How to register a company in Romania?

In order to register a company in Romania, you need to choose the type of company form you want to incorporate, to prepare the necessary documents and to submit the application to the Romanian Trade Registry. Most common forms of companies in Romania are the Limited Liability Company (LLC), Joint Stock Company (SA) and sole trader (PFA).

How long does it take to open a company in Romania?

The company formation in Romania process will take 2 working days, since the date the incorporation application is submitted to the Romanian Trade Registry.

What is the main advantage to open a company in Romania?

One of the lowest taxation in EU: 1% turnover tax for the companies whose turnover does not exceed EUR 60,000 and have at least one employee or 3% turnover tax if the companies has a revenue exceeding EUR 60,000 or the companies is engaged in some specific activities.

Can I start a company in Romania as a foreigner?

Foreign citizens and legal persons can quickly and easily incorporate their own company in Romania, without any restrictions. There is no need for a Romanian shareholder and director

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27 January 2025

Statutory Interest and Default Interest Rate for Late Payment in Romania

Late payments can create financial strain and disrupt the cash flow of businesses. In Romania, the legal framework surrounding late payments is designed to ensure that creditors are compensated for overdue invoices, offering a way to charge interest for late payments. This article provides a detailed guide on statutory interest and default interest rates in Romania, exploring key concepts like legal interest, tax penalty underpayment, overdue payments and more

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Late payments can significantly impact your business's cash flow, but in Romania, you have legal avenues to recover these costs. This article explores statutory interest and the default interest rate for overdue payments, providing a clear guide on calculating late payment interest and understanding the late payment of commercial debts act. Learn about the legal framework surrounding legal interest, late payment penalties, and how to charge interest on overdue invoices. Whether you're dealing with late tax payment penalties or commercial debts, this guide will help you navigate interest charges and recover funds effectively.

What is Statutory Interest?

Statutory interest, also known as legal interest or dobanda legala, is the interest prescribed by law that applies when a payment is overdue. The concept ensures that creditors are compensated for the delay in receiving payment for goods or services delivered.

In Romania, statutory interest is automatically applied to outstanding debts that are overdue. This interest serves as a deterrent against late payments and provides compensation for the financial loss caused by delayed transactions.

Understanding Default Interest Rate

A default interest rate is the interest charged on overdue payments when the debtor fails to pay by the agreed deadline. In Romania, the default interest rate is often set by the government and is applicable to commercial transactions as well as private dealings.

The default interest rate is an important tool for businesses in managing overdue payments. When a client or customer fails to pay within the agreed-upon terms, the business is entitled to charge default interest on the overdue amount. This interest is typically higher than statutory interest rates, reflecting the severity of the delayed payment.

Statutory Interest and Default Interest in Romania

In Romania, the rules governing statutory and default interest rates are established by law to ensure consistency and fairness in commercial and private transactions.

Statutory Interest is set annually by the National Bank of Romania (BNR) and is the minimum rate creditors can charge when a payment is overdue.
Default Interest is higher and can be specified in the contractual agreement between the parties involved. If no rate is agreed upon, the legal default rate applies.

The Late Payment of Commercial Debts Act (Law no. 72/2013) defines the specific regulations regarding default interest and late payment penalties in Romania. This law is designed to tackle delayed payments in business transactions, providing clarity on interest rates, penalties, and other aspects related to overdue payments.

The Late Payment of Commercial Debts Act

The Late Payment of Commercial Debts Act aims to ensure that businesses are protected against payment delays. According to this law:

Late payments should be settled within 30 days unless otherwise agreed.
If the payment is delayed beyond this period, creditors are entitled to charge statutory interest.
The creditor may also apply default interest, which may be higher than the statutory interest rate.
The Act covers commercial transactions, meaning that it applies to both business-to-business and business-to-government dealings.

It’s essential for companies to be aware of the act's provisions, as it allows for the charging of interest on overdue invoices and provides a framework for calculating late payment interest.

Legal Interest vs. Default Interest Rate

The distinction between legal interest and default interest rate is crucial in understanding the financial implications of late payments.

Legal Interest: This is the rate set by the government (e.g., the National Bank of Romania) and is the baseline interest rate applied when there is no agreement between the parties on interest charges for late payment.

Default Interest Rate: This is a higher interest rate, agreed upon between the parties or regulated by the contract. If a payment is late and no specific rate has been established, the legal default interest rate will apply.

The default interest rate is a crucial tool for businesses in combating overdue payments and ensuring that they are compensated adequately for delayed payments. Understanding this rate is key to avoiding misunderstandings and ensuring that both parties know their financial responsibilities.

Calculating Late Payment Interest

Calculating late payment interest is an important skill for businesses seeking to recover payments from clients. The process typically involves the following steps:

Determine the outstanding amount: This is the amount owed for the product or service provided.
Identify the applicable interest rate: If no rate is specified in the contract, the statutory interest rate or default interest rate should be used.
Calculate the duration of the delay: This is the number of days that the payment has been overdue.
Apply the formula: The formula for calculating late payment interest is typically:

Interest = Principal Amount × Interest Rate × Days Late/365

For example, if the overdue amount is 10,000 RON, the statutory interest rate is 5%, and the payment is 60 days late, the calculation would be:

Interest = 10,000 × 0.05 × 60365 = 82.19 RON

This example demonstrates how interest on overdue invoices can be calculated, providing clarity on the costs associated with late payments.

Charging Interest on Overdue Invoices

In Romania, charging interest on overdue invoices is a common practice. However, the ability to charge interest is contingent on the legal framework governing commercial debts. According to the Late Payment of Commercial Debts Act, businesses can apply interest on unpaid invoices if:

The payment is overdue beyond the contractual deadline.
The parties have agreed to an interest rate, or the statutory interest rate applies.

When businesses charge interest on overdue invoices, they must ensure that the default interest rate is clearly outlined in the contract. It is also essential to communicate the intention to charge interest if payment is delayed, to prevent disputes.

Late Tax Payment Penalty and Interest

In addition to late payment for commercial debts, tax payments are also subject to penalties and interest for late tax payment. Romanian law provides for a late tax payment penalty to encourage taxpayers to settle their dues on time.

If a business or individual fails to pay taxes on time, the Romanian tax authorities apply a late tax payment penalty. The penalty is calculated based on the overdue amount and the length of the delay. The rate can vary depending on the nature of the tax and how long the payment has been delayed.

In addition to the penalty, interest on late tax payments is also charged. This interest serves to compensate the authorities for the delay in receiving payment and is typically calculated in a manner similar to default interest on commercial debts.

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Applying Interest to Overdue Invoices

To recover costs from overdue payments, businesses often apply interest to overdue invoices. This process helps businesses compensate for the financial strain caused by delayed payments. Here's how businesses can apply interest to overdue invoices:

Review the contract: Determine if a specific interest rate was agreed upon for late payments. If not, the statutory interest rate applies.
Communicate the intention: Inform the debtor about the intention to apply interest to overdue invoices.
Calculate interest: Use the formula discussed earlier to calculate the interest on the overdue invoice amount.
Add interest to the invoice: Once the interest has been calculated, include it on the updated invoice as part of the total amount due.

Consequences of Not Charging Interest on Overdue Invoices

Failing to charge interest on overdue invoices can result in significant financial losses for businesses. When interest is not charged, businesses miss the opportunity to compensate for the time and resources spent waiting for payment. Moreover, not enforcing interest may also lead to clients thinking that late payments are not penalized, which could encourage further delays.

How to Prevent Late Payments

While charging interest on overdue invoices is an essential tool, prevention is always better than cure. Here are some steps businesses can take to minimize the risk of late payments:

Set clear payment terms: Ensure that clients and customers understand the payment deadlines and any associated interest charges for overdue payments.
Offer early payment discounts: Encourage early payments by offering discounts for clients who pay ahead of time.
Regular follow-ups: Establish a system for regularly following up on overdue payments. This can help remind clients about their obligations.
Use professional invoicing: Ensure that invoices are clear, accurate, and sent promptly. This can help avoid disputes that may lead to delayed payments.

Conclusion

Understanding statutory interest and default interest rates is crucial for businesses in Romania dealing with overdue payments. These interest rates offer a legal avenue for businesses to recover costs caused by late payments. By effectively calculating and applying interest on overdue invoices, businesses can safeguard their financial interests.

Moreover, knowing how to charge interest on overdue invoices, how to calculate late payment interest, and the importance of applying interest to overdue invoices will ensure that businesses are fully prepared to manage late payments in a way that is both fair and compliant with Romanian law.

By staying informed and proactive, businesses can reduce the impact of late payments, maintain healthy cash flow, and ensure that their financial operations run smoothly.

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Statutory Interest and Default Interest Rate for Late Payment in Romania

What is Statutory Interest?

Statutory interest, also known as legal interest or dobanda legala, is the interest prescribed by law that applies when a payment is overdue. The concept ensures that creditors are compensated for the delay in receiving payment for goods or services delivered.

In Romania, statutory interest is automatically applied to outstanding debts that are overdue. This interest serves as a deterrent against late payments and provides compensation for the financial loss caused by delayed transactions.

Understanding Default Interest Rate

A default interest rate is the interest charged on overdue payments when the debtor fails to pay by the agreed deadline. In Romania, the default interest rate is often set by the government and is applicable to commercial transactions as well as private dealings.

Statutory Interest and Default Interest in Romania

In Romania, the rules governing statutory and default interest rates are established by law to ensure consistency and fairness in commercial and private transactions.

Statutory Interest is set annually by the National Bank of Romania (BNR) and is the minimum rate creditors can charge when a payment is overdue.

Default Interest is higher and can be specified in the contractual agreement between the parties involved. If no rate is agreed upon, the legal default rate applies.

The Late Payment of Commercial Debts Act

The Late Payment of Commercial Debts Act aims to ensure that businesses are protected against payment delays. According to this law:

Late payments should be settled within 30 days unless otherwise agreed.

If the payment is delayed beyond this period, creditors are entitled to charge statutory interest.

The creditor may also apply default interest, which may be higher than the statutory interest rate.

The Act covers commercial transactions, meaning that it applies to both business-to-business and business-to-government dealings.

It’s essential for companies to be aware of the act's provisions, as it allows for the charging of interest on overdue invoices and provides a framework for calculating late payment interest.

Legal Interest vs. Default Interest Rate

The distinction between legal interest and default interest rate is crucial in understanding the financial implications of late payments.

Legal Interest: This is the rate set by the government (e.g., the National Bank of Romania) and is the baseline interest rate applied when there is no agreement between the parties on interest charges for late payment.

Default Interest Rate: This is a higher interest rate, agreed upon between the parties or regulated by the contract. If a payment is late and no specific rate has been established, the legal default interest rate will apply.

The default interest rate is a crucial tool for businesses in combating overdue payments and ensuring that they are compensated adequately for delayed payments. Understanding this rate is key to avoiding misunderstandings and ensuring that both parties know their financial responsibilities.

Calculating Late Payment Interest

Calculating late payment interest is an important skill for businesses seeking to recover payments from clients. The process typically involves the following steps:

Determine the outstanding amount: This is the amount owed for the product or service provided.

Identify the applicable interest rate: If no rate is specified in the contract, the statutory interest rate or default interest rate should be used.

Calculate the duration of the delay: This is the number of days that the payment has been overdue.

Apply the formula: The formula for calculating late payment interest is typically:

Interest = Principal Amount × Interest Rate × Days Late/365

For example, if the overdue amount is 10,000 RON, the statutory interest rate is 5%, and the payment is 60 days late, the calculation would be:

Interest = 10,000 × 0.05 × 60365 = 82.19 RON

This example demonstrates how interest on overdue invoices can be calculated, providing clarity on the costs associated with late payments.

Charging Interest on Overdue Invoices

In Romania, charging interest on overdue invoices is a common practice. However, the ability to charge interest is contingent on the legal framework governing commercial debts. According to the Late Payment of Commercial Debts Act, businesses can apply interest on unpaid invoices if:

The payment is overdue beyond the contractual deadline.

The parties have agreed to an interest rate, or the statutory interest rate applies.

When businesses charge interest on overdue invoices, they must ensure that the default interest rate is clearly outlined in the contract. It is also essential to communicate the intention to charge interest if payment is delayed, to prevent disputes.

Late Tax Payment Penalty and Interest

In addition to late payment for commercial debts, tax payments are also subject to penalties and interest for late tax payment. Romanian law provides for a late tax payment penalty to encourage taxpayers to settle their dues on time.

If a business or individual fails to pay taxes on time, the Romanian tax authorities apply a late tax payment penalty. The penalty is calculated based on the overdue amount and the length of the delay. The rate can vary depending on the nature of the tax and how long the payment has been delayed.

In addition to the penalty, interest on late tax payments is also charged. This interest serves to compensate the authorities for the delay in receiving payment and is typically calculated in a manner similar to default interest on commercial debts.

Applying Interest to Overdue Invoices

To recover costs from overdue payments, businesses often apply interest to overdue invoices. This process helps businesses compensate for the financial strain caused by delayed payments. Here's how businesses can apply interest to overdue invoices:

Review the contract: Determine if a specific interest rate was agreed upon for late payments. If not, the statutory interest rate applies.

Communicate the intention: Inform the debtor about the intention to apply interest to overdue invoices.

Calculate interest: Use the formula discussed earlier to calculate the interest on the overdue invoice amount.

Add interest to the invoice: Once the interest has been calculated, include it on the updated invoice as part of the total amount due.

Consequences of Not Charging Interest on Overdue Invoices

How to Prevent Late Payments

While charging interest on overdue invoices is an essential tool, prevention is always better than cure. Here are some steps businesses can take to minimize the risk of late payments:

Set clear payment terms: Ensure that clients and customers understand the payment deadlines and any associated interest charges for overdue payments.

Offer early payment discounts: Encourage early payments by offering discounts for clients who pay ahead of time.

Regular follow-ups: Establish a system for regularly following up on overdue payments. This can help remind clients about their obligations.

Use professional invoicing: Ensure that invoices are clear, accurate, and sent promptly. This can help avoid disputes that may lead to delayed payments.

Conclusion

Moreover, knowing how to charge interest on overdue invoices, how to calculate late payment interest, and the importance of applying interest to overdue invoices will ensure that businesses are fully prepared to manage late payments in a way that is both fair and compliant with Romanian law.

By staying informed and proactive, businesses can reduce the impact of late payments, maintain healthy cash flow, and ensure that their financial operations run smoothly.