Mining

Last verified on Thursday 13th July 2017

Peru

Fernando Pickmann
Dentons (Lima)
  1. 1.

    Provide an overview of the mining industry in your country. What significance does the mining industry have as a component of the national economy?

  2. The mining industry is one of the most important economic activities in Peru. With 1 per cent of the Peruvian territory in operation, mining represents almost 15 per cent of the gross domestic product (GDP) and 65 per cent of exportations of the country. During the past decade, mining had a fundamental role in reducing poverty and developing the country. The economic indicators clearly reflect the contribution of the mining industry, generating jobs, invigorating the country and regional economies.

    The Peruvian government has always been committed to support mining activities and has adopted serious changes in legislation to avoid illegal mining. This year, the Ministry of Energy and Mines (MINEM) approved a legislative package of directives to regulate a new formalisation process for informal minors that did not start their formalisation process through previous process. Likewise, the mining industry has focused its efforts on being appreciated as an activity that makes sustainable use of resources and the environment, including the preservation of water sources, the promotion of agriculture and a fair relationship with stakeholders.

    Finally, Peru has a leading position in the global production of mineral commodities such as copper (second after Chile), gold (sixth after China, Australia, South Africa, the US and Russia), lead (fourth after China, Australia and the US), molybdenum (fourth after China, the US and Chile), silver (second after Mexico), tin (third after China and Indonesia) and zinc (third after China and Australia).

  3. 2.

    Describe the legal and regulatory framework. What laws establish and grant authority to the mining authorities?

  4. The mining industry is mainly regulated by central government through MINEM.

    Mining activities and industry are regulated by the Peruvian Political Constitution, Unified Text of the General Mining Law, Special Administrative Rules and Dispositions and complementary rules granted by MINEM and the Peruvian Civil Code. The main regulatory entities are the MINEM, the Geological Mining and Metallurgical Institute (INGEMMET) and the National Environmental Certification (SENACE).

    • MINEM is the authority in charge of the approval of administrative procedures for initiation of mining activities, granting beneficiary/processing concessions, and to approve environmental certifications of Category I and II of mining projects (Environmental Impact Statement – DIA and Environmental Impact Study Semi-Detailed – EIAsd). INGEMMET is the authority that runs mineral concessions cadastre providing complete public information regarding mining concessions.
    • SENACE is the authority in charge of the approval of category III Environmental Impact Study Detailed – EIA, which refers to mining projects whose execution, could cause significant impacts on the environment.
    • Assessment and Environmental Control Agency – OEFA as an environmental controlling entity.

    Notwithstanding the aforementioned, regional authorities support the central.

  5. 3.

    Describe the investment regime (specifically or generally) applicable to foreign company involvement in mining projects.

  6. According to the Peruvian Constitution, there are no differential treatments between Peruvian and foreign investors. Foreigners have exactly the same rights as Peruvians. The only exception is in case of foreigners intending to acquire mining rights or properties located within 50 kilometres of the Peruvian border line; in such case, they will not be able to acquire properties or mining rights unless they previously receive express authorisation from the central government through a Supreme Decree.

    Stability agreements

    Mining investors can sign stability agreements with the Peruvian government, whether under the special regime or under sectorial regimes (ie, mining and oil).

    1. Legal stability agreements.

    Under the general regime, investors can execute legal stability agreements with the Peruvian government that guarantee the following rights for a 10-year period: (i) stability of the

    Income Tax regime in force at the time of signing the agreement, with regard to dividends and profit sharing, (ii) stability of the monetary policy of the Peruvian government, according to which there is an absence of exchange controls, foreign currency can be acquired or sold freely at any type of exchange rate offered by the market, and funds (remittances) can be sent abroad without requiring prior authorisation; and, (iii) the right of non-discrimination between foreign and local investors. 

    1. Tax stability agreements for mining companies

    Under the mining regime, local mining companies can execute stability contracts and investment promotion measures that guarantee the incentives mentioned bellow for periods of 10, 12 or 15 years:

    Team Stability Minimum Investment Other requirements Possibility advance stability to Incentives
    10 years US$20 million Initial capacity of concession not less than 350 tonnes per day or than 5,000 tonnes per day in extensions Investment period of no more than three consecutive years
    • tax stabilisation;
    • free availability of foreign currency and non-
    • discrimination;
    • free commercialisation of mineral products;
    • stability of the special regimes, when they are granted, for tax rebates, temporary admission, and similar regimes; and
    • the non-unilateral amendment of the guarantees included in the contract by the state.
    12 years US$100 million
    US$250 million in current mining entities (as an exception)
    Initial capacity of concession no less than 5,000 tonnes per day or than 5,000 tonnes per day in extensions Investment period of no more than eight consecutive years This agreement includes the incentives aforementioned for a 10-year term of stability and the accounting books can be expressed in US dollars or in the currency in which the investment was made
    15 years US$500 million
    (as an exception)
    Initial capacity of concession no less than 15,000 tonnes per day or than 20,000 tonnes per day in extensions Investment period of no more than eight consecutive years This agreement includes the incentives aforementioned for a 12-year term of stability and the mining investor is entitled to apply a global depreciation rate of 20 per cent for its personal property (moveable assets) and 5 per cent for real estate (buildings and constructions)
  7. 4.

    Is your country a party to international investment treaties applicable to mining projects undertaken or sponsored by foreign companies?

  8. To consolidate an appropriate legal framework for the promotion of foreign investment Peruvian State has subscribed the: Multilateral Investment Guarantee Agency (MIGA), International Centre for Settlement of Investment Disputes, Convention of Recognition and Enforcement of Foreign Arbitral Awards and has more than 32 bilateral agreements with countries in Asia, Europe and Latin America. 

    Likewise, Peru has subscribed to free trade agreements with the following countries: Andean Community, MERCOSUR, USA, Chile, Canada, China, Singapore South Korea, Mexico, Japan, Panama, EU, Costa Rica, Cuba, Honduras and it is currently negotiating others with the El Salvador and Turkey. Also, Peru has signed double taxation relief agreements with Canada, Chile, Brazil, Mexico, Switzerland, Portugal, Mexico and South Korea. In addition, Peru belongs to the Andean Community of Nations (CAN), which also includes Bolivia, Colombia and Ecuador. These countries also have a valid Double Taxation Relief Agreement (Decision 578), which follows the United Nations model.

    Regarding the dispute resolution mechanisms issue, Peru has an independent judicial system based on independence of powers. Notwithstanding, a party can freely elect to submit its controversies to local or international private arbitration. The Peruvian state is also party to the New York Convention, the Panama Convention and Montevideo Convention; all of them guarantee the recognition and enforcement of foreign arbitral awards in Peru.

  9. 5.

    What in general terms is the mining exploration and exploitation permit or concession regime? What is the licensing regime?

  10. The Peruvian state is the owner of natural resources, which include minerals; therefore the Peruvian state owns mining rights. Exploration, use and exploitation of mining rights can be granted to private parties, through the regime of mining concessions. Mining concessions have the nature of immoveable goods. 

    Mining concessions constitute a different right from surface land over it. Owners of surface lands are not authorised to perform mining activities, unless they have a valid mining concession title granted by the INGEMMET.

    Title-holders of mining concessions shall submit the Consolidated Annual Declaration (DAC) to the MEM annually, providing information regarding the activities performed in the mining concession. Information submitted is used to create statistics on mining activities in the Peruvian territory.

    As it was mentioned, persons or entities are entitled to request mining rights over the regime of mining concessions. In this regards, General Mining Law establishes four different types of mining concessions:

    • mining concession: grants rights to execute mining activities of exploration and exploitation – it has the nature of an immoveable right;
    • beneficiation concession: grants the right to perform physical, chemical and physical-chemical processes to concentrate minerals or to purify, smelt or refine metals;
    • general labour concession: grants the right to perform auxiliary mining services or activities such as ventilation, drainage, lifting or extraction to mining activities; and
    • mineral transportation concession: grants the right to provide massive and continuous transport of mineral products by unconventional methods.

    Mining concessions are the basic right to perform mining activities. The mining concession shall be maintained by paying validity fees and complying with the corresponding minimum production obligation (MPO). Regarding the obligation to pay the validity fees, the price of these administrative fees depends on the condition of the title-holders (small, artisanal or general regime). Validity fees shall be paid annually to maintain mining concessions in force. The non-compliance of validity fees payment for two consecutive years causes the mining concession to expire.

    Small title-holders are entities or individuals holding concessions in an area of less than 2,000 hectares with no more than 350 metric tonnes of production per day and must pay a validity fee of US$1 per hectare; artisanal title-holders are entities or persons holding concessions in an area of less than 1,000 hectares with no more than 25 metric tonnes of production per day and must pay a validity fee of US$0.50 per hectare; finally the general regime applicable for entities or persons who do not qualify as small or artisanal and the fees are US$3 per hectare. Validity fees must be paid annually to maintain mining concessions in force. Non-compliance of validity fee payment for two consecutive years results in the extinction of the mining concession.

    The Mining Law obligates mining concessions holders to move into production. Currently, two regimes of MPO coexist:

    (i) Legislative Decree No. 1054 (granted on June 2008) this regime established that mining concessions holders – qualifying under the general regime - need to reach a minimum annual production equivalent to one tax unit (approximately US$1,160) per year /hectare. If the holder of mining concession cannot reach such minimum annual production on the first semester of the eleventh year since the year in which the concessions was granted, the holder will be required to pay a penalty equivalent to 10 per cent of the applicable minimum production per year per hectare until the 50th year. After the period of 15 years mentioned above, the mining concessions may remain in force for an additional period of up five additional years in the case of: (i) the holder paying the applicable penalty and securing investments in the mining concession of 10 times the applicable penalty that should be paid; or, (ii) events of force majeure. If the minimum production is not reached after this period has lapsed, the mining concession will inevitably expire.

    (ii) Legislative Decree No. 1320 – (granted this year 2017) – this regime will get in force in year 2019 – according this disposition, mining concessions holders shall reach the minimum annual production on the first semester of the eleventh year since the year in which the concession was granted. Under this new regime if the mining concession holder could nor reach such minimum annual production, it will be required to pay a penalty equivalent to 2 per cent of the applicable minimum production per year per hectare until the 50th year. If the holder cannot reach the minimum annual production on the first semester of the 60nth year since the year in which the concessions was granted, holder will be required to pay a penalty equivalent to 5 per cent of the applicable minimum production per year per hectare until the 20th year. If the holder cannot reach the minimum annual production on the first semester of the 20th year since the year in which the concessions was granted, the holder will be required to pay a penalty equivalent to 10 per cent of the applicable minimum production per year per hectare until the 30th year. Finally, if the holder cannot reach the minimum annual production until during this period, the mining concession will be automatically expired.

    According to General Mining Law mining concession is irrevocable as long as titleholder fulfils the legal obligations required to maintain it in force. However, the titleholder shall comply with the entire obligation in order to maintain the mining concession valid. General Mining Law provides that mining concessions can be extinguished only by expiration (as a consequence of a failure by a titleholder to pay the mining validity fee and/or penalties for two years (consecutive or not)), abandonment (as a consequence of the breach of the mining procedure rules applicable to a mining claim), nullity (in case a mining concession was claimed by an individual or entities that have restrictions according to the mining law), resignation (in case the titleholder requests the extinction of the mining right) and cancellation (in case mining concession overlaps with priority rights, or when the right is unassailable).

    Finally, according to the Constitution, the Peruvian state has a promotional role to develop private investments. In a subsidiary way, the Peruvian government, through a special law, can be entitled to perform business activities (including mining).

  11. 6.

    What types of duties, royalties and taxes must be paid by the mining project company as a condition to obtaining or continuinga mining concession? What remedial actions are available to the granting authority when such levies are unpaid?

  12. Income tax - IT

    Corporate income tax

    Companies incorporated in Peru are considered domiciled for IT purposes and, therefore, subject to a 29.5 per cent rate (as of 2017) on net worldwide income; while the branches of foreign companies are only subject to IT on their Peruvian source income. The income tax for a domiciled company is known as corporate income tax (CIT).

    To calculate the taxable basis, domiciled companies are entitled to deduct expenses, to the extent that they are necessary to produce income or to maintain its source. Additionally, there are certain limits and/or caps for the deduction of certain expenses, such as finance costs (thin capitalisation rules apply), provisions for bad debts, salaries, and travel expenses, among others.

    Dividends and any other type of profit distribution are subject to a 5 per cent withholding tax as of 2017. The previous rates (4.1 per cent or 6.8 per cent) shall be applied on retained earnings, depending on the fiscal year the profits were generated.

    Withholding income tax

    Non-domiciled companies are subject to a withholding income tax on their Peruvian-source income, on a gross basis.

    The tax rates for non-domiciled entities are the following:

    Name

    Withholding tax rate

    Other incomes

    30%

    Interest

    4.99% as long as certain requirements are fullfilled)

    30% (all others)

    Dividends

    5% as of 2017

    Royalties

    30%

    Services fees

    30% (general and digital services)

    15% (technical assistance, provided certain conditions are met)

    Mining tax regime

    As from October of 2011, the mining royalty was modified and two new mining taxes came into effect: the special mining tax (IEM) and the special mining contribution (GEM). The mining royalty, the IEM and the GEM are economic considerations paid to the Peruvian government for the exploitation of mineral resources. Note that the mining royalty includes metallic and non-metallic mineral resources, while the IEM and the GEM only include metallic mineral resources. The GEM is only applicable to the mining companies that have valid tax stability agreements. These companies will voluntarily sign contracts with the Peruvian government for the payment of said charge, which must be determined by each stability agreement that they maintain.

    The payment obligation of the mining royalty, IEM and GEM falls due at the closing of each quarter (January–March, April-June, July–September and October–December), and the basis of calculation is the operating profit or the sales revenue of the quarter (in the case of the mining royalty).

    The operating profit is obtained by deducting from the revenue generated from the sales of mineral resources of each quarter, the sales cost, the operating expenses (including selling expenses and administrative expenses) incurred in order to be able to generate said revenue. Said expenses and costs must be at market value.

    Within the past 12 business days of the second month following the generation of the obligation, mining companies must present a quarterly declaration (January–March; April–June; July–September and October–December) and make payment of the corresponding mining royalty, IEM and GEM. Said declaration must determine the basis for calculating the mentioned contributions.

    The amounts effectively paid for mining royalty, IEM and GEM will be considered as an expense for IT purposes in the period in which they were paid.

    They are calculated as follows:

    Name

    Base

    Tax rate (range)

    Mining royalty

    Operating profit – (minimum, 1% of sales)

    1%–12%

    Special mining tax

    Operating profit

    2–8.4%

    Special mining contribution

    Operating profit

    4–13.12%


    Temporary Tax on Net Assets (ITAN)

    Companies that are subject to corporate IT are obligated to pay the temporary tax on net assets. This taxed is levied on the net asset value contained in the balance sheet as of 31 December of the previous period to which the payment corresponds, deducting the depreciations and amortisations permitted by law. A company is subject to the ITAN as of the year after it starts its activities.

    Rate

    Net assets

    0%

    Up to S/ 1,000,000

    0.4%

    More than S/ 1,000,000


    The amount paid for the Temporary Tax on Net Assets is a credit that will be offset against the advanced IT payment or the annual IT regularisation payment. Any remaining balance can be reimbursed by the Tax Administration.

    Financial transactional tax (ITF)

    The obligations paid through cash payments of amounts greater than S/ 3,500 or US$1,000 must be made through bank accounts or deposits, bank transfers, payment orders, credit cards, non-negotiable checks, among other means of payment provided by the entities of the Peruvian financial system.

    Any obligation that is not carried out using these methods prevents the deduction of the expense or the recognition of the cost for tax purposes, and prevents the recognition of tax credits (ie, VAT). Additionally, the Financial Transaction Tax is applied, among other transactions, to all debits and/or credits in bank accounts maintained by the taxpayers. The applicable tax rate is 0.005 per cent. Certain operations are exempt from the Financial Transaction Tax, such as the operations between accounts of the same accountholder, credits or debits in bank accounts opened at the request of the employer exclusively to be able to deposit the salaries of its employees, credits or debits in bank accounts of severance payments.

    The financial transaction tax is deductible as an expense for IT purposes.

    Valued added tax (VAT)

    VAT is levied on the following operations at a rate of 18 per cent:

    • sale of real property within Peru;
    • services provided within Peru;
    • import of services (services economically used within Peru);
    • import of goods;
    • construction contracts; and
    • the first sale of a real property made by the constructor.

    The VAT Law follows a debit/credit system by which the VAT paid in the purchase of goods and services can be used as a credit against the VAT originated by the future taxed operations. Any VAT credit that is not used within a determined month can be carried forward (at historical values) to be used against the VAT of future operations. It must be taken into account that the return of VAT in cash is only available for exporters and some entities in the pre-operating stage, as long as certain conditions are met.

    It is important to mention that VAT will be reduced from 18 per cent to 17 per cent on 2017, provided that the fiscal revenues increase during the first semester.

  13. 7.

    What in general terms is the water rights regime? What is the availability of water for mining facilities? What techniques or activity have you seen in your jurisdiction to address limited or shared water resources?

  14. Mining industry demands a great percentage of water to develop its activities (such as mineral processing, dust suppression, mud transportation and employee’s needs). As a consequence of that, the Peruvian mining industry has focused its efforts on being appreciated as an activity that makes sustainable use of resources and the environment, including the preservation of water sources. 

    The National Authority of Water (NAW) is the entity assigned to the Agriculture Ministry and responsible for granting water rights. The corresponding water rights are the following: (i) licence: it is the right granted in order to use the water to a certain aim and in a determined place, and will be valid until the activity for which it was granted subsists (ie, beneficiary concession); (ii) permission: it is the right granted in surplus water periods, by which the use of water is eventual and temporal; and (iii) authorisation: this is a right granted only for a period of two years – extended for an additional year – for the execution of studies, construction and land wash (ie, mining projects). None of these are unlimited nor indefinite. In order to maintain valid water rights, their beneficiary must fulfil certain duties, the main ones being: (i) payment of retribution, water tariff and any other economic obligation; and (ii) allocating the use of water according the water right requested. 

    According to the hydrological law, the water rights cannot be transferred nor mortgaged. However, in case the titleholder of the activity or of the surface land who is also the beneficiary of a water right change, the new title holder will able to initiate a simple procedure to obtain the corresponding water right needing only two requirements: (i) a document that accredit the title in favour of the new one and (ii) accomplish with the payment of the economic retribution.

  15. 8.

    What in general terms is the surface rights regime (use and occupation of surface; access routes; pipeline and electric line routes; roadways or railways for product transport)?

  16. According to the General Mining Law, mining concessions constitute a different right from the surface land located over it. As a consequence of that, the owner of the surface land is different from the titleholder of the mining concession. According to the Peruvian Civil Cole, the right over the surface land comprises the right over the soil, over ground and subsoil (but not the natural resources contained into it). Owners of surface lands are not authorised to perform mining activities on them – unless they have a valid mining concession title granted by the INGEMMET, governmental entity that runs the mineral concessions cadastre providing complete public information regarding mining concessions.

    Title-holders of mining concessions can freely acquire surface lands located over its mining concessions. In the case of surface lands owned by native communities, it will be necessary to obtain approval from the community through a meeting agreement approving the transaction with a qualified majority of the community. For the purchase of surface lands owned by the government, it is necessary to follow an acquisition process with the Peruvian state through the Superintendency of National Properties. Notwithstanding the aforementioned, the Peruvian Civil Code provides three ways to permit tittle-holders of mining concessions acquired temporally a surface land right: 

    a) Usufruct agreement: It confers to its beneficiary the faculty to use and take advantage temporally over a surface land. The term of this agreement shall be maximum of 30 years if the beneficiary is an entity. Likewise, it is important to stand out that this agreement could be transferred and mortgaged.
    b) Easement agreement: It will be generated by (i) mutual agreement between the titleholder of the mining concession and the owner of the surface land; and by (ii) law. Both of them confers to the beneficiary the right of use perpetually the surface land (part or all of it), except if parties agree the opposite. Unlike the usufruct agreement and over ground agreements, the easement constitutes an incorporated lien over the surface land that could not be separated of it. As a consequence of that, it cannot be transferred without the surface land property.

    Finally, regarding the maintenance conditions of the surface lands, these will be according parties agreed on a case-by-case basis.

  17. 9.

    What is the availability of power for remote mining facilities? May mining facilities generate their own power?

  18. More than 90 per cent of Peruvian territory is supplied with electric power. If energy supply does not reach the mining facilities or if the supply is deficient, it is perfectly possible that the mining facilities could generate their own energy supply in order to perform their activities. If the power generated is not over than 500KW, it can be made freely without authorisation. If the power is over than 500KW it will need the authorisation (in case is a thermoelectric generation) or an electrical concession (in case the electric power is generated with renewable natural resources) from MINEM.

  19. 10.

    What are the grounds for lawful termination of rights under a mining concession, water rights or surface rights or power (generation or transmission) rights? What remedies are available to the concessionaire if rights are wrongfully terminated?

  20. Mining concessions are the base right to perform mining activities. However, as it was mentioned, in order to perform effectively mining activities, the titleholder of the mining concession shall obtain the surface land right over it and all the permits, licence and authorisations required by the law. 

      • the mining concession must be maintained by paying validity fees and complying with the corresponding minimum production (as explained in question 5).
        The surface land must be maintained until the term agreed in the corresponding agreement; or until any breach-of-agreement event. To more explanation of this issue, please review question 8.
        Permit authorisation or licenxes to initiate mining operations (exploration and exploitation), are considered as an inherent right to the mining concession, but the maintenance requirements of each of them will be regulated by each industrial sector. In case of water rights, a water right could be revoke if the beneficiary: (i) Does not accomplish with the payment of two consecutive instalments of the retribution, or any other economical obligation; (ii) allocate the use of water to a different aim requested; and (iii) was punished twice for serious breach.

    Titleholders have the faculty to object any administrative decision (over termination of mining concession and permits authorisations and licences) before a specialised court, and then also dispute it in the Peruvian judicial system, both regulated by the Peruvian Procedure Civil Code. Likewise, in the case of any dispute over the surface land right, can be resolved in the Peruvian judicial system.

  21. 11.

    Describe the extent to which the legal and regulatory regime is conducive to the installation or provision of essential infrastructure.

  22. The mining industry needs alternative services in order to develop its activities:

      • Mineral transportation: mining companies are able to apply for a mining right named the mineral transportation concession (see question 5).
      • Commercialisation: mineral commercialisation is free and does not require any authorisation. Only entities dedicated to processing and trading gold are obliged to be registered in the Registry of Traders and Processors of Gold administrated by MINEM. There are no restrictions on the importation of funds or investment for exploration, extraction, export or sale of minerals to any national or foreign private party. The Peruvian state encourages national and foreign investment and establishes that production of goods and services and foreign trade are exempt from restrictions.
      • Electricity supply: Peruvian law does not require an electricity supply agreement to obtain a mining concession nor initiate mining activities; but the title holder of a mining concession shall contact with an electricity generation plant to provide of electricity in order to operate, or generate its own power.
      • Solid residues treatment: mining companies are considered as a solid reside generator agent and as a consequence of that will be obligated to get a solid residues manage and administrative plan over the mining residues.

    There are no trade restrictions (neither importation nor exportation) of machinery and equipment required for mining activities. However, in order to limit illegal mining the Peruvian government places certain prohibitions on operators of small and artisanal mining. As a consequence of that, operators that develop small and artisanal mining are completely forbidden to acquire and use certain machinery and equipment such as dredges, a front-loader, dumper trucks and, in general, assets used to execute illegal mining activities.

  23. 12.

    Please provide a description of the collateral security arrangements permitted in your jurisdiction, relating particularly to the mining project’s ability to grant to creditors a perfected security interest (whether by mortgage, pledge, trust, etc) in concession rights, water rights, surface rights, related easements, permits, licences (including environmental), land and bank accounts. Are there any limitations to the ability to transfer such rights to a successor owner/operator of the mine?

  24. The following securities can be granted to the creditor in order to establish perfected securities interest over mining projects in Peru:

    • Mortgage: By this agreement, immovable properties are affected to guarantee an obligation(s) in favour of the creditor. In this regard, this agreement is used in the mining sector to encumbrance mining concessions and surface lands. Please note that Peruvian law expressly establishes that concessions rights are considered as immoveable properties.
    • Moveable guarantee/pledge: By this agreement, moveable properties are affected to guarantee an obligation(s) in favor of the creditor. In this regard, this agreement is used in the mining sector to encumbrance the shares of the debtor and its affiliated companies and the equipment’s of their property.
    • Flow trust: The fundamental purpose of this agreement is to finance mining projects through the management of cash flows generated by the project in order to repay the debt for the creditors.
  25. 13.

    Is it accepted practice for creditors financing a mining project to enter into an agreement with the mining authority in connection with the creation, perfection or acknowledgement of the collateral security interests granted to the creditors in mining projects, including to facilitate the transfer of such rights to a successor owner/operator? Is there any requirement, benefit or limitation to such agreements?

  26. It is not regular practice in Peru for creditors or potential investors to enter into an agreement with the mining authority in order to establish the creation, perfection or acknowledgement of collateral security interests with the Peruvian Authority. However, securities granted to creditors does not require any type of authorisation by the Peruvian authority, the only requirements to establish such securities are to register it in the public registry and it must ensure a determined or determinable obligation.

  27. 14.

    What means of enforcement are available to creditors in connection with collateral security interests in mining rights?

  28. According to the Peruvian law and regulation, there are two different methods in order to execute collateral security interests in mining rights, such methods depends on the type of security. 

    1. For mortgage: To foreclose or to execute this security, it can only be achieved by a judicial process which will establish a public auction in order to sale the immovable property.
    2. For pledge: To foreclose or to execute this security, the Law No. 28677 provides that the security can be executed through an out-of-court auctions or extrajudicial sale. The parties must appoint a representative which will perform the transfer of the movable property affected by the security. Also, it is established that the security can be executed through a judicial process which will establish a public auction in order to sale the moveable property.
  29. 15.

    What insurance must be placed with domestic insurance companies? Can insurance be placed abroad? Can claims be paid directly offshore? Are there restrictions with respect to obtaining reinsurance outside the country, and obtaining assignments or cut‑through endorsements to permit claims (and payment) to be made directly to owners or creditors outside the jurisdiction?

  30. The main principle that rules commercial transactions in Peru is "contractual freedom"; therefore; there are no limitations to place, acquire, obtain and contract any kind of insurance, according of the activity risk. However, Peruvian law establishes certain obligatory insurances for mining company's employees, such as the Supplemental Insurance of Risk Work; and Life Insurance, regulated by Law No. 26,790 and complementary. Mining companies will be able to acquire those insurance abroad as long as they accomplish with all the specific coverage and retirement system.

  31. 16.

    Describe any requirements related to the use of domestic and foreign labour, suppliers and contractors.

  32. From 1 January 2015, companies with 50 or more employees should comply with the quota of disabled employees (3 per cent of total personnel of the company) and will be subject to auditin each following year (Law 29973, The General Law of Persons with Disabilities, article 41 in point 1).

    For domestic employees, Peruvian labour law presumes that every labour relationship is permanent, unless the contrary is proven. Despite this presumption, employees can be hired by means of fixed-term contracts in the cases established by law. In some cases they can be extended for a maximum of five years. Legal benefits and labour conditions are basically the same for all the employees, regardless of their type of employment contract.

    Foreign employees have basically the same rights as Peruvian workers, but their hiring is subject to special rules. Foreign employees cannot exceed 20 per cent of the total personnel of the company and their salaries cannot exceed 30 per cent of the total payroll of the company, unless they are included in one of the legal exemptions (eg, technical or specialised personnel).

    In addition, some foreign citizens shall not be considered "foreigners" for labour purposes (eg, if they are married to Peruvians, are nationals of countries that have signed a treaty on labour with Peru or have dual nationality).

  33. 17.

    Can any liabilities extend beyond the mining project company to its owners, mortgagees, or creditors?

  34. According to the Peruvian Civil Code, the mining company as an entity is regulated by the "patrimonial autonomy" principle. It means that if the mining company acquired any liability before administrative entities, it will respond with its own equity, and without involving shareholders. Likewise, according to the Peruvian Corporations Law, the general manager and members of the board of directors of an entity are responsible for an entity breaching its duties.

    Finally, by Law No. 29,263, that modified the Peruvian Penal Code, established that the legal representatives of the entities that develop activities and commit environmental crimes will also be criminally responsible.

  35. 18.

    Describe any other relevant legal considerations related to financing of mining projects in your jurisdiction. Describe any trends in the types of financings recently closed or under discussion for mining projects in your jurisdiction.

  36. The principal sources of financing for mining activities are the private banking system and the public stock market (Lima Stock Exchange (BVL)). 

    BVL has been very active and attractive, listing junior mining companies, whereby several Peruvian investors had participated in the negotiation and creation of the price of shares and have actively been participating in different private or public placements made by such companies.

  37. 19.

    In recent times, several governments have mandated concession renegotiation, revisited royalty and taxation regimes, failed to renew favourable exemptions, or passed legislation introducing significant requirements for projects under ongoing permitting and regulatory processes, in light of increased commodity values. Has there been any such activity in your jurisdiction?

  38. The Peruvian state promotes and encourages mining activity in all national territory, and as a consequence of that, Peru offers the following incentives:

    Early recovery of VAT

    To promote investment in the mining industry, A VAT recovery regime has been established for the holders of mining concessions that have not begun operations and are in the exploration stage. In addition to this regime, exclusively applicable to the mining industry, there is a regime of early recovery of the VAT applicable to any industry (including the mining industry) for companies in the pre-operating stage (for example, in the construction stage).

    The following regimes are applicable to mining companies in the exploration and pre-operating stage:

    • VAT recovery regime for mining companies in the exploration stage;
    • VAT early recovery regime for companies in the pre-operating stage.

    Tax depreciation

    There is a special depreciation annual rate for mining companies with a stability agreement of up to 5 per cent for buildings and up to 20 per cent for other fixed assets.

    Also, for mining companies with or without a stability agreement, the tax depreciation for machinery and equipment for mining activities is up to 20 per cent.

    Works for taxes 

    In the year 2008, the Works for Taxes regime came into effect. Companies have the option to pay part of their taxes through the execution of regional infrastructure works in some of the poorest regions of the country. For these purposes, companies must comply with certain conditions, such as signing agreements with the regional and local governments, and obtaining an authorisation from the Private Investment Promotion Agency (ProInversion) for listed or new projects. The amount invested by the company can be used as a tax credit of up to 50 per cent of its IT from the previous fiscal year. This regime will generate benefits for private companies and for the government.

  39. 20.

    Please provide electronic links to any of the principal statutory and regulatory compilations referred to in your answers to the foregoing questions, including items such as Mining Law, foreign investment regime applicable to mining and environmental law and regulation.

  40. The following electronic links provides detailed information about mining industry development in our country, and the regime applicable to it:

    www.minem.gob.pe

    www.minam.gob.pe

    www.senace.gob.pe

    www.oefa.gob.pe

    www.proinversion.gob.pe

Interested in contributing to Latin Lawyer Reference?


Questions

  1. 1.

    Provide an overview of the mining industry in your country. What significance does the mining industry have as a component of the national economy?


  2. 2.

    Describe the legal and regulatory framework. What laws establish and grant authority to the mining authorities?


  3. 3.

    Describe the investment regime (specifically or generally) applicable to foreign company involvement in mining projects.


  4. 4.

    Is your country a party to international investment treaties applicable to mining projects undertaken or sponsored by foreign companies?


  5. 5.

    What in general terms is the mining exploration and exploitation permit or concession regime? What is the licensing regime?


  6. 6.

    What types of duties, royalties and taxes must be paid by the mining project company as a condition to obtaining or continuinga mining concession? What remedial actions are available to the granting authority when such levies are unpaid?


  7. 7.

    What in general terms is the water rights regime? What is the availability of water for mining facilities? What techniques or activity have you seen in your jurisdiction to address limited or shared water resources?


  8. 8.

    What in general terms is the surface rights regime (use and occupation of surface; access routes; pipeline and electric line routes; roadways or railways for product transport)?


  9. 9.

    What is the availability of power for remote mining facilities? May mining facilities generate their own power?


  10. 10.

    What are the grounds for lawful termination of rights under a mining concession, water rights or surface rights or power (generation or transmission) rights? What remedies are available to the concessionaire if rights are wrongfully terminated?


  11. 11.

    Describe the extent to which the legal and regulatory regime is conducive to the installation or provision of essential infrastructure.


  12. 12.

    Please provide a description of the collateral security arrangements permitted in your jurisdiction, relating particularly to the mining project’s ability to grant to creditors a perfected security interest (whether by mortgage, pledge, trust, etc) in concession rights, water rights, surface rights, related easements, permits, licences (including environmental), land and bank accounts. Are there any limitations to the ability to transfer such rights to a successor owner/operator of the mine?


  13. 13.

    Is it accepted practice for creditors financing a mining project to enter into an agreement with the mining authority in connection with the creation, perfection or acknowledgement of the collateral security interests granted to the creditors in mining projects, including to facilitate the transfer of such rights to a successor owner/operator? Is there any requirement, benefit or limitation to such agreements?


  14. 14.

    What means of enforcement are available to creditors in connection with collateral security interests in mining rights?


  15. 15.

    What insurance must be placed with domestic insurance companies? Can insurance be placed abroad? Can claims be paid directly offshore? Are there restrictions with respect to obtaining reinsurance outside the country, and obtaining assignments or cut‑through endorsements to permit claims (and payment) to be made directly to owners or creditors outside the jurisdiction?


  16. 16.

    Describe any requirements related to the use of domestic and foreign labour, suppliers and contractors.


  17. 17.

    Can any liabilities extend beyond the mining project company to its owners, mortgagees, or creditors?


  18. 18.

    Describe any other relevant legal considerations related to financing of mining projects in your jurisdiction. Describe any trends in the types of financings recently closed or under discussion for mining projects in your jurisdiction.


  19. 19.

    In recent times, several governments have mandated concession renegotiation, revisited royalty and taxation regimes, failed to renew favourable exemptions, or passed legislation introducing significant requirements for projects under ongoing permitting and regulatory processes, in light of increased commodity values. Has there been any such activity in your jurisdiction?


  20. 20.

    Please provide electronic links to any of the principal statutory and regulatory compilations referred to in your answers to the foregoing questions, including items such as Mining Law, foreign investment regime applicable to mining and environmental law and regulation.


Other chapters in Mining

  • Ecuador
    Pérez Bustamante & Ponce Perez Bustamante & Ponce
  • Mexico
    Creel Abogados, S.C.
  • Panama
    Arias, Fábrega & Fábrega
  • Peru
    Gallo Barrios Pickmann, Abogados (Lima)