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Oil and gas in Chile: special operating contracts (CEOP), their tax and FX regime, gas distribution concessions with a return cap, and gas trade with Argentina

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Last verified: 2026-10-26 · Status: Stable

Liquid and gaseous hydrocarbons belong to the Chilean State and can never be held under a concession. Private companies, Chilean or foreign, explore and produce them only under a special operating contract (CEOP) on terms fixed by supreme decree. The contractor gets paid (the retribution) but acquires no rights over the hydrocarbons. Under the contract the President chooses one tax regime: a 50 percent tax on the retribution, or ordinary income tax. Either can be cut by 10 to 100 percent, and the regime stays fixed for the life of the contract. Foreign subcontractors pay a 20 percent substitute tax. Piped gas distribution is free priced. But a distributor whose average return over three years exceeds the regulator's cost of capital by more than three points has its tariffs fixed and must refund the excess to customers.

USD figures are the base unit of the examples; CLP equivalents use the Central Bank exchange rate of CLP 986.58 per US dollar published in the Diario Oficial for 23 October 2026 (CVE 2891564).

Key facts

Tax on the CEOP contractor's retribution, if the President chooses this regime	50 %DFL Nº 2 of 1987, Minería, art. 5, as of 2026-10-26 · in force
Substitute tax on foreign subcontractors' remuneration under a CEOP	20 %DFL Nº 2 of 1987, Minería, art. 9, as of 2026-10-26 · in force
Duty free temporary admission period for exploration goods, extendable yearly	5 yearsDFL Nº 2 of 1987, Minería, art. 10, as of 2026-10-26 · in force
Maximum return of network gas distributors over the cost of capital	3 percentage pointsDFL Nº 323 art. 30 bis, as of 2026-10-26 · in force
Floor on the cost of capital rate for gas distribution	6 %DFL Nº 323 art. 32, as of 2026-10-26 · in force

The rule

1. A special operating contract (CEOP) is one the State signs with a contractor, a Chilean or foreign natural or legal person, to explore, exploit or process hydrocarbon deposits, with the requirements and conditions the President fixes by supreme decree under Constitution art. 19 Nº 24 paragraph 10. CEOPs do not affect the State's ownership of the deposits, are not concessions, and give no right over the hydrocarbons or any power to appropriate them. The contractor is paid a retribution in money, in national or foreign currency, or in hydrocarbons. Hydrocarbons can never be the object of a mining concession.
Cost to do it: Work commitments and payments are fixed contract by contract in the supreme decree.DFL Nº 2 of 1987, Ministerio de Minería, consolidated text of Decreto Ley Nº 1.089 of 1975 on special operating contracts for hydrocarbons; Ley Nº 18.248, Código de Minería, DFL Nº 2 art. 1 and art. 2; Código de Minería art. 7 and art. 8, 1987-03-30 official text · verified 2026-10-26

2. Where the retribution is payable in foreign currency, the contract must be registered with the Central Bank, which provides the currency needed. If the contract allows, the contractor may export hydrocarbons received as retribution without the ordinary export rules, and the State guarantees free disposal of the currency generated. The State or its companies may buy back those hydrocarbons, paying in foreign currency. The contractor also has access to the formal FX market to convert and remit abroad proceeds from selling its equipment and other goods on the contract's terms.
Cost to do it: No fee; registration with the Central Bank where retribution is in foreign currency.DFL Nº 2 of 1987, Ministerio de Minería, Art. 3 and art. 4, 1987-03-30 official text · verified 2026-10-26

3. The contractor pays either a tax of 50 percent levied directly on the retribution, or the ordinary income tax regime, as the President decides. Whichever is chosen, the President may cut the tax by 10, 20, 30, 40, 50, 60, 70, 80, 90 or 100 percent, in view of the difficulty of the area, the absence of a double tax treaty with the investor's home country, and how burdensome the other terms are. The chosen regime replaces every other direct or indirect tax on the retribution and stays fixed for the agreed term. The President may also exempt, in the same percentages, imports of machinery and goods for exploration and production from duties, VAT and other charges. Under the retribution tax, the payer withholds it and pays it within the first 15 days of each month, and the contractor's owners are exempt from final income taxes on income from the contract. The transfer of hydrocarbons as retribution, State buybacks and the contract documents are exempt from all taxes, and hydrocarbon exports are tax exempt.
Cost to do it: 50 percent of the retribution, or ordinary income tax, in each case reducible by 10 to 100 percent.
Example: On a retribution of CLP 9,865.8 million with no reduction the tax is CLP 4,932.9 million; with a 40 percent reduction it is CLP 2,959.7 million. / On a US$10 million retribution the tax is US$5 million, or US$3 million with a 40 percent reduction.DFL Nº 2 of 1987, Ministerio de Minería, Art. 5, art. 6 and art. 8, 1987-03-30 official text · verified 2026-10-26

4. Foreign subcontractors with no domicile in Chile pay a 20 percent tax on their remuneration under a CEOP, which replaces every other direct or indirect tax on it. The President may cut it by 10 to 75 percent, and the reduction is written into the contract and stays fixed. Machinery and equipment for specific petroleum work may enter under temporary admission, and goods for exploration enter free of duties and taxes for up to five years, extendable yearly by the National Customs Director. Goods imported tax free may not be sold within 10 years unless the waived taxes are paid first.
Cost to do it: 20 percent on subcontractor remuneration, reducible to as low as 5 percent.
Example: A fee of CLP 1,973.2 million to a foreign seismic contractor bears CLP 394.6 million of tax, or CLP 98.7 million with the maximum 75 percent reduction. / A US$2 million fee bears US$400,000 of tax, or US$100,000 with the maximum reduction.DFL Nº 2 of 1987, Ministerio de Minería, Art. 7, art. 9 and art. 10, 1987-03-30 official text · verified 2026-10-26

5. Land the President declares by decree of the Ministry of Energy as needed for a CEOP is of public utility for expropriation. The Mining Code's easements apply in full to hydrocarbon exploration and production under a CEOP. The contractor pays the compensation and costs. The regime, benefits and exemptions recorded in the contract stay fixed for its life.
Cost to do it: Expropriation compensation and easement costs, paid by the contractor.DFL Nº 2 of 1987, Ministerio de Minería, Art. 11 and art. 12, 1987-03-30 official text · verified 2026-10-26

6. Network gas distributors set their prices freely but are subject to a maximum economic return for each concession zone: three percentage points over the simple average of the last three years of the cost of capital rate. The return is the simple average of the last three annual returns. The cost of capital is set by the National Energy Commission every four years, with the risk free rate updated yearly, and may never be below 6 percent. If a distributor exceeds the cap, the Commission starts tariff fixing for that zone and sets interim maximum prices, and all customers get the excess refunded in proportion to gas billed. A distributor that exceeds the cap by up to 0.2 points may stay under free prices if it refunds the excess plus 50 percent.
Cost to do it: Refund of excess returns to customers, plus 50 percent under the 0.2 point tolerance.
Example: If the three year average cost of capital is 7 percent, the cap is 10 percent; a distributor earning 10.15 percent may keep free prices only if it refunds the excess plus half. / Not currency based; the cap is a rate of return.DFL Nº 323 of 1931, Ley de Servicios de Gas, as amended by Ley Nº 20.999, Art. 30, art. 30 bis, art. 31, art. 31 bis and art. 32, 2017-02-09 official text · verified 2026-10-26 · changed: Ley Nº 20.999, published on 9 February 2017, introduced the return check on network gas distributors, the 6 percent floor on the cost of capital and the refund mechanism.

7. Chile and Argentina have committed, in the protocol on gas interconnection to their Economic Complementation Agreement Nº 16, not to restrict natural gas exports between them on the basis of certified reserves and availability. Each side grants the authorisations and concessions needed for pipelines and transport. Buyers and sellers agree prices, terms and volumes freely, under each country's legislation.
Cost to do it: Commercial terms are private; export permits are granted by each government.Decreto Nº 1.183 of 1995, Ministerio de Relaciones Exteriores, promulgating the replacement of Protocol Nº 2 to ACE Nº 16 between Chile and Argentina, Protocol art. 1 to 6, 1995-11-27 official text · verified 2026-10-26

Item	Rule	Possible reduction
Contractor	50% tax on retribution, or ordinary income tax	10% to 100%, fixed for the contract term
Contractor's owners	Exempt from final income taxes under the retribution tax regime	Not applicable
Foreign subcontractor	20% substitute tax	10% to 75%
Imports of goods for exploration and production	Duties, VAT and other charges	10% to 100%
Hydrocarbon exports	Exempt from all taxes	Not applicable

CEOP fiscal terms (DFL Nº 2 of 1987, Ministerio de Minería, art. 5 to 10)

Worked example

A foreign explorer signs a CEOP. The decree sets the 50 percent retribution tax with a 40 percent reduction, so a US$10 million retribution (CLP 9,865.8 million) bears US$3 million of tax, withheld by the payer, and the explorer's shareholders owe no final income tax on that income (DFL Nº 2 art. 5 and 6).
Its foreign seismic subcontractor earns US$2 million and pays the 20 percent substitute tax, US$400,000, unless the decree grants a reduction; the seismic equipment enters duty free under temporary admission for up to five years (DFL Nº 2 art. 9 and 10).
Gas supply contracts with Argentine producers follow the bilateral protocol, which bars export restrictions beyond certified reserves, but Argentine export permits and taxes follow Argentine law (Decreto Nº 1.183 of 1995; see https://theargentinethread.com/guide/).

Step by step

1. Approach the Ministry of Energy about a CEOP; the President fixes the requirements and conditions of each contract by supreme decree (DFL Nº 2 art. 1).
2. Negotiate the tax regime and reductions, the work programme and any import exemptions, all of which must be in the same decree (DFL Nº 2 art. 5).
3. Register the contract with the Central Bank if the retribution is in foreign currency (DFL Nº 2 art. 3).
4. Obtain environmental approval before drilling (see investing/project-permits-and-environmental-assessment) and arrange easements or expropriation through the Ministry of Energy (DFL Nº 2 art. 11).
5. For gas distribution, plan tariffs around the three year return check and the National Energy Commission's four yearly cost of capital (DFL Nº 323 art. 30 bis and 32).

Common traps

Treating a CEOP as ownership of reserves: it confers no rights over the hydrocarbons (DFL Nº 2 art. 2), which matters for reserve booking and financing.
Assuming tax reductions apply automatically: they exist only if written into the decree that fixes the contract terms (DFL Nº 2 art. 5).
Selling tax free imported equipment early: within 10 years the waived duties and taxes must be paid first, or the sale is void (DFL Nº 2 art. 7).
Running a gas distribution zone at returns just over the cap: even a 0.2 point excess means refunds plus 50 percent, and more triggers regulated tariffs (DFL Nº 323 art. 31).

Sources

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