e-Invoice in Malaysia

e-Invoicing in Malaysia: A Complete Guide For Your Business Needs

Introduction

‍In March 2023, the Inland Revenue Board of Malaysia (IRBM) announced the mandatory adoption of e-invoicing through a phased implementation plan. This initiative mandates all businesses registered in Malaysia to generate e-invoices for all B2B, B2G, and B2C transactions. In the first phase, all businesses with a turnover exceeding RM 100 million must generate e-invoices starting from 1st August 2024. The goal of e-invoicing is to streamline tax compliance, reduce tax evasion, and support the growth of Malaysia's digital economy.

What is an e-Invoice in Malaysia?

‍An e-invoice is a digital record of a transactional exchange between a seller (supplier) and a purchaser (buyer), validated and recorded by the government portal in real time. e-Invoicing includes 55 fields with details such as seller and buyer information, item descriptions, quantities, prices, taxes, total amounts, and payment details. Validated e-invoices receive a Unique Identification Number (UIN) and a QR code from the MyInvois Portal, ensuring authenticity and facilitating easy verification.

Benefits of Adopting e-Invoice in Malaysia

1. Unified Invoicing Process: e-Invoicing streamlines transaction document creation and submission, reducing manual efforts and errors, and ensuring consistency in invoice formats across all businesses in Malaysia.
2. Tax Return Facilitation: Seamless integration of e-invoicing with the tax system helps in accurate and timely tax reporting, reducing the burden on businesses and ensuring compliance with Malaysia's tax laws.
3. Operational Efficiency: Automation of e-invoice generation and management saves time and costs for businesses, allowing them to focus on core activities.
4. Digital Transformation: e-Invoicing encourages businesses to adopt digital practices, supporting Malaysia's vision of becoming a digital economy leader in the region.
5. Enhanced Transparency: Real-time e-invoice validation and recording by IRBM enhance transparency in business transactions, reducing opportunities for tax evasion.
6. Reduced Paperwork: e-Invoicing eliminates the need for physical invoices, contributing to environmental sustainability and reducing the risk of invoice loss or damage.

e-Invoicing Implementation Timeline in Malaysia

‍IRBM plans a phased implementation to ensure a smooth transition:

• Phase 1: Turnover > RM 100 million, effective 1 August 2024
• Phase 2: Turnover > RM 25 million and up to RM 100 million, effective 1 January 2025
• Phase 3: All other taxpayers, effective 1 July 2025

Transactions Covered Under Malaysia e-Invoice

• B2B (Business to Business): e-Invoicing for transactions between two businesses, including the sale of goods and services.
• B2C (Business to Consumer): e-Invoicing for transactions between businesses and end consumers. While end consumers may not always require e-invoices, businesses must generate them for tax purposes.
• B2G (Business to Government): e-Invoicing for transactions between businesses and government entities, ensuring compliance with government procurement processes.

Process Flow of e-Invoice in Malaysia

1. Creation and Submission: Supplier creates an e-invoice and submits it through the MyInvois portal or e-invoicing software via API. The e-invoice includes all necessary transaction details and complies with IRBM requirements.
2. Validation: IRBM validates the e-invoice to ensure accuracy and compliance with tax regulations. Both the supplier and buyer are notified upon validation.
3. Sharing: The supplier shares the validated e-invoice, embedded with a QR code, with the buyer. The QR code enables easy verification of the invoice's authenticity.

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Exemptions from Implementing e-Invoice

‍Certain entities are exempted from issuing e-invoices, including:

• Government bodies
• Consular offices and diplomatic missions
• Individuals not conducting business
• Entities providing goods or services to the above exempt entities

However, suppliers providing goods or services to these exempt entities must still issue e-invoices to ensure proper tax documentation and compliance.

Data Security and Privacy Monitoring by IRBM

‍IRBM ensures data security and privacy in e-invoicing through various measures, including:

• Network and Security Monitoring Tools: Continuous monitoring to detect and prevent unauthorized access or data breaches.
• Encryption: Securing sensitive financial data during transmission and storage to protect against cyber threats.
• Access Controls: Implementing strict access controls to ensure only authorized personnel can access sensitive data.
• Regular Audits: Conducting regular audits to identify and address potential vulnerabilities in the e-invoicing system.

Challenges of e-Invoicing for Businesses in Malaysia

1. Regulatory Compliance: Ensuring all businesses adhere to the new e-invoicing regulations and meet IRBM's validation criteria.
2. Technological Transition: Adapting to automated systems and integrating e-invoicing with existing business processes and ERP systems.
3. Data Security: Protecting sensitive financial data from cyber threats and ensuring compliance with data privacy regulations.
4. Resistance to Change: Overcoming resistance from employees accustomed to traditional invoicing methods and ensuring smooth adoption of e-invoicing.
5. Technological Readiness: Smaller enterprises may face challenges due to limited IT infrastructure and resources.
6. Data Accuracy and Integration: Ensuring seamless data exchange and synchronization between e-invoicing systems and existing business applications.
7. Supplier Onboarding: Aligning all partners and suppliers with e-invoicing procedures and technology to ensure consistent compliance.

Best Practices for e-Invoicing in Malaysia

1. Analyze Requirements: Assess the applicability of e-invoicing rules and exemptions for your business. Understand the specific requirements for each type of transaction and ensure compliance with IRBM guidelines.
2. Choose the Right e-Invoicing Model: Select between MyInvois Portal for low transaction volumes and API Integration for higher volumes. Consider the transaction volume, business size, and technical capabilities when choosing the model.
3. Software and Systems Check: Ensure compatibility of existing billing and accounting software with e-invoicing requirements. Upgrade systems if necessary to support e-invoice generation and submission.
4. Select a Reliable E-Invoicing Solution Provider: Choose a provider that offers robust integration solutions, technical support, and compliance with IRBM guidelines. Evaluate providers based on their experience, features, and customer support.
5. Staff Training and Internal Controls: Train employees on compliance standards, e-invoice generation processes, and error handling procedures. Establish internal controls to ensure accurate and timely e-invoice generation and submission.
6. Testing and Quality Assurance: Conduct thorough testing of e-invoicing functionalities, including e-invoice generation, data transfer, and validation processes. Perform User Acceptance Testing (UAT) with representative users to ensure usability and functionality meet expectations. Validate security measures, error response mechanisms, and system performance under various load conditions.

Role of e-Invoice in Malaysia for Different Industries

‍IRBM provides specific guidelines for different industries to ensure smooth implementation of e-invoicing some of the industries include:

• Healthcare: e-Invoices for medical services, equipment, and pharmaceuticals.
• Construction: e-Invoices for construction contracts, materials, and services.
• Telecommunication: e-Invoices for telecom services, equipment, and subscriptions.
• E-Commerce: e-Invoices for online transactions, including goods and services.
• Petroleum Operations: e-Invoices for oil and gas transactions, including exploration, production, and sales.

How Complyance Can Help with e-Invoicing in Malaysia

‍Complyance offers comprehensive support for e-invoicing in Malaysia, providing a range of features and services to ensure smooth implementation and compliance with IRBM guidelines:

• Dedicated Account Managers: Each customer is assigned a dedicated account manager who provides expert guidance on compliance and technical aspects of e-invoicing.
• Extensive Data Validations: Complyance conducts over 150 data validations before transmitting information to IRBM, ensuring a high success rate in e-invoice generation.
• Rapid ERP Integration: Complyance offers quick integration with over 50 ERPs, allowing businesses to seamlessly incorporate Complyance web APIs within 4-6 weeks.
• Data Archival: Complyance ensures secure e-invoice data archival for up to seven years on SLA-based cloud servers, guaranteeing data retention and accessibility.
• Value-Added Services: Complyance provides various value-added services to simplify the e-invoicing process for clients, including spend/sales analytics, error reports, QR code generation, and convenient options like WhatsApp/SMS for sending B2C e-invoices and custom print templates for e-invoices.

Issuing e-Invoices in Malaysia for different Scenarios and Business Situations

Transactions with Buyers

In transactions with buyers, businesses must issue e-Invoices for all sales, detailing buyer information and transaction specifics. If a buyer requests an e-Invoice, the supplier must obtain the necessary details and issue it. The e-Invoice serves as proof of the transaction for tax purposes. For buyers who do not require an e-Invoice, businesses can issue consolidated e-Invoices.

Statements/Bills on a Periodic Basis

In businesses that issue periodic statements or bills, such as telecommunications or financial services, e-Invoices can consolidate multiple transactions over a set period. These consolidated e-Invoices serve as proof of income for the supplier and proof of expense for the buyer once validated by the tax authority.

Disbursement and Reimbursement

In handling disbursements and reimbursements, disbursements refer to payments made on behalf of another party, while reimbursements cover out-of-pocket expenses. The business must ensure that each step in the transaction chain is clearly documented with separate e-Invoices for each payment.

Employment Perquisites and Benefits

In providing employee benefits, employers must issue e-Invoices for perquisites such as allowances and memberships. These e-Invoices ensure that employee benefits are accurately documented and compliant with tax regulations.

Certain Expenses Incurred by Employees on Behalf of the Employer

In cases where employees incur expenses on behalf of their employer and claim these expenses, e-Invoices must document these expenses accurately, ensuring they are properly recorded as the employer's expenses.

Self-Billed E-Invoice

In self-billed e-Invoices, where the buyer generates the invoice on behalf of the supplier, the business must gather the required information, validation procedures, and compliance requirements to streamline the invoicing process.

Transactions Involving Payments to Agents, Dealers, or Distributors

In transactions involving payments to intermediaries such as agents, dealers, or distributors, the business must ensure that these payments are properly documented with e-Invoices, complying with tax regulations.

Cross-Border Transactions

In international transactions, the business must accurately document cross-border trade for tax purposes.

Profit Distribution (e.g., Dividend Distribution)

In profit distributions such as dividends, businesses must issue e-Invoices to document these transactions accurately, ensuring compliance with relevant tax regulations and providing proof of income for the recipient.

Foreign Income

In handling foreign income, e-Invoices must document this income accurately, capturing specific details related to the foreign source to comply with international tax regulations.

Currency Exchange Rates

In transactions involving foreign currencies, e-Invoices must accurately document currency exchange rates, ensuring compliance by converting and recording transactions in the local currency of the tax authority.

E-Commerce Transactions

In e-commerce transactions, businesses must issue e-Invoices to properly document online sales. This ensures compliance with tax regulations and standardizes the documentation process for online transactions.

Frequently Asked Questions

What is the best e-invoicing solution for Malaysia?Complyance stands out as one of the best e-invoicing solution providers, facilitating seamless integration with the MyInvois Portal through API for efficient e-invoicing.

Is e-invoicing mandatory for all industries in Malaysia?Yes, e-invoicing is mandatory across all industries, rolled out gradually based on turnover thresholds.

What are the requirements for e-invoicing in Malaysia?A digital certificate is mandatory for signing e-invoices, ensuring non-repudiation, integrity, and authenticity.

How do I get started with e-invoicing in Malaysia?Evaluate your company's readiness, assess ERP system compatibility, train employees, and communicate requirements to stakeholders for smooth implementation.

Can I cancel an e-invoice submitted to IRBM?Yes, an e-invoice can be canceled within 72 hours of generation.

What should I do if my e-invoice is rejected by IRBM?If an e-invoice is rejected by IRBM, review the error message provided, correct any discrepancies or missing information, and resubmit the e-invoice for validation.

How long should I retain e-invoice records in Malaysia?Businesses are required to retain e-invoice records for a minimum of seven years. Complyance offers secure data archival solutions to help businesses meet this requirement.

Are there penalties for non-compliance with e-invoicing regulations in Malaysia?Yes, failure to comply with e-invoicing regulations may result in penalties, including fines and potential legal action by IRBM.

Can e-invoices be used for cross-border transactions?Yes, e-invoices can be used for cross-border transactions. Ensure that the e-invoice complies with both Malaysia's regulations and the requirements of the foreign jurisdiction.

What are the benefits of using the MyInvois Portal for e-invoicing?The MyInvois Portal provides a user-friendly interface for businesses with low transaction volumes. It ensures compliance with IRBM regulations and offers features like real-time validation and QR code generation.

Is it necessary to issue malaysia e-invoices for B2C transactions?Yes, e-invoices are necessary for B2C transactions, even if the end consumer does not require an e-invoice. Businesses must generate e-invoices for tax purposes and compliance with IRBM regulations.

What steps should I take to ensure data security in malaysia e-invoicing?Implement encryption for data transmission and storage, use strong access controls, conduct regular security audits, and choose a reliable e-invoicing solution provider like Complyance that prioritizes data security.

Can I integrate malaysia e-invoicing with my existing ERP system?Yes, Complyance offers rapid ERP integration services, allowing businesses to seamlessly incorporate e-invoicing into their existing ERP systems within 4-6 weeks.

What support does Complyance offer for businesses transitioning to malaysia e-invoicing?Complyance provides dedicated account managers, extensive data validations, rapid ERP integration, secure data archival, and value-added services like spend/sales analytics and error reports to support businesses in transitioning to e-invoicing.

How does e-invoicing improve operational efficiency for businesses in Malaysia?e-Invoicing automates the invoicing process, reduces manual efforts, minimizes errors, and ensures timely and accurate tax reporting. This leads to improved operational efficiency and cost savings for businesses.

What role does IRBM play in the malaysia e-invoicing process?IRBM oversees the e-invoicing process, validates e-invoices, ensures compliance with tax regulations, and provides guidelines and support for businesses adopting e-invoicing.

How can I ensure compliance with malaysia e-invoicing regulations in Malaysia?Stay informed about IRBM guidelines, choose a reliable e-invoicing solution provider, train employees on compliance standards, and regularly review and update your e-invoicing processes to ensure compliance.

What are the common challenges businesses face when adopting malaysia e-invoicing?Common challenges include regulatory compliance, technological transition, data security, resistance to change, technological readiness, data accuracy and integration, and supplier onboarding. Addressing these challenges requires careful planning and support from a reliable e-invoicing solution provider like Complyance.