E-Invoicing Penalties in Malaysia: Key Risks and How to Avoid Them

A simple overlook in issuing an e-invoice leads to costly fines, revenue loss, or sometimes legal trouble. With Malaysia's e-invoicing mandate in full flow, businesses can no longer afford to take invoicing lightly. The penalties for non-compliance are heavy, but with the right preparation, they can be avoided. In this guide, we’ll understand the risks of non-compliance, how to stay updated with the latest regulations, and the steps businesses can take to avoid penalties and ensure a smooth transition into e-invoicing.

Consequences of Not Generating E-Invoices

1. Non-recognition of Revenue and Expenses
   Businesses struggle to recognize sales and claim expenses accurately without e-invoices.
2. Revenue Loss
   As e-invoices become the standard, failing to adopt this method may lead to payment delays or disputes over unpaid invoices.
3. Unavailability of Bill Discounting
   Bill discounting may not be available for businesses not using e-invoices, which impacts the cash flow and operational efficiency, and businesses miss out on financial facilities that help manage receivables.
4. Lower Legal Validity
   E-invoices offer higher legal validity than traditional invoices, reducing the risk of disputes and ensuring compliance with regulatory requirements.

Penalty for Not Issuing Tax Invoices

Businesses registered under the Sales and Service Tax (SST) regime must issue tax invoices. Failure to do so can result in penalties of up to RM30,000, imprisonment for up to 2 years, or both.

Penalties for Non-Compliance with E-Invoicing Rules

Under Section 120(1)(d) of the Income Tax Act 1967, failure to issue an e-invoice is considered an offence. The penalties for non-compliance include:

• Fines: Ranging from RM200 to RM20,000.
• Imprisonment: Up to 6 months.
• Or Both: For each instance of non-compliance.

Latest Updates on E-Invoicing Guidelines and Grace Period Conditions

On 30 July 2024, the Inland Revenue Board of Malaysia (IRBM) released updated versions of the e-invoice Guideline 3.2 and the e-invoice Specific Guideline 3.0. These updates clarify the gradual implementation of e-invoicing and the grace period conditions:

1. Grace (“Relaxation”) Period Phases
   1. 1 August 2024 – 31 January 2025: For businesses with turnover greater than RM100 million (approximately EUR 20 million).
   2. 1 January 2025 – 30 June 2025: For businesses with turnover between RM25 million (approximately EUR 5 million) and RM100 million.
   3. 1 July 2025 – 31 December 2025: For all other taxpayers.
2. Allowances During the Grace Period
   1. Issuing consolidated e-invoices for all activities and transactions.
   2. Consolidated e-invoices for specific industries or activities where required.
   3. Self-billed e-invoices for applicable scenarios.
   4. Flexible input for product/service descriptions and reference numbers.
   5. No need for individual e-invoices if consolidated e-invoicing rules are followed.
3. Timing of Issuance
   1. Consolidated e-invoices/self-billed e-invoices should be submitted to LHDN within seven calendar days after the end of the month in which the transactions occurred.
4. Penalties
   1. No penalties for non-compliance with individual e-invoice requirements if consolidated e-invoicing rules are adhered to.
5. Exemption from E-Invoicing
   1. Taxpayers with annual turnover or revenue of less than RM150,000 (approximately EUR 30,450) are exempt from issuing e-invoices.

Steps to Take for Avoiding Penalties

1. Understand the Mandate and Implementation Timeline
   Familiarize yourself with the e-invoicing mandate and the specific phase applicable to your business. Adhere to deadlines and implementation schedules to ensure timely compliance.
2. Assess Your Requirements
   Evaluate your business’s transaction types, frequency, and delivery channels. This assessment will guide you in selecting the appropriate e-invoicing model and integration methods. 
3. Choose the Right E-Invoicing Model
   Select an e-invoicing model that aligns with your business needs. Whether opting for the MyInvois Portal or API integration, ensure the solution fits your operational requirements and compliance obligations.
4. Prepare Your System
   Update your IT infrastructure to support e-invoicing. Collaborate with a trusted solution provider, such as Compliance, to ensure smooth integration and implementation.
5. Train Employees
   Provide comprehensive training on the e-invoicing process and compliance requirements. Equip your team with the necessary knowledge and skills to manage e-invoicing effectively.

Penalties for Non-Compliance with E-Invoicing Rules

Under Section 120(1)(d) of the Income Tax Act 1967, failure to issue an e-invoice is considered an offence. The penalties for non-compliance include:

• Fines: Ranging from RM200 to RM20,000.
• Imprisonment: Up to 6 months.
• Or Both: For each instance of non-compliance.

Conclusion

Navigating the transition to e-invoicing in Malaysia requires understanding the associated penalties and staying updated on the latest guidelines. By proactively implementing e-invoicing solutions and adhering to regulatory requirements, businesses can avoid potential fines and ensure a smooth transition to the new invoicing system.

E-Invoicing Penalties & Legal Concerns