With the scope of encouraging enterprises and public authorities to comply with payment deadlines in commercial transactions, and to ensure the smooth functioning of the European single market, Directive 2011/7/EU of the European Parliament and of the Council of 16th February 2011 on combating late payment in commercial transactions was implemented. This Directive was transposed into Maltese law by virtue of L.N. 272 of 2012, and establishes the interest rates payable in case of late payments in certain defined commercial transactions, and outlines the times from when interest starts to accrue.
The commercial transactions under scope
The commercial transactions under scope are those transactions consisting of the sale and delivery of goods, or the provision of services, for remuneration, between (i) private and public undertakings; (ii) undertakings and public authorities; or (iii) main contractors and their suppliers and subcontractors. The rules emanating from the L.N. do not apply to transactions not falling within the ambit of this definition, including transactions between consumers. In such latter cases, the traditional Civil Code rules on interest prevail.
The rules emanating from the L.N. apply to payments which are late. The rules therefore presuppose that there is an amount of money still due to the supplier of goods/services (“Creditor”) by its client (“Debtor”) after the Creditor has fulfilled its contractual and legal obligations, and the Creditor has not received the amount due by the Debtor on time.
The applicable interest rate
According to the L.N., Creditors have the right to charge interest on late payments equivalent to 8% plus the European Central Bank reference rate from the day following the date or the end of term for payment agreed in the contract of sale. The reference rate is calculated every six months on the 1st of January and on the 1st of July of every year.
According to a press release issued by the Malta Association of Credit Management on the 6th of July 2023, the applicable interest rate as at the 1st of July 2023 has risen to 12%. The applicable interest rate as at the 31st of December 2022, was at 8% when the ECB reference rate was 0%, which then rose to 10.5% as at the 1st of January 2023.
The times from when interest starts to accrue
Where parties to a commercial transaction do not specify the time from when interest starts to accrue, the L.N. stipulates that interest is due after the lapse of 30 calendar days from the date of receipt of goods or services, or 30 calendar days from the date of invoice. The L.N. further provides that the period for payment agreed between the parties to a commercial transaction may not exceed 60 calendar days. However, the parties may expressly agree for a longer period as long as the extension of time is not grossly unfair to the Creditor.