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EXCLUSIVE-BMW favors UK plant to build electric Mini - sources

* Favors Oxford plant for electric Mini - sources

* In talks with UK about reclaiming import duties - source

* To announce site at Frankfurt car show in Sept - source (Adds details on potential tariff deal, background)

MUNICH/FRANKFURT, July 19 (Reuters) - BMW's Oxford factory in England is currently the favored location for building an electric version of the Mini despite Britain's planned departure from the European Union, two sources familiar with the company's thinking told Reuters on Wednesday.

Any decision by the German carmaker to commit to further spending at Oxford would be a boost to the British government, which has been warned by businesses at home and abroad that Brexit will hit investment.

Mini makes around 60 percent of its approximately 360,000 compact cars a year at Oxford, but BMW has built up an alternative manufacturing base in the Netherlands amid concerns about Britain's suitability as an export hub after Brexit.

Asked whether the electric Mini would be built in Britain, a BMW spokeswoman said: "A final decision has not been taken."

BMW has said it has several options about where to build the vehicle, including at a plant operated by VDL Nedcar in Born, Netherlands, where a plug-in hybrid version of the Mini is already being built, or a plant in Regensburg, Germany.

BMW has about 4,600 staff working in Oxford, while VDL currently employs around 4,500. That is set to rise to more than 5,000 after production of the BMW X1 model is added to the Dutch plant in August, a sharp rise from only 1,500 in 2012.

Carmakers have been among the most vocal critics of Brexit, warning their global supply chains will be hit hard by any resulting introduction of tariffs.

But they are also keen to have a strong position in Europe's second-biggest car market behind Germany, particularly if they can secure government guarantees. Japan's Nissan said in October it would build two new models in Britain after a government pledge to counter any adverse Brexit effects.

The electric Mini will use an electric motor, components and a battery delivered from BMW's Dingolfing and Landshut plants in Bavaria, Germany.

BMW executives are seeking assurances from Britain that any import duties on electric motors and batteries sent from Bavaria to Oxford could be reclaimed in full for vehicles that are then sold in the EU, one of the sources said.

BMW executives believe a deal on tariffs can be struck, the source said. Britain's department for business, energy and industrial strategy declined to comment.

The source added a formal decision about where to build the vehicle would be taken in September, with an announcement expected at the Frankfurt car show in mid-September.

Since BMW bought Mini in 1994, it has invested billions in the brand, UK production sites and developing a small car platform. Between 2012 and 2015 alone, BMW Group invested 750 million pounds ($977 million) to upgrade manufacturing sites in Oxford, Hams Hall and Swindon.

"If Mini became a fully electric brand in the long run, and Oxford only knew how to build combustion engined variants, the plant would lose its relevance," another source said.

A UK manufacturing base is important for the brand, the second source said. The first Minis were built by the British Motor Corporation, with early models featuring in one of most famous car chases in cinema history in the 1969 film "The Italian Job."

Demand for a fully electric Mini may not be huge to begin with, so the financial impact of tariffs and duties is seen as manageable, given the scale of investments already made in the Oxford plant, the second source said.

If production volumes increase significantly, a production location outside of Britain could be added, the first source said.

($1 = 0.7673 pounds) (Additional reporting by Costas Pitas; Editing by Georgina Prodhan and Mark Potter)