The International Financial Services Centres Authority (IFSCA) has recently released an important circular regarding the interest charged on late payments of fees for entities undertaking permissible activities within the International Financial Services Centres (IFSC). The circular, issued on February 26, 2025, brings clarity to the fee structure and introduces a revised interest rate for late payments, which will come into effect starting March 1, 2025.
The Key Changes in the Circular
The IFSCA’s updated circular focuses primarily on how late payments are handled, and the interest rates that will apply. Specifically, it addresses the penalties levied on entities that fail to make timely payments for fees owed to the IFSCA.
Late Payment Fee and Interest
According to the previous circular issued on May 17, 2023, which was amended on February 6, 2024, entities are required to pay a fee by a specific due date. In the event of late payment, a late fee of 20% of the original fee is added. In addition, the entity is required to pay interest on this late fee at a rate of 15% per month, until the fee is paid in full. The updated circular clarifies that the 15% interest applies only to the late fee (i.e., 20% of the original fee), not the entire fee amount. For example, if an entity is required to pay USD 1,000 but misses the deadline, they would be charged USD 200 as the late fee (20% of USD 1,000). The 15% interest would be calculated on this USD 200.
Revised Interest Structure from March 1, 2025
Starting from March 1, 2025, a new interest rate structure will come into play. The interest rate for late payments will be reduced to 0.75% per month on the unpaid or short-paid fee amount.
This new rate represents a significant decrease from the previous 15% per month interest, offering entities a more lenient penalty for late payments. For example, if an entity misses a fee payment deadline and pays late, the amount of interest they owe will be considerably lower than it would have been under the previous structure.
The revised circular introduces both benefits and challenges for regulated entities within IFSCs
More Manageable Penalties: The reduction in the interest rate from 15% to 0.75% provides a less burdensome financial penalty for entities that miss their payment deadlines. While there is still a penalty, it is now much more manageable, which could lead to less financial strain for businesses that experience temporary liquidity issues.
Clearer Fee Structure: The clarification regarding interest calculation—specifically that the interest applies only to the late fee and not the entire outstanding amount—helps ensure transparency in the financial obligations of entities within IFSCs.
Incentive for Timely Payments: With the implementation of these revised terms, entities are incentivized to make payments on time to avoid even the reduced penalties. While the interest rate is lower, there is still a financial consequence for late payments that could impact the cash flow of an entity if ignored.
