ACCUMULATION AND DEDUCTION OF MORATORY INTEREST
Default interests are those that are charged for being in default, that is, when a customer or a debtor makes a payment after the agreed deadline. Due to the pandemic caused by COVID-19, the cash flow of some companies has decreased, which in turn can generate delays in payments, so in case of charging or paying late interest it is important to consider the following :
These interests have a special treatment for legal entities, in accordance with the provisions of section IX of article 18 of the Income Tax Law, which consists of accumulating the interest accrued only during the first three months of default and from the fourth month they will only accumulate those effectively collected, considering for these purposes that the delinquent interests that are collected will accumulate until the moment in which those actually collected exceed the amount accumulated in the first three months and up to the amount in which they exceed. For clarity let’s see an example:
The company LA PORTIA SA de CV, has a client to whom it granted financing for a sale of merchandise, and although the client paid the amount of his credit on time, he did not cover the amount of interest from the last monthly payment, so that Late payment interest will be charged from the day that payment should have been made and until it is finally made.
The amount owed is $ 6,000.00 and should have been paid on August 31, 2020, the agreed default interest rate is 3.6% per month, so the default interest will be calculated as follows:
If the client finally liquidates his debt plus the default interest that corresponded to him on March 1 of the following year, what amounts should he accumulate LA PORTIA SA de CV, for default interest and in what months?
Considering the same accrual periods, for the 2020 annual return the cumulative income would be $ 655.20, which is the sum of the interest accrued in the first three months.
In the same sense, when the legal entity pays default interest, it will deduct the accrued in the first three months of default. As of the fourth month, only the interest actually paid will be deducted, taking care to reduce the interest accrued in the first three months. However, it is important to remember that the deduction of default interest will only be considered for the calculation of income tax for the year, since the deductions have no effect on the determination of provisional payments.