Peru is a global leader in the mining industry, which makes it a natural choice for international investors. It is one of the world’s biggest producers of base and precious metals. Currently, it is the third largest producer of copper and zinc in the world. Peru is also a major producer of gold, silver, among other minerals.
In recent years, increasing demand for mining commodities has led to rapid and large-scale development of mining exploration and production activities in Peru. The success of Peru’s mining sector stems not only from an abundance of rich natural resources, but also from an attractive legal and tax regime designed to support the industry.
Peru enjoys political and macroeconomic stability. It has a steadily growing economy, which is largely driven by mineral production. The high rates of production have attracted a large amount of inbound investment into Peru’s mining sector. An estimated US$ 59.5 billion is expected to flow into the country over the next few years. New mines and expansion projects are expected to more than double its copper production by 2016. But Peru has much more to offer. The mining sector has real potential for growth and further expansion. It holds golden opportunities for investors as much of the country is yet to be subjected to vast exploration, leaving an immense potential for future development.
(Source: EY’s Peru’s Mining & Metals Investment Guide, 2014-2015)
Peruvian Mining Law
Under Peruvian law, the Peruvian State is the owner of all mineral resources in the ground. Rights over such mineral resources are granted by means of the "Concession System". The Concession System provides for the existence of four (4) different types of concessions for the mining industry, which grant the titleholder the right to perform different activities related to the mining industry, as follows:
- Mining Concessions, which grant their titleholder the right to explore and exploit the mineral resources located within the boundaries of said concession;
- Processing Concessions, which grant their titleholder the right to extract or concentrate the valuable part of an aggregate of minerals extracted or to smelt, purify or refine metals;
- General Work Concessions, which grant their titleholder the right to provide ancillary services to two or more mining concessions; and,
- Mining Transport Concessions, which grant their titleholder the right to install and operate non conventional continuous transportation systems for mineral products between one or several mining centers and a port or processing plant, or a refinery or one or more stretches of these routes.
Mining concessions are considered immovable assets and are therefore subject to being transferred, optioned, leased and/or granted as collateral (mortgaged) and, in general, may be subject to any transaction or contract not specifically forbidden by law. Mining concessions may be privately owned and no minimum state participation is required. Buildings and other permanent structures used in a mining operation are considered real property accessories to the concession on which they are situated.
In June 2004, Peru's Congress approved a bill to allow royalties to be charged on mining projects. The royalties are levied on a Peruvian mine's annual sales of minerals in refined, semi-refined or concentrate form according to the international market value of minerals at the following rates:
- 1.0% for sales up to US$60M;
- 2.0% for sales between US$60M and US$120M; and
- 3.0% for sales greater than US$120M.
Taxation & Foreign Exchange Controls
Corporate net income is taxed at a rate of 30% of annual net income, subject to an additional 4.1% withholding tax at the time profits are distributed to shareholders. There are currently no restrictions on the ability of a company operating in Peru to transfer dividends, interest, royalties or foreign currency to or from Peru or to convert Peruvian currency into foreign currency.
Congress has approved a Temporary Net Assets Tax, which applies to companies subject to the General Income Tax Regime. Net assets are taxed at a rate of 0.5% on the value exceeding Nuevo Sol 1,000,000 (approximately US$300,000).
The General Mining Law provides to holders of mining rights the option of signing stability agreements with the Peruvian Government in connection with investments made to commence new mining operations or expand existing mining operations. Mining companies can obtain two complementary regimes (generally it is suitable that one company/operation have both regimes) of legal stability, the "General Legal Stability Agreement", which is signed with PROINVERSION, a government agency to encourage private investments; and the "Mining Guarantee Agreement", that is specific for mining companies.
Source: The La Arena Project, Peru Technical Report (prepared by Mining Plus on behalf of Rio Alto Mining Limited - effective Date 31 December 2013)