Malaysia’s tax office, the Inland Revenue Board of Malaysia (IRBM), made the decision to mandate e-invoicing in March 2023 with a phase-wise implementation plan. The goal of the Ministry of Finance with this move was to digitize and streamline tax administration operations in Malaysia.
The Malaysian government aimed to ensure the various benefits of e-invoicing for the country, such as :
- Fraud Prevention In Proforma Invoices (And Others)
- Improved Tax Collection
- Reduced Business Operation Costs
- Increased Ease Of Business
- Better Transparency
- Accurate and Digitally Documented Financial Transactions
However, the Inland Revenue Board of Malaysia (IRBM) postponed the e-invoice implementation date to October 2023, giving businesses time to understand and adopt the concept of e-invoicing into their operations.
But what must Malaysian businesses do in order to ensure their transition to e-invoicing is smooth and effortless? In this article, we will go over every aspect of e-invoicing in Malaysia to help you understand how it works, its regulations, and how to prepare for the transition.
What is E-invoicing in Malaysia?
An electronic invoice or e-invoice is a document that is electronically exchanged between
a supplier and a buyer through specialized e-invoice software. In Malaysia, the Inland Revenue Board of Malaysia (IRBM) specifies the electronic invoice format.
A valid invoice in Malaysia will contain 53 e-invoice mandatory fields, including seller & buyer details, item description, quantity, price, tax, total amount, payment details, etc.
These fields are grouped into 9 categories :
- Address
- Business Details
- Contact Number
- Invoice Details
- Parties
- Party Details
- Payment Info
- Products / Services
- Unique ID Number
Also, the Malaysian government will use a Continuous Transaction Control (CTC) model for verifying sales invoices via the government’s API. A Tax Identification Number (TIN) introduced in 2022 will power the use of e-invoicing in Malaysia.
Once validated and approved by the Inland Revenue Board (IRB), a serial number will be shared with the supplier via email. With this approach, the Malaysian government aims to adopt a CTC system connected to the Peppol network.
e-Invoice Malaysia | Step by step Preparation
In Malaysia, e-invoice compliance will require your business to plan and manage the transition to e-invoicing in a strategic manner. Let’s learn how :
e-Invoice Malaysia Implementation Timeline
Starting from 1st August 2024, the implementation of e-invoice in Malaysia is scheduled to be completed within 2 to 3 years, with 1 July 2025 determined as the estimated final date for implementation.
Sr. No | Date | Implementation Plan |
1 | 1st August 2024 | Largest Taxpayers - E-invoicing will be in effect for taxpayers with an annual revenue/turnover of more than RM 100 million. |
2 | 1st January 2025 | Standard Taxpayers - E-invoicing will be in effect for taxpayers with an annual revenue/turnover of more than RM 25 million and within RM 100 million. |
3 | 1st July 2025 | All Taxpayers - E-invoicing will be in effect for all taxpayers (small, medium, or large). The specific size of the turnover for e-invoicing will not be a relevant factor after this implementation. |
E-invoicing Authority in Malaysia
The Inland Revenue Board of Malaysia (IRBM) holds regulatory authority over e-invoicing endeavors in the country.
And the IRBM/Lembaga Hasil Dalam Negeri Malaysia has taken a proactive approach towards incorporating and solidifying e-invoicing in the country by creating a memorandum of understanding (MoU) with the Malaysian Digital Economy Corporation (MDEC).
Transactions Covered Under e-invoice Malaysia
e-Invoicing in Malaysia applies to all commercial activities in the country including the sale of goods and services. The official mandate by the Inland Revenue Board of Malaysia covers the following types of transactions:
Business-to-Business (B2B)
B2B invoicing through an electronic medium enables hassle-free payments, effortless invoicing, and better operational efficiency for all business-to-business transactions.
A well-developed B2B invoicing software can help a business improve productivity and cash flows by automating multiple time-consuming and manual tasks.
Business-to-Customer (B2C)
E-invoicing for B2C business transactions helps simplify invoicing for businesses regularly dealing with individual customers. However, sellers are not obligated to issue e-invoices to customers in the B2C scenario. They can provide a traditional invoice or receipt as well.
Be that as it may, after a certain period, sellers are required to aggregate all the issued invoices and receipts to generate a consolidated e-invoice.
Business-to-Government (B2G)
While the flow of e-invoicing in B2G is similar to that of B2B, it offers the benefits of
e-invoicing for transactions between businesses and government establishments/organizations.
E-invoicing Models in Malaysia
There are 3 e-Invoice model in Malaysia to report/transmit tax invoices to the IRBM, depending on the requirements of a business such as volume and customization.
- The MyInvois Portal
- Application Programming Interface (API)
- Peppol Service Providers
The MyInvois Portal
The MyInvois Portal is a web-based platform provided and hosted by IRBM/Lembaga Hasil Dalam Negeri Malaysia (LHDN). It is a free portal for uploading invoices and a perfect option when connecting to APIs for e-invoice is an obstacle.
Application Programming Interface (API)
When the requirement includes large volumes of invoices, the API proves to be a more suitable option for e-invoice transmission. It allows direct transmission between the MyInvois System and the system used by taxpayers. API for e-invoicing in Malaysia is a great option for large enterprises with higher invoice volume and integration needs.
Peppol Service Providers
Using API integration through a PEPPOL service provider, Malaysia’s and cross-border suppliers can transmit e-invoices to LHDNM. It would enable them to benefit from the interoperability facilitated by PEPPOL.
Understand the e-Invoicing Process Flow in Malaysia
Here’s the e-invoice workflow in Malaysia from the instant when the sale/transaction takes place and e-invoices are issued by the supplier/vendor using MyInvois or API to the process of validation and storage of e-invoices on the IRBM’s database.
- Generation of E-invoice
- Validation of E-invoice
- Notification of E-invoice Validation
- Sharing of E-invoice
- Rejection or Cancellation
Evaluate Your E-Invoicing Readiness
Analyze and determine the suitability of e-invoicing for your company by evaluating readiness, technological limitations, potential obstacles, and future requirements. You must train all relevant company professionals with the knowledge and tools required to manage the e-invoicing process effectively.
Understand E-invoicing Guidelines
Familiarize your organization with e-invoicing regulations, including requirements, Malaysia e-invoice format, and guidelines prescribed by regulatory authorities.
For starters, you can refer to the guideline by IRBM: E-invoicing in Malaysia Guideline.
Ensure compliance with all relevant regulations to streamline the implementation process and avoid potential penalties or setbacks.
Choose the Right Integration Method
The Inland Revenue Board of Malaysia (IRBM) provides two options for generating invoices: via MyInvois Portal or API (Direct integration).
Direct integration will allow you to instantly create e-invoices within your ERP system in real time with faster generation capability and less or no errors, especially if you use an advanced tool like GST Hero’s e-invoicing system.
This ideal IRBM-Compliant e-invoicing solution has:
- The processed invoice value of around ₹3 billion or more every year.
- The capability to manage 135 million invoices annually.
- The processing speed of 8 million records in 40 minutes.
Get a Capable Team for a Smooth Transition to e-Invoicing
Get a team of professionals with a broad range of expertise in IT, tax, finance, and project management. This approach ensures comprehensive coverage of all aspects involved in the implementation of e-invoicing, leading to a more effective and seamless transition.
Additionally, the unique insights and skills of such team members will help you capitalize on the e-invoicing initiative through collaborative expertise and innovation.
Evaluate Existing Accounts Receivable (AR) Billing Procedures
Before transitioning to e-invoicing, it's crucial to thoroughly understand your existing Accounts Payable and Account Receivable (AR) billing procedures. Evaluate whether the timing of e-invoice issuance aligns seamlessly with the submission of e-invoice data to the Inland Revenue Board (IRB).
This assessment ensures that your AR billing processes are synchronized with e-invoicing requirements. It will reduce disruptions and ensure compliance with regulatory obligations. Also, consider streamlining AR processes where necessary to optimize efficiency and accuracy in e-invoice submission.
Evaluate and Plan Your International Transactions
When dealing with foreign customers, it's necessary to have a proper plan for self-issuing
e-invoices for international transactions. You must inspect and evaluate how your system currently manages these transactions to identify any potential challenges or areas for improvement.
Ensure that your system complies with international invoicing standards and regulations, considering factors such as currency conversion, language requirements, and cross-border tax implications.
Plan a Strategic Collection of Mandatory E-invoice Data
To ensure regulatory compliance with e-invoicing requirements, it's crucial to develop a comprehensive strategy for collecting essential data fields. This includes but is not limited to a unique identification number, name, and address. You must also collect other crucial information mandated by IRBM to facilitate seamless e-invoice processing and compliance verification.
Explore methods for securely storing and managing collected data to safeguard sensitive information and uphold data privacy standards.
Consequences of Not Generating E-invoices in Malaysia
Failing to comply with the e-invoicing mandate by IRBM can lead to penalties and legal actions in some cases. The Malaysian Income Tax Act considers the failure to generate e-invoices a criminal offense.
Hence, the e-invoicing Malaysia penalty ranges from RM 200 to RM 20,000 and in some extreme cases, imprisonment for up to six months. Some parties may face both the penalty and imprisonment.
Such strict regulations by the Malaysian government represent their dedication to improving transactional efficiency in the country. In short, every business conducting the sales of goods or services must generate an e-invoice.
Conclusion
The transition to GSTHero e-invoicing in Malaysia represents a significant shift towards modernization and efficiency in tax administration and business operations. The decision by the Inland Revenue Board of Malaysia (IRBM) to mandate e-invoicing underscores the government's commitment to leveraging technology for fraud prevention, improved tax collection, reduced operational costs, and enhanced transparency.
It's imperative for organizations to proactively prepare for the e-invoicing mandate. They must prioritize compliance with e-invoicing guidelines to avoid penalties and legal repercussions.
By embracing e-invoicing and investing in the necessary resources and expertise, businesses can not only comply with regulatory requirements but also unlock benefits such as improved efficiency, accuracy, and competitiveness in the digital landscape.