The digital transformation of Malaysia’s economy is progressing rapidly, and the implementation of e-invoicing is one of the key initiatives spearheading this transformation. The Inland Revenue Board of Malaysia (IRBM) has set strict guidelines and timelines for businesses, particularly those in the insurance and takaful industries(Takaful is an Islamic insurance system where members contribute to a shared pool to mutually safeguard against loss or damage.) to adopt e-invoicing. This blog will explore the unique challenges faced by the insurance and takaful sectors and address some frequently asked questions (FAQs) from the recently released IRBM guidelines, similar to what has been done in the aviation industry.
What is e-invoicing, and Why is It Important?
e-invoicing is the electronic generation, transmission, and storage of invoices. It simplifies the billing process, ensures better compliance, and reduces human error. For businesses in Malaysia, this digital initiative is crucial for enhancing transparency, improving tax compliance, and integrating with the government’s tax system.
In the insurance and takaful sectors, e-invoicing covers a wide range of transactions, including policy premiums, claims management, commissions, and administrative fees. The complexity of managing policies, claims, and compliance with Sharia law in takaful means that insurers need to be highly precise in their invoicing processes.
Key Timelines and Phases of e-invoicing Implementation
The first phase of Malaysia's e-invoicing implementation kicked off on August 1, 2023, targeting companies with a turnover exceeding RM 100 million. This phase affects most insurance and takaful companies, which have to comply with IRBM's guidelines for B2B and B2C invoicing.
How e-invoicing Affects Insurance and Takaful Companies
The insurance and takaful industries face unique challenges due to the complexity of their business models. Here's a breakdown of how e-invoicing impacts these sectors:
- Policy Premiums and Reinsurance Agreements:
- E-invoices must be issued for policy premiums and reinsurance agreements.
- The system needs to accommodate detailed transactions, such as profit-sharing from takaful pools and commissions from agents.
- Claims Management:
- For each claim payout, a corresponding e-invoice must be issued, ensuring compliance and proper documentation for tax purposes.
- Insurance companies must ensure that claims processed under Sharia principles are correctly invoiced and documented.
- Commission and Fee Handling:
- E-invoicing applies to the commissions paid to agents and brokers, as well as administrative fees charged for various services.
Lessons from the Aviation Industry's e-invoicing Implementation
The aviation industry also had to adapt to IRBM’s e-invoicing regulations, as outlined in the FAQs document released in July 2024【Aviation Industries FAQs】. Similar to the insurance sector, the aviation industry has complex transaction chains that involve multiple stakeholders, such as passengers, agents, and service providers.
In both industries, certain similarities can be drawn, such as:
- Issuing consolidated e-invoices is not permitted in many cases, including for flight tickets and insurance premiums.
- The requirement to issue e-invoices even for ancillary services (such as excess baggage for airlines or administrative fees for insurance).
- Handling price changes, refunds, or cancellations, both industries need to follow a structured approach in issuing credit or refund notes when necessary.
Challenges and Solutions for e-invoicing in Insurance and Takaful
Some challenges faced by the industry include:
- Policy Complexity: Handling joint policies, where multiple insured parties are involved, may lead to confusion over who receives the invoice.
- Compliance with Sharia Principles: Takaful companies must ensure that profit-sharing, claims payouts, and other Sharia-compliant services are properly invoiced.
- Multiple Revenue Streams: Companies have to manage and issue invoices for a range of revenue streams, including underwriting services, claims management, and profit-sharing from takaful pools.
To manage these complexities, insurance companies can leverage specialized e-invoicing software tailored to their industry. These tools help automate invoicing processes, reducing manual effort and ensuring regulatory compliance.
Final Thoughts: A Roadmap for Future Compliance
The e-invoicing mandate represents a significant shift in how businesses operate in Malaysia. For insurance and takaful companies, adopting this digital system will enhance transparency and help improve financial reporting. By drawing parallels with the aviation industry’s experience, insurers can better understand the challenges and solutions in implementing this system.
Businesses should stay up to date with IRBM guidelines and ensure that their billing systems are fully integrated with the tax authority’s platform to avoid any disruptions in compliance. With the phased rollout continuing into 2024, now is the time for companies to modernize their invoicing processes and stay ahead of the curve.
Frequently Asked Questions
How should an e-Invoice for the sale of flight tickets and/or provision of private air charter services be issued?
Issuance of e-Invoice is required for the sale of flight tickets or private air charter services. For local airlines, all sales require e-invoicing, regardless of point-of-sale. For foreign airlines, e-invoices must be issued for sales where the point-of-sale is in Malaysia.
Whose details should be provided as the Buyer for the purposes of issuing e-Invoice for the sale of flight tickets or private air charters?
For individual purchases, the Buyer's details should reflect the person who made the purchase. For group purchases, the airline operator can choose to use either the details of the person who made the purchase or the details of each individual passenger.
What are the details required by the Buyer for issuing e-Invoice, considering certain data protection regulations?
For buyers whose personal information cannot be collected due to data protection regulations, the Supplier is temporarily allowed to use placeholder details like 'General Public' for the Buyer's name and a specific code for the Tax Identification Number (TIN).
What is the e-Invoice treatment for excess baggage fees charged at check-in?
For excess baggage fees, an e-Invoice or a receipt should be issued at the time of transaction. If no e-Invoice is requested, the airline must issue a consolidated e-Invoice within seven days after the end of the month.
How should e-Invoices be handled for price changes or refunds due to flight changes or cancellations?
If the price increases, a debit note e-Invoice must be issued for the difference. If there is a reduction, a credit note or refund note should be issued.
What is the e-Invoice treatment for the sale of flight-related ancillaries (e.g., seat selection, baggage)?
If flight-related ancillaries are sold with a flight ticket, the airline can issue either a single e-Invoice detailing both or separate e-Invoices for each. For non-flight ancillaries like travel insurance, the e-Invoice depends on whether the airline is acting as principal or agent.
