The determination of legal interest is carried out annually and falls within the competence of the State, in accordance with the General Law on the State Budget. This implies that it is directly related to the economic situation that the country is going through at the moment. If a person does not fulfill his obligations to the Ministry of Finance, that is, does not pay his debts, he will be punished by the tax administration. The statutory interest serves as the basis for the calculation of the penalty and the subsequent calculation of the penalty that may be applicable to the taxpayer. Imagine that you own an apartment that you rent to an individual for 1,000 euros per month. This person suddenly stops paying you because they are in financial difficulty. Let`s say you accumulate a delay of 3 monthly payments and then you settle the situation within 3 months. In fact, it would be the same as if you owed €3,000 for 3 months. With the legal interest rate of 3%, the tenant must compensate you with € 22.5 interest.

It is a very small amount, as you can see. If the client has no money and no bankruptcy, no matter how much you go to court, you will get nothing, you will be a creditor like any other and you will charge the little that touches you. If the customer has no money but makes huge efforts to pay you, it is very difficult for you to claim interest. Normally, you consider yourself well served because you have finally collected the debt and you leave it at that. The economic situation is one of the most decisive variables in determining the legal interest. Each year, the new value of the money, which will serve as the basis for calculating the debt, is examined and determined. In practice, the fixed legal interest rate can be very important when calculating large penalties, compensation, etc. For example, if a taxpayer forgot to declare an amount and stopped paying the corresponding tax, the rate of 3.75% will be applied for the year 2019. In this case, since the Ministry of Finance has the power to go up to 4 years in the profit and loss account, the impact of 3.75% per year can be much greater. A simple formula for calculating legal interest and getting the amount you need to pay or receive on a debt is as follows: This is what interests us most in this blog, because we are dealing with commercial transactions between companies. When we talk about commercial late payment interest, we are referring to the interest payable to a customer (company or administration) if he does not pay us according to the agreed terms. It has been 8% for several years, although it is usually revised twice a year.

The maximum rates of this interest vary for general, tax and commercial debt. The latter are the ones with the most interest, founded in 2022 with a maximum of 8%. Theoretically, you have an obligation to charge this interest and your client has an obligation to pay it. But as many readers expected, and as people who are used to dealing with bill fees know, in practice it`s a bit absurd to charge interest to someone who doesn`t pay you because they can`t (if they do, because they don`t want to, that`s another topic). During the same period, default interest is 3.75% in accordance with Article 26.6 of Law 58/2003, of 17 December, on General Tax. Legal interest is that which applies to late payments between individuals, in particular with companies, with the tax administration, with the public administration in general or vice versa. The first condition is that no default interest already agreed between the parties is due. Although there is a relationship between the two types of interests, there is one essential difference. Imagine that a customer does not pay you a bill above € 5,000 for 6 months. If he finally pays you, he will also have to pay you €200 in default interest. This is a remarkable compensation. For 2019, the legal interest rate on money has been set at 3%, the benchmark for peer-to-peer matters.

This is the rate that applies, for example, in the event of late payment of rent. As you can see, this is a fairly low value because it is an annual interest rate. Do you want to know in which cases it has practical application? But we are talking about cases between individuals. As you will see below, the situation is different in the case of non-payments between companies, and interest rates for trade delays are significantly higher. Legal interests are determined by the General Law on State Budgets. These are those applied by the judge in a judgment for violation of the responsibility of a monetary debt. Legal interests have characteristics that distinguish them from other types of interests. The most important are: This interest represents an amount to be paid by analogy to the damages of the creditor for whom you have an outstanding debt. Legal interest rates are statutory interest rates that are not agreed between the creditor and the debtor.

The legal monetary interest rate will remain at 3.00% until 31 December 2019. If you sell on credit, you always have a risk of default. Even the customer who has always paid you on the agreed terms may have cash flow difficulties and always pay you later. Theoretically, the application of commercial default interest is quite interesting, as you can see in the following example. In 2022, the maximum legal interest rate is 8%. This rate applies to commercial late payments, i.e. those that occur between companies. Conversely, the tax administration must also be accountable to its taxpayers if it is in debt. In this case, the calculation is also carried out taking into account the statutory interest. Now let`s see what happens if you don`t pay your taxes on time. We are talking about the default tax interest rate.

And this applies in many situations where the tax authorities believe that you have defaulted on your payments. It is calculated very simply, because generally the legal interest on the money plus a surcharge of 25% is applied. One of the conditions for the use of legal interest is that it is applied in cases where no interest has been established for non-compliance or illegal collection. The main assumptions for the application of legal interests are as follows: However, the role of companies is not to lend to others. This role falls to banks and their financial solutions for businesses. And then there is the paradox that we will analyze next. If you`ve been looking for how much to charge your customer because they paid you late, you already know that. Currently, this is an annual interest rate of 8%. However, I advise you to read the article we published some time ago about the importance of collecting sales, because obviously it is always better not to realize these unpleasant situations for everyone.