|
Mauritania: Overview of New Tax Regime for Mining Activities
Mauritanian Act no. 2008-011 (of April 27, 2008) establishes a framework with respect to the taxation of certain mining activities (i.e., prospecting for, exploration, and exploitation mineral substances) in Mauritania.
The new mining activities law (which replaced the former mining code introduced by Act no. 99/103) institutes a new tax regime that partially departs from provisions under the general tax code. The following discussion provides an overview of the tax provisions under the current Mining Act.
Background
The new mining tax regime is intended to provide incentives for direct investment and to promote the mining industry in Mauritania. The stated goal of the new Mining Act is to clarify certain provisions that were rather summarily dealt with under the prior law of 1999. Also, the new regime introduces certain tax and customs relief measures, particularly in the form of:
- A cap on the tax on industrial/commercial earnings (known as BIC)
- An exemption from tax and/or duties for certain mining equipment during the research and development phase as well as during the first years of exploitation
In this context, the new mining tax regime has three distinct development phases—each of which is subject to its own specific regime—and has created a classification of goods for purposes of applying customs duties and value added tax (VAT).
|
Phases of Mining Activity Development
Paragraph 2 of Article 103 of the Mining Act defines three mining activity development phases, with the third being further divided into two distinct sub-phases:
- Phase I, the “Research Phase” corresponds to the period of mineral prospecting and research work, which lasts until the finalization of the feasibility study culminating in the decision to open a mine or quarry on the site in question.
- Phase II, the “Installation Phase” covers the period from the end of the research phase to the beginning of the “break-in” work (known as
rodage). Under Article 103(2), the break-in work begins on the first day of the second month following the date when the daily production exceeds 10% of the production provided for by the feasibility study submitted to the government minister in charge of mines.
- Phase III, the “Production Phase” begins at the same time as the break-in work and is divided into two sub-phases :
1. Under one sub-phase, known as “Preliminary Production,” the mining enterprise may benefit from a tax grace period or a tax holiday for a 36-month period that begins with the start of the break-in work.
2. A second sub-phase, known as “Normal Production,” extends from the end of the tax holiday period until the end of the life of the mine or quarry, as marked by the completion of the site-restoration work.
Direct Taxation Rules That Apply to Mining Activities
Profits realized from the exploitation of mines or quarries are subject to tax on industrial/commercial earnings (BIC) and the minimum fixed tax (IMF).
However, under Articles 113 to 116 of the Mining Act, industrial mining and quarry operators are exempt from
BIC and IMF during the 36 months corresponding to the tax holiday phase (described above). Beyond this 36-month period, these mining enterprises are subject to the following taxes:
- To BIC, at the then-effective rate, but capped at 25%, and the enterprises are also entitled to deduct research expenses incurred within the Mauritian territory
- To IMF at a rate equal to one-half the IMF rate provided for by the general tax code (2.5%), though this rate may not exceed 1.75%.
In addition, the Mining Act states that interest on loans used entirely with respect to mining or quarry operations are fully deductible from the borrower’s taxable income. For purposes of this deduction, the borrower’s debt must not exceed a ratio of three times the amount of its shareholders’ equity. This debt-to-equity ratio must be met throughout the entire fiscal year in question. Any portion of interest exceeding this ratio is nondeductible.
Moreover, when interest is paid to nonresidents of Mauritania, the interest payment is subject to a withholding tax at the rate in effect at the time of payment, but the withholding tax rate cannot not exceed 10%.
If in a given fiscal year, a net operating loss (NOL) is reported, the NOL is considered to be an expense for the following fiscal year and is deducted from that year’s profits. If the profits for the following year are not sufficient to allow for full deduction of the prior year’s NOL, the amount of excess NOL can be carried forward successively over the following fiscal years for five years following the loss-making year.
A 10% withholding tax is also imposed on dividends paid to shareholders other than Mauritian parent or affiliated companies.
Finally, salaries paid to expatriate employees of companies that have entered into a mining agreement with the State, as well as their direct contractors or subcontractors, are subject to the tax on wages and salaries. However, the applicable rate of individual income tax that applies to these employees is equal to half the standard rate (which ranges from 15% to 30%), though it may not exceed 20%.
|
Compensatory Fees and Mining Royalties
Taxes specific to mining include compensatory fees (droits rémunératoires), annual “surface area” royalties (redevance superficiaire), and exploitation royalties.
The compensatory fee must be paid by the owner or holder of a small-scale quarry authorization upon execution of the following actions with respect to the deed:
- Issuance, extension, reduction, renewal, early termination or transfer of a research permit
- Issuance, extension, reduction, renewal, early termination, transfer or contribution of an exploitation permit
- Issuance, transfer or renewal of a small-scale mining exploitation permit
- Issuance, renewal or transfer of a mining exploitation authorization
- Issuance, renewal or transfer of an industrial or small-scale exploitation authorization
The amount of the compensatory fee is determined by guidance issued to implement the Mining Act (such as mining conventions and/or decrees), and this amount is not deductible for tax purposes.
The annual surface area royalty is owed by any owner of a quarry or mining title and any holder of a small-scale quarry authorization. The amount of the royalty is set by decree and is not deductible from annual taxable income.
The exploitation royalty is an amount owed by the holder of an exploitation permit, a small-scale mining exploitation permit, or an industrial quarry exploitation authorization. It is calculated based on the sales price of the product at its last stage of transformation in Mauritania, or on the product’s FOB value if it is exported prior to sale. The royalty is owed on all sales or exports, except for bulk samplings, and the rate of this royalty varies from 1.5% to 6%, depending on the group to which the mineral substances belong.
Moreover, for industrial quarries, the rate of the exploitation royalty is adjusted according to the following three subgroups:
- Subgroup 1, construction material: 1.4%
- Subgroup 2, industrial material: 1.6%
- Subgroup 3, decorative material: 1.8%.
Value Added Tax (VAT)
Article 110 of the Mining Act sets forth the principle that VAT is applicable to mining and quarry activities.
Accordingly, the following imports by those holding an exploitation permit, a small-scale mining exploitation permit, or an industrial quarry exploitation authorization, are subject to VAT:
- On automobile vehicles during the installation, tax holiday and normal production periods
- On industrial inputs, oil products, lubricants and spare parts other than equipment, during the preliminary and normal production phases
For other imports—including fuel for heavy equipment—the rules applicable to customs duties (exceptional temporary admission or total exemption from customs duties and taxes) are also applicable to VAT.
Moreover, local purchases of goods and services by owners of mining titles and holders of small-scale quarry authorizations are subject to VAT. This VAT is non-recoverable with respect to purchases of automobiles, spare parts, and fuels and lubricants. The amount of VAT paid with respect to the purchase of other local goods and services, however, gives rise to a refundable credit.
On the other hand, exported mineral substances are subject to VAT at the rate of zero percent (0%). The VAT credit arising from the exportation of mining or quarry production is reimbursed by the State within three months of submission of the related request.
The above-described VAT regime also applies to the mining companies’ contractors and direct subcontractors.
|
Customs Duties
The imposition of customs duties and taxes depend on the phase of activity. During the research phase, mining companies benefit from the following advantages:
- An “exceptional temporary admission” regime, under which all customs duties and taxes are suspended for automobiles and equipment
- A total exemption from customs duties and taxes for spare parts for equipment, inputs (raw materials and consumables), fuels and lubricants, and spare parts for light vehicles
During the installation and production phases (tax holiday and normal production), the entry tax regime is as follows:
- An “exceptional temporary admission” with a suspension of all entry taxes and duties on equipment
- Total exemption on spare parts for equipment and light vehicles, inputs, fuels and lubricants
- Payment of a single 5% customs duty on automobiles
Article 105 provides that, to qualify for these various advantages, the goods must first appear on the “mining list” to be submitted to the Ministry in charge of mining and must correspond to the fixed assets identified and described in the feasibility study.
Mining Agreement
Lastly, in connection with mining activities, the foreign operator must generally enter into a mining agreement with the State of Mauritania. These agreements are negotiated and entered into on the basis of a model mining agreement, adopted by the Mauritanian legislature, and which incorporate the relevant tax provisions of the Mining Code.
The model mining agreement, instituted by Act no. 2002-02 (of January 20, 2002), has not yet been updated further to the adoption of the new Mining Code. It is anticipated that the new model agreement would integrate the provisions of the new mining law. These provisions include, in principle, a tax stability clause according to which
The State guarantees, to both the holder and the exploitation company, the stability of the general, legal, economic, financial, tax and customs conditions as at the date of the signing of the Agreement. This stability is granted for a period running from the date of the granting of the first research permit to the latest of the following two dates:
- the expiration date of the research permit
- the expiration date of the first exploitation permit.
It is anticipated that companies that have signed a mining agreement under the rules of the former Mining Code would be able to benefit from the more favorable measures introduced by the new Mining Code. Article 107 of the former 1999 Mining Code provided that the mining title holder could benefit from any more favorable legal rule that might come into effect during the stabilization period.
|
For more information, contact a tax professional with Fidal Direction Internationale* in Paris:
Yves Robert, Tax Partner : +33.1.55.68.15.76,
yrobert@fidalinternational.com
Mohamed Mahjoubi, Tax Manager: +33.1.55.68.16.53,
mmahjoubi@fidalinternational.com
*Fidal is a French law firm that is independent from KPMG and its member firms.
|
