December 18, 2017 Mining Royalty Rules Updated (CFEM) (Law No. 13,540)

On December 18, 2017, Brazil signed Law No. 13,540, overhauling the CFEM mining royalty framework with an effective date in 2018. You'll notice the reform shifted the tax base from net sales to gross revenue, limiting deductions to sales taxes only. It also restructured commodity-specific rates — iron ore sits at 3.5%, gold at 1.5%, and construction aggregates at 1%. It expanded municipal revenue sharing beyond extraction sites. There's much more to unpack below.

Key Takeaways

• Law No. 13,540, enacted December 18, 2017, overhauled Brazil's CFEM mining royalty regime, with changes taking effect in 2018.
• The reform shifted the CFEM tax base from net sales to gross revenue, limiting deductions to sales taxes only.
• Commodity-specific CFEM rates were restructured, ranging from 1% for construction aggregates to 3.5% for iron ore.
• The National Mining Agency (ANM) replaced DNPM, assuming administration, compliance oversight, and authority to adjust iron ore rates.
• Municipalities hosting railways, pipelines, ports, or processing facilities became eligible for a 15% share of CFEM revenue.

Key Provisions of Brazil's 2017 CFEM Reform

When Brazil enacted Law No. 13,540 in December 2017, it overhauled the country's mining royalty regime—known as CFEM (Financial Compensation for Mineral Exploitation)—shifting the tax base from net sales to gross revenue, restructuring rates across multiple mineral commodities, and expanding how royalty proceeds are distributed to affected municipalities.

You'll notice the reform covers a wide range: rates range from 1% for construction aggregates to 3.5% for iron ore.

Municipalities affected by railways, pipelines, ports, and tailings dams can now receive a 15% revenue share, strengthening community engagement and funding responses to environmental impacts.

The National Mining Agency, ANM, replaced the older DNPM structure and assumed responsibility for implementation.

These changes took effect in 2018 and continue shaping Brazil's mining taxation framework.

From Net Sales to Gross Revenue: CFEM's New Tax Base

Before the 2017 reform, CFEM was calculated on net sales, meaning companies could deduct transportation costs, insurance, and sales taxes from their revenue base before applying the royalty rate. The reform shifted that base to gross revenue, allowing only sales taxes as a deduction. This change directly increases your royalty liability since fewer deductions are available.

For products involving internal consumption, you'll apply the market value of the processed product rather than an actual sale price. If you're exporting minerals, you must follow transfer pricing rules under Brazilian federal tax law to establish benchmark pricing. These adjustments close gaps that previously allowed companies to underreport their royalty base, making the new framework markedly more rigorous and harder to minimize through cost allocation strategies.

CFEM Royalty Rates by Mineral Commodity

The 2017 reform assigned specific CFEM rates to each mineral commodity, so knowing where your mineral falls determines your royalty burden immediately.

Construction materials like sand, gravel, and clay carry a 1% rate, while gold sits at 1.5%.

Diamonds and unclassified minerals land at 2%, and bauxite, manganese, niobium, and rock salt reach 3%.

Iron ore holds a 3.5% rate, though ANM can reduce it to 2% for deposits facing feasibility constraints.

When you're running royalty comparisons across projects, these differences matter markedly, especially given commodity volatility affecting revenue projections.

A mineral's rate directly shapes your cost structure, so misidentifying your commodity's classification could distort financial models.

Review ANM's classification guidance carefully before finalizing any royalty calculation under the updated CFEM framework. Supplementing your research with a fact finder by category can help you quickly cross-reference key details about minerals, countries, and regulatory contexts relevant to your project.

Iron Ore's CFEM Rate and the 2% Reduction Floor

Iron ore carries the highest fixed CFEM rate in the reform at 3.5%, but ANM can reduce it down to a 2% floor if a deposit meets specific feasibility constraints. If you're operating an iron ore mine, you'll want to understand what qualifies a deposit for that reduction. ANM evaluates:

• Low ore grade or limited production scale
• Overall taxation burden on the operation
• Number of employees at the site

These feasibility criteria give ANM flexibility to support deposits that wouldn't otherwise remain economically viable.

While community consultation isn't a formal trigger for the rate reduction, affected municipalities still receive their CFEM distribution shares regardless of which rate applies. Iron ore remains the most actively adjusted commodity under the updated framework.

How ANM Administers CFEM Rate Adjustments and Compliance

ANM's role doesn't stop at setting rates—it actively oversees how those rates get applied and whether mining operators stay compliant with CFEM obligations.

If you're operating under the iron ore rate, you'll deal directly with ANM oversight when requesting reductions based on feasibility constraints like low grade or production scale.

ANM evaluates your documentation, verifies qualifying conditions, and approves or denies adjustments accordingly.

If you believe ANM applied an incorrect rate to your operation, you can pursue rate appeals through the agency's administrative process.

You'll need to submit supporting technical and financial evidence.

ANM reviews your case against the criteria outlined in Law No. 13,540 and issues a formal determination.

Non-compliance with CFEM payment rules can trigger penalties, so staying current with ANM guidance protects your operation from unnecessary exposure.

Which Municipalities Now Share CFEM Revenue?

Under Law No. 13,540, Brazil expanded which municipalities can share CFEM revenue—and if your city sits along a railway, pipeline, port, tailings dam, waste dam, or other mineral processing facility, it may now qualify for a 15% cut of royalty proceeds.

Affected municipalities now include cities tied to transport corridors, not just locations with direct mining activity.

Eligible cities include those hosting:

• Railways or pipelines used to move mineral output
• Ports handling mineral shipments
• Tailings dams, waste dams, or processing facilities

Earlier rules focused narrowly on extraction sites, leaving many impacted communities without compensation.

This expansion acknowledges that mining's footprint extends far beyond the pit.

Just as colonial-era border negotiations can create narrow corridors that grant nations critical access to trade routes and ports, a municipality's connection to mineral transport infrastructure—even a thin strip of pipeline or rail—can now qualify it for revenue sharing under the updated law.

If your municipality supports mineral logistics or infrastructure, you should verify eligibility with ANM directly.

When Did the Revised CFEM Rules Take Effect?

Brazil's revised CFEM rules took effect in 2018, marking the point when the updated calculation approach—shifting from net sales to gross revenue—became enforceable.

As a mining operator, you need to recognize that the effective date aligned with the broader implementation of Law No. 13,540/2017, enacted in December 2017.

The reform didn't apply retroactively, so retroactivity concerns weren't a significant compliance burden for existing operations. However, you'd still need to adapt your calculation methods promptly once 2018 arrived.

ANM, replacing the older DNPM structure, became responsible for guiding that changeover.

The updated rates, revised tax base, and expanded municipal distribution rules all activated together, meaning you couldn't selectively apply portions of the reform while ignoring others.

Similarly, governments have historically used top-down institutional directives to drive compliance reforms, as seen in Afghanistan's 1974 anti-corruption campaign where ministries were instructed to review internal procedures and limit administrative misuse.