobalt metal or cobalt sulphate. 99.5% refined;

• Copper is refined once processed into copper metal slabs, blister copper or cathode copper of at least 99.0% purity; and

• Nickel is refined once processed into a metal, or other form (e.g. ferro nickel, nickel metal or nickel sulphate). 99.5% purity.

16.1.2 Unrefined

294. The royalty in respect of the transfer of an unrefined mineral resource is determined by multiplying the gross sales of the extractor in respect of that mineral resource during the year of assessment by the percentage determined in accordance with the formula below.

295. The percentage is: 0.5 + [earnings before interest and taxes / (gross sales in respect of unrefined mineral resources x 9)] x 100. The percentage determined must not exceed 7%.

296. The unrefined condition of mineral resources for cobalt, copper, nickel and manganese are:

• 7% cobalt in a polymineralic matte;

• 20% to 30% copper;

• 1.4% nickel content; and

• Manganese ore: Manganese 37%-48% and Si + Al less than 11%.


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16.2 Administrative Fees

297. Fees are payable both as a smaller fee to apply and a fee per hectare.

Table 19. South Africa, application fees (ZAR).

Onshore (ZAR) Offshore (ZAR)

Reconnaissance permit 100 500

Technical co-operation permit 100 500

Exploration right or a renewal thereof 500 1 000

Production right or a renewal thereof 1 000 5 000

Source: Government of South Africa, RMG Consulting (2020).

298. A fee based on area of prospecting is applied. The minimum prospecting fee is ZAR 1,000 for the first 1,000 ha. This fee increases with ZAR 100 per year for five years. In the case of prospecting over a larger area than 1,000 ha the rate is ZAR 1.0 /ha increasing by ZAR 0.5 per year up to five years.

Table 20. South Africa, prospecting fees (ZAR).

Category A B

Area in hectares 0-1000 1001 and greater

Year Fixed annual (ZAR) Rate ZAR/hectare

1 1,000 1.0

2 1,100 1.5

3 1,200 2.0

4 1,300 2.5

5 1,400 3.0


299. For a renewed period of prospecting or for exploration the minimum fee is ZAR 2,800 increasing by ZAR 100 per year for three years, for the first 1,000 ha. In the case of prospecting over a larger area than 1,000 ha the rate is ZAR 5.0 /ha increasing by ZAR 1.0 per year for up to three years.

Table 21. South Africa, fees for renewed prospecting right or exploration right (ZAR).

Category A B

Area in hectares 0-1000 1001 and greater

Year Fixed annual (ZAR) Rate ZAR/hectare

1 2,800 5.0

2 2,900 6.0

3 3,000 7.0


300. The terms and conditions of a production right agreed upon will be approved by the Mining Minister.


301. With effect from 1 June 2019, carbon tax is levied on entities that conduct activities in South Africa and that have direct greenhouse gas (GHG) emissions from owned sources


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exceeding a certain threshold. Generally, the threshold is thermal capacity of 10MW, but the exact threshold is determined with reference to the activity conducted by the entity.

302. The tax rate for carbon tax for 2020/21 is ZAR 127 per ton of CO2 emissions. Tax-free allowances are available to reduce the carbon tax liability to a maximum of 95% of taxable emissions. Taking into account the allowances, the effective tax rate is much lower and ranges between ZAR 6 and ZAR 48 per ton of CO2 emissions.


303. A South African resident company is subject to corporate income tax on its worldwide income, irrespective of the source of the income. Non-residents are taxable on South African source income.

304. In South Africa, the CIT rate applicable for corporate income of both resident and non-resident companies for tax years ending between 1 April 2020 and 31 March 2021 is a flat 28%.

305. Small business corporations (i.e. companies with only natural persons as members/owners and with gross income of not more than ZAR 20 million) are taxed at the following rates:

• 0% on the first ZAR 83,100 of taxable income;

• 7% on taxable income above ZAR 83,100 but not exceeding ZAR 365,000;

• 21% on taxable income above ZAR 365,000 but not exceeding ZAR 550,000; and

• 28% on taxable income exceeding ZAR 550,000.

306. Special CIT rates apply in certain industries, such as mining. Special rates of normal tax, based on a standard formula, are prescribed for companies mining for gold. Companies mining for other minerals are subject to the same 28% rate of normal tax that applies to ordinary companies.


307. Royalties are deductible in relation to CIT calculations.

16.5.1 Depreciation

308. A depreciation (wear and tear) allowance may be deducted on movable assets used for the purpose of trade. There are no statutory provisions relating to rates of wear and tear, but the South African Revenue Service (SARS) has published a table of periods over which the assets may be written off. The rates of wear and tear, based on the cash cost, are calculated either according to the straight-line or diminishing-balance method.

309. New and unused machinery used in a process of manufacture or in a similar process is depreciable at the rate of 40% in the first year of use and 20% in the three following years. If the machinery is not new and unused, an allowance of 20% per year over five years is available. Specific allowances are also provided for mining operations.


310. Special relief is provided for start-up (or pre-trade) expenditure to allow for a deduction in the year that trade commences. The expenses are only deductible if they


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would have been deductible had they been incurred after the commencement of trade. These expenses and any loss they create are ring-fenced and may only be deducted against income from the trade to which the start-up costs relate.


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16.6 References – South Africa

Government Gazette REPUBLIC OF SOUTH AFRICA Vol. 521 Cape Town 24 November 2008 No. 31635 https://www.gov.za/sites/default/files/gcis_document/201409/316351260.pdf accessed 1 June 2020. Government Gazette REPUBLIC OF SOUTH AFRICA Vol. 466 Pretoria 23 April 2004 No. 26275 http://www.energy.gov.za/files/esources/pdfs/energy/liquidfuels/min_petroleum_resources_dev_act_2002.pdf, accessed 1 June 2020. PwC (2019) Worldwide Tax Summaries – South Africa. Available at: https://taxsummaries.pwc.com/south-africa, accessed 12 May 2020.

https://www.gov.za/sites/default/files/gcis_document/201409/316351260.pdf

http://www.energy.gov.za/files/esources/pdfs/energy/liquidfuels/min_petroleum_resources_dev_act_2002.pdf

http://www.energy.gov.za/files/esources/pdfs/energy/liquidfuels/min_petroleum_resources_dev_act_2002.pdf

https://taxsummaries.pwc.com/south-africa