Through Ministerial Agreement No. 28, dated May 22, 2019, the Ministry of Energy and Non-Renewable Natural Resources issued the Update to the Mining Public Policy, which has been in effect since 2016. This proposal was drafted with contributions from the Inter-American Development Bank (IADB).

The prepared document has 6 strategic concepts, for which the respective public policy has been set out with certain guidelines and effective interventions by the State. A brief summary is presented hereunder:

CONCEPT 1 – ECONOMIC DEVELOPMENT: Looks to position mining as a relevant economic sector in the country, by increasing and diversifying the production, allowing for national and foreign long-term private investments. In order to reach this goal, the following effective interventions have been taken into consideration:

• Tax incentives that attract investments, such as tax refunds, tax guarantee and stability contracts, and permits for investments made in border zones.
• National and international forums that allow for establishing international cooperation conventions and agreements.
• Business and contract models between the State and concessionaires, which contain the minimum provisions necessary.
• Articulation for the mining sector with related industries (mining supplies, metalworking, metal processing and smelting); and, the establishment of small-scale mining company territorial concentrations.

CONCEPT 2 – ENVIRONMENTAL AND SOCIAL SUSTAINABILITY: The goals of this concept are: i) promote the adoption of good environmental and safety practices; and, ii) coordinate the relations between mining stakeholders, by strengthening community relations and social responsibility of the concessionaires, and reinforce the governing levels through dialogue. In order to reach this goal, the following effective interventions have been taken into consideration:

• Remediation of environmental liabilities caused by abandoned or inactive mining operations, including incentives, such as works for taxes. Additionally, this requires trusts, and financial bonds and guarantees to cover any potential environmental damage.
• Help regarding environmental regulations, including the provision of information, workshops and assistance for small-scale and artisanal miners.
• Incentives for compliance with labor regulations.
• Channels of communication regarding the benefits of mining.
• Definition and performance of the free and informed prior consultation procedure, including the verification of the presence of villages, nations, communes and communities, in accordance with the juridical framework.
• Articulation of State actions to provide basic services in the areas of influence, covering the needs of the communities, reducing the identified gaps, and obtaining the social license for mining investments.
• Incentives for local governments of the areas of influence to use the resources arising from mining royalties.

CONCEPT 3 – RESEARCH AND DEVELOPMENT: Looks to foster research, innovation, transfer of technology and entrepreneurship in the mining sector, through lines of international cooperation and association between the public, productive and educational sectors. As a result, formation, training and education of skilled and certified workers in the country is expected to be strengthened. In order to reach this goal, the following effective interventions have been taken into consideration:

• Grant funds, direct subsidies, direct public provision of research services and tax incentives for large- and medium-scale mining companies, public research institutes, universities and research centers.
• Adoption of technology and knowledge to support productivity and the growth of small-scale mining.
• Revision of technical aspects (exploitation designs, production volumes, associated infrastructure, tax requirements, among others) for all regimens.
• Creation of the Geological Information Bank of Ecuador.

CONCEPT 4 – MANAGEMENT AND ADMINISTRATION: The goal of this concept is to articulate the functions and authorities of the public institutions involved in the mining sector, through intra- and inter-sectorial coordination, transparency, and access to public information. In order to reach this goal, the following effective interventions have been taken into consideration:

• Reduction of processes to obtain mining rights and for authorization of operations. Additionally, centralized means (exclusive portals), and multi-sectorial and inter-governmental information systems will be fostered.
• Reduction of processes required to legalize small-scale and artisanal activities.
• Verification of mining areas mapped and implementation of operational security measures for transparent handling of information.

CONCEPT 5 – REGULATION, CONTROL AND COMBATING ILLEGAL MINING: : Looks to strengthen State regulation and control through audit, fiscalization and monitoring processes of mining activities. Additionally, it promotes the prevention, combat and sanctioning of illegal mining. In order to reach this goal, the following effective interventions have been taken into consideration:

• Identification, prioritization, performance and evaluation of actions geared toward eradicating illegal mining, defining clear attributes for each one of the entities that make up the Special Illegal Mining Control Commission (CECMI).
• Use of technology in smelting plants, ports and border zones to control the traceability of minerals being processed and exported, as well as to verify compliance with tax standards.

CONCEPT 6 – STANDARD: The goal of this concept is to promote improvements to legal standards, allowing for juridical security, while fostering mining development according to the requirements of the sector. In order to reach this goal, the following effective interventions have been taken into consideration:

• Coordination with the Judiciary Council to train judges and attorney generals regarding mining legal framework.
• Revision of what is indicated in the strategic concepts to identify and propose reforms that reduce the critical bottlenecks in the management model of the sector.

Finally, it is worth mentioning that, within 180 days of the publication of the aforementioned document, the update to the National Mining Development Plan is expected 

MINERGIA Magazine – LEGAL MINING, http://www.minergiaec.com/ There are no talks regarding the stoppage of mining exploitation experienced in the country in recent years. After the promulgation of Constitutional Mandate No. 6 – known as the Mining Mandate –

This Doing Business in Ecuador Guide has been prepared by  TOBAR ZVS C.L.1, and is intended to provide with general information for the knowledge of potential investors interested in acquiring an existing business or before starting operations in Ecuador.

The information included in this Guide is not exhaustive, and any  in‐depth and detailed information shall be consulted with experts.

Read complete Doing Business in Ecuador Guide publication please Download

The Law to Develop Production, Attract Investments, Generate Employment, Fiscal Stability and Balance (“Law of Productive Development”) was published in the Official Registry and is consequently in force.

This law has three main chapters: 1) First Chapter, that regulates the remission of interests and fines; 2) The Second Chapter contains incentives to attract private investment; and 3) Third Chapter contains several amendments to different legal bodies.

A. Incentives to attract investments

1. Income Tax Exemptions

a) For Prioritized Sectors

The Law of Productive Development stipulates that new productive investments initiated on or after the date of the enforcement of the law in the prioritized sectors, shall be entitled to the income tax exemption and the income tax advance during 12 years, counted from the first year that direct income only attributable to the new investment is generated. For those investments in the urban areas of Quito and Guayaquil, said exemption will be during 8 years.

In order for societies to benefit of this exemption, these shall generate net employment under the terms to be defined in the by-laws of the Law of Productive Development.

New productive investments in agro industrial, industrial and agro-associative prioritized sectors, within the cantons located in the boundaries, will benefit with a 15 years’ exemption.

Prioritized sectors are the following:

1. Agriculture sector: production of fresh, frozen and industrialized food.
2. Forestry and agroforestry chain and their processed products
3. Metal-mechanical
4. Petrochemical and oil-chemical
5. Tourism, film industry, audiovisuals and international events.
6. Renewable energies
7. Foreign commerce logistic services
8. Applied biotechnology and software
9. Exports of services
10. Software development and services, hardware production and development, digital infrastructure, computer security, digital products and contents, on-line services.
11. Energy efficiency
12. Industry of sustainable construction materials and technologies
13. Sectors of strategic replacement of imports and development of exports.

2. For Basic industries:

New productive investments that initiate on or from the date of the entering in force of the Law of Productive Development in the economic sectors determined as basic industries, shall be entitled to the income tax exemption during 15 years. The term of the exemption shall be counted from the first year with direct income only attributable to the new investment is generated.

In case those investments are made in cantons located at the borders, the tax exemption term will be of 20 years.

In order for societies to benefit of such exemption, these shall generate net employment, under the terms to be defined in the by-laws to the Law of Productive Development.

In this context, the following are considered basic industries:

1. Copper and aluminum smelting and refining
2. Steel smelting for the production of plain stainless steel.
3. Hydrocarbons refining
4. Petrochemical industry
5. Cellulose industry
6. Ships’ construction and repair

3. Exemption of the tax on the remittance of currencies

New productive investments for which an agreement had been entered into with the Ecuadorian government, for either sector of the economy, shall be entitled to the exemption of the tax on the remittance of currencies in their payments for:

a. Import of capital goods and raw materials for the development of the project, up to the amounts and in accordance with the terms that shall be defined in the investment contract.

b. Dividends distributed by local companies or foreign companies domiciled in Ecuador, in favor of effective beneficiaries that may be either individuals or corporations, during the terms stipulated in the investment contract.

For companies that reinvest in Ecuador at least 50% of its return, in productive assets, these will be exempt of the tax on remittance of currencies for payments abroad, for payment of dividends to effective beneficiaries residing in Ecuador.

B. Remission of Interests, Fines and Surcharges

a. Tax and Fiscal Obligations handled by the IRS

The Law of Producitve Development orders the remission of 100% of interests, fines and surcharges over the balance of tax obligations handled by the IRS. Such remission does not apply for tax obligations due after April 2, 2018, or for obligations derived from the annual income tax statement of fiscal year 2017.

In order to benefit from the remission, the taxpayers shall pay the total principal within the following deadlines:

1. Within 90 days after the publication of the Law of Productive Development, in case of (1) taxpayers with average gross income for the three latest fiscal years exceeding US$ 5 million; (2) individuals belonging to economic groups according to the IRS’ cadaster as of the date of enforcement of the Law; and (3) taxpayers holding obligations corresponding to withheld or perceived taxes.

2. The rest of taxpayers shall file applications requesting payment facilities or to pay the principal within 90 days from the entering into effect of the Law. Payment facilities for a term of up to 2 years can be granted.

b. Vehicle Registration and Transit violations

1. It is ordered the remission of interests on taxes on vehicles handled by the IRS and due as of April 2 2018, provided that the outstanding total shall be paid within 90 days from the date of entering in force of the Law.

2. It is ordered the remission of surcharges set forth by the National Transit Agency for lack of vehicle registration, due as of April 2 2018, provided that the total is paid within 90 days counted from the date of entering in force of the Law.

3. It ordered the remission of additional 2% fines under the Organic Transit Law, on transit violations, which payment is pending as of April 2 2018, provided that the total penalty is paid within 90 days from the date of entering in force of the Law.

c. Overdue Employers’ IESS obligations in law-suit

It is ordered the reduction of interests, fines and surcharges corresponding to obligations of employees’ affiliation at law-suit, arising from invoices or determination actions, glosses and credit titles issued by the IESS, as long as the payment is made within the following deadlines:

1. Payments within 90 days from the date of entering into effect of the Law may benefit of 99% of reduction of interests, fines and surcharges.

2. Payments made 91 to 150 days from the date of entering into effect of the Law may benefit of a 75% reduction of interests, fines and surcharges.

3. Payments made 151 to 180 days from the date of entering into effect of the Law may benefit of a 50% reduction of interests, fines and surcharges.

Such reduction is not applicable for obligations at law-suit for reserve funds, affiliation for non-remunerated work at home, collections, health extension, unsecured loans, collateral credits. Interests, fines and surcharges for the delayed affiliation filed after April 2, 218 are also excluded.

C. Amendment of several legal bodies

In addition, the Law to Promote Production includes important amendments to several legal bodies, among them:

a. Organic Law of the Internal Tax Regime
b. Law Amending the Law for the Tax Equity in Ecuador.
c. Organic Production, Commerce and Investments Code
d. Organic Monetary and Financial Code
e. Mining Law
f. Hydrocarbons Law
g. Labor Code
h. Social Security Law
i. Companies’ Act

In the next issue we will publish an analysis of the amendments that the Law to Promote Production will bring to general regulations.