E-invoicing compliance in Malaysia

As the digital economy continues to surge, governments worldwide are embracing digital transformation to modernize their tax administration systems. Malaysia is no exception, as it embarks on the implementation of e-Invoicing in a phased approach to enhance the efficiency of its tax management. This strategic move aligns with the Twelfth Malaysia Plan's focus on bolstering digital services infrastructure and digitizing tax administration processes.

The Inland Revenue Board of Malaysia (IRBM), also known as Lembaga Hasil Dalam Negeri (LHDN), is a key agency in Malaysia for tax and revenue matters. Established on March 1, 1996, it plays a crucial role in revenue collection on behalf of the Ministry of Finance (MOF).

Unveiling E-Invoicing

At the heart of this transformation is the e-Invoice, a digital embodiment of a transaction between a supplier and a buyer. E-Invoicing replaces traditional paper or electronic documents such as invoices, credit notes, and debit notes. It encapsulates essential transaction details, including supplier and buyer information, item descriptions, quantities, prices (excluding tax), taxes, and total amounts, facilitating seamless daily business operations.

The Advantages of Embracing E-Invoice

The adoption of e-Invoice brings forth a multitude of benefits, not only simplifying the taxpayer's experience but also enhancing business efficiency and tax compliance. Key advantages include:

1. Streamlined Invoicing Process: E-Invoicing streamlines the creation of transaction documents and electronic submission to the Inland Revenue Board of Malaysia (IRBM). It automates data entry, reducing manual effort and minimizing errors.
2. Efficient Tax Reporting: Integration with tax systems enables efficient and precise tax reporting. Businesses can seamlessly file tax returns, ensuring compliance with tax regulations.
3. Enhanced Efficiency for Large Businesses: Larger enterprises benefit from improved efficiency, time savings, and cost reductions through automation, data integration, and enhanced invoice management.
4. Gradual Transition for MSMEs: Micro, small, and medium-sized enterprises (MSMEs) can transition to e-Invoicing progressively. This phased approach aligns their financial reporting and processes with industry standards, minimizing disruptions.

Diverse Transaction Types

E-Invoicing encompasses various transaction types, including

Business-to-Business (B2B)

Business-to-Consumer (B2C)

Business-to-Government (B2G)

B2G transactions, the process aligns with B2B invoicing. E-Invoicing applies to all taxpayers engaged in commercial activities in Malaysia, covering entities such as corporations, partnerships, co-operative societies, and more. It also includes certain non-business transactions between individuals. Detailed guidance on e-Invoice requirements for non-business transactions will be provided in due course.

E-Invoice Implementation Timeline

The implementation of e-Invoicing in Malaysia is structured in phases based on turnover or revenue thresholds. Here's the timeline:

• Phase 1 (1 August 2024): Taxpayers with an annual turnover or revenue of more than RM100 million
• Phase 2 (1 January 2025): Taxpayers with an annual turnover or revenue of more than RM25 million and up to RM100 million
• Phase 3 (1 July 2025): All other taxpayers

Businesses are encouraged to implement e-Invoicing voluntarily before their respective mandatory phases.

The annual turnover or revenue for the implementation of e-Invoice will be determined based on the following:

1. Taxpayers with audited financial statements: Based on annual turnover or revenue stated in the audited financial statements for financial year 2022.
2. Taxpayers without audited financial statements: Based on annual revenue reported in the tax return for year of assessment 2022.
3. In the event of a change of accounting year end for financial year 2022, the taxpayer’s turnover or revenue will be pro-rated to a 12-month period for purposes of determining the e-Invoice implementation date.

Notifications will also be sent to taxpayers that are mandated to adopt e-Invoice, in phases.

Scenarios Requiring E-Invoices

1. Proof of Income: E-Invoices are your go-to when you need to validate income. Whenever a sale or any other transaction occurs, this document steps in to recognize the income of taxpayers.
2. Proof of Expense: On the flip side, e-Invoices efficiently document expenses, covering purchases, returns, and discounts. Moreover, they play a crucial role in correcting or deducting income receipts when necessary. In certain cases, taxpayers are required to self-issue e-Invoices, especially for foreign transactions. For instance, when services are acquired from a foreign supplier not integrated into Malaysia's MyInvois System, taxpayers must issue a self e-Invoice to accurately document the expense.

Types of E-Invoices

1. Invoice: The quintessential e-Invoice is a comprehensive commercial document that itemizes and records transactions between suppliers and buyers. It's not limited to sales; businesses can also self-issue e-Invoices to diligently record expenses, including payments to foreign suppliers, ensuring meticulous financial record-keeping.
2. Credit Note: Errors are bound to happen, and Credit Notes are the remedy. Suppliers issue Credit Notes to rectify errors, apply discounts, or handle returns concerning previously issued e-Invoices. They play a crucial role in maintaining precise financial records by accurately reducing the value of the original e-Invoice.
3. Debit Note: When additional charges need to be accounted for in a previously issued invoice, the Debit Note comes into play. This document signifies these additional charges, ensuring transparency and completeness in financial transactions.
4. Refund note: In situations where a buyer's payment needs to be refunded, the Refund e-Invoice steps in as the official document confirming the refund process. It safeguards the integrity of financial transactions and ensures accurate accounting.

Choosing Your E-Invoice Transmission Mechanism

As Malaysia transitions into the era of e-Invoicing, the Inland Revenue Board of Malaysia (IRBM) has rolled out two distinct e-Invoice transmission mechanisms. Taxpayers now have the flexibility to choose the method that best aligns with their unique needs and business requirements.

Let's delve into the key features and considerations for each option to help you make an informed decision.

Option 1: MyInvois Portal

Key Features:

• Individual and Batch Generation: The MyInvois Portal offers individual generation through a user-friendly form. Additionally, it provides the convenience of batch generation by allowing you to upload spreadsheets containing multiple transactions for streamlined processing.
• Accessibility for All: This option is accessible to all taxpayers, making it an inclusive choice.
• Ideal for MSMEs: The MyInvois Portal is particularly well-suited for Micro, Small, and Medium-sized Enterprises (MSMEs) looking to adopt e-Invoicing.

Considerations:

• Not Ideal for High Volume: While efficient for many, this mechanism may not be the most efficient for businesses dealing with a high volume of data.
• Alternative for API Connection: It's a suitable solution for businesses that need to issue e-Invoices but currently lack an API connection.

Option 2: API (Application Programming Interface)

Key Features:

• High-Volume Transaction Handling: The API mechanism empowers businesses to effortlessly transmit a substantial volume of transactions, making it ideal for large-scale operations.
• Technology Investment: To harness the capabilities of the API, businesses need to make an upfront investment in technology and potentially make adjustments to their existing systems.
• Direct or Intermediary Connection: You have the flexibility to establish a direct API connection with IRBM or opt for an intermediary technology provider to facilitate the integration.

Considerations:

• Large Taxpayers: The API mechanism is tailor-made for large taxpayers or businesses dealing with a significant transaction volume.
• Technology Readiness: To leverage the API effectively, ensure that your technology infrastructure is well-prepared for the integration.

Navigating the e-Invoice Landscape:

MyInvois Portal:

In the realm of e-Invoicing in Malaysia, the MyInvois Portal emerges as a user-friendly and efficient avenue for taxpayers, specifically suppliers, to seamlessly execute various e-Invoice-related actions. This portal plays a pivotal role in facilitating the transition towards a digital invoicing ecosystem. Let's embark on a detailed journey through the workings of the e-Invoice model via MyInvois Portal.

Pre-Submission – e-Invoice Submission Requirements

Provision and Digital Certificate

A Digital Certificate, issued by IRBM, takes center stage as a taxpayer identifier for online transactions and communications. It's not just a digital document; it's your guarantee of security, reliability, and trustworthiness in the world of e-Invoicing. With a validity period of three years, this certificate ensures the non-repudiation of e-Invoices, preserving their integrity and authenticity.

How to Retrieve and Verify TIN (Tax Identification Number)

Retrieving and verifying your TIN is a breeze through the MyTax Portal, allowing businesses to conveniently access this essential identifier. In cases where retrieval via the portal isn't feasible, the e-Daftar platform offers an alternative path to initiate registration and obtain your TIN.

Step 1 – Creation and Submission

When a transaction concludes, suppliers initiate the e-Invoice creation process. Two options are available:

1. Individual Creation: Suppliers can manually create e-Invoices by filling out a comprehensive form with all the requisite details. This is done by logging into the MyInvois Portal.
2. Batch Generation: For those dealing with multiple transactions, a batch generation option exists. Suppliers can upload a predefined spreadsheet layout containing the necessary invoice information.

Step 2 – e-Invoice Validation

After submission, the e-Invoice undergoes validation. A successfully validated e-Invoice results in the issuance of a cleared invoice in PDF format by IRBM through the MyInvois Portal. This cleared invoice is armed with an IRBM Unique Identifier Number, ensuring traceability and safeguarding against tampering.

Step 3 – Notification

Notifications are a crucial part of the e-Invoice process. Once validation is complete, both the supplier and the buyer receive notifications through email and the MyInvois Portal. These notifications encompass invoice clearance and buyer rejection requests.

Step 4 – Sharing of e-Invoice

Upon validation, suppliers are obliged to share the cleared e-Invoice, complete with an embedded QR code provided by IRBM, with the buyer. The QR code serves as a key tool for validating the e-Invoice's existence and status via the MyInvois Portal.

Step 5– Rejection or Cancellation

Within a specified timeframe of 72 hours, both the supplier and buyer have the liberty to cancel or reject an e-Invoice. Reasons for rejection may include inaccuracies in any field, such as tax ID or pricing. If no action is taken within this timeframe, the e-Invoice is automatically accepted, and further amendments require the issuance of a new e-Invoice or adjustments through credit or debit notes.

Step 6 – Storing e-Invoices

All accepted and validated e-Invoices are securely stored in IRBM's database. It's worth noting that while IRBM handles storage, taxpayers should retain their own records and documentation related to transactions.

Step 7 – Reporting and Dashboard Services for Taxpayers

MyInvois Portal offers a suite of reporting and dashboard services. Suppliers and buyers can easily request and retrieve e-Invoice data in various formats, including XML/JSON, metadata, CSV reports, grids, and PDF files. This feature ensures easy access to crucial invoice details, enhancing transparency and reporting capabilities.

The MyInvois Portal is a powerful tool that streamlines e-Invoicing processes, making it accessible and efficient for taxpayers. Whether you're an MSME or a larger enterprise, this portal plays a vital role in the digital transformation of invoicing in Malaysia.

e-Invoicing via API:

In the ever-evolving landscape of e-Invoicing in Malaysia, the Application Programming Interface (API) emerges as a game-changer, offering direct connectivity for taxpayers to submit e-Invoices seamlessly to the Inland Revenue Board of Malaysia (IRBM). This innovative approach simplifies and accelerates the e-Invoice process, creating a more efficient ecosystem for businesses and individual taxpayers alike.

Pre-Submission – e-Invoice Submission Requirements

Digital Certificate

At the core of API integration lies the Digital Certificate. This certificate, issued by IRBM, serves as the digital signature tool for e-Invoices, ensuring data authenticity and source verification. With a validity period of three years, the Digital Certificate instills trust and reliability in every e-Invoice submission.

Step 1 – Submission

The e-Invoice journey via API begins with the creation and submission of the invoice. When a transaction concludes, suppliers or technology providers generate an e-Invoice in the defined XML or JSON format. This structured e-Invoice is then submitted to IRBM through the API for validation.

Step 2 – e-Invoice Validation

Upon successful submission, the e-Invoice undergoes validation by the MyInvois System. Once validated, a link with an IRBM Unique Identifier Number is returned to the supplier or technology provider. This unique identifier enhances traceability and guards against tampering.

Step 3 – Notification

Efficient communication is pivotal in the e-Invoice realm. The MyInvois System incorporates a Notification API that automatically triggers notifications to both suppliers and buyers. These notifications encompass e-Invoice clearance and buyer rejection requests, ensuring prompt and informed actions.

Step 4 – Sharing of e-Invoice

With validation complete, the supplier embeds the validated link, provided by IRBM, in the form of a QR code on the e-Invoice. This QR code empowers the buyer to validate the e-Invoice's existence and status via MyInvois Portal.

Step 5 – Rejection and Cancellation

Flexibility is key in e-Invoicing. Within a 72-hour window, both the supplier and buyer retain the authority to cancel or reject an e-Invoice. Reasons for rejection may include discrepancies in any field. If no action is taken within this timeframe, the e-Invoice is automatically accepted, necessitating further adjustments through a new e-Invoice or credit and debit notes.

Embracing e-Invoicing via API signifies a leap into a digital, efficient, and interconnected future. This approach streamlines processes, enhances transparency, and paves the way for a more agile invoicing ecosystem in Malaysia.

Step 6 – Securing e-Invoice Data

Once e-Invoices are submitted via API, they find a secure home within IRBM's database. This digital repository safeguards the transaction records, ensuring their accessibility and integrity whenever needed. However, it's important to note that even though e-Invoices are securely stored, taxpayers should maintain their own records and documentation related to these transactions.

Step 7 – Empowering with Reporting and Dashboards

The power of e-Invoicing doesn't end with submission; it extends to comprehensive reporting and dashboard services for taxpayers. Through seamless API integration, both suppliers and buyers gain the ability to request and retrieve crucial e-Invoice data. This data, presented in various formats, can be seamlessly incorporated into their respective systems, enhancing transparency and streamlining their e-Invoice management.

The available data formats include:

1. XML/JSON: Retrieve individual e-Invoices or batches, making data processing convenient and efficient.
2. Metadata: Access essential information about e-Invoices, providing context and clarity.
3. CSV Report: Easily generate reports in a format that's widely supported and user-friendly.
4. PDF File: Store or share e-Invoices in a universally readable format.

This integration empowers businesses to make informed decisions, track financial transactions, and maintain an organized record of their e-Invoices, thereby enhancing efficiency and transparency in their financial operations.

Comprehensive Information at Your Fingertips

Within the SDK document, developers will find a wealth of information and resources to guide them through the integration process:

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API Method: Detailed information on API methods such as POST, GET, PUT, and DELETE, allowing developers to understand how to interact with the e-Invoice system.

API URL: Clear documentation of API URLs, including paths like /invoice_submission and /invoice_details, to help developers construct the necessary API calls.

Body Structure: Insight into the input and output body structure of each API method, ensuring data compatibility.

Success and Error Handling: Guidelines for handling success and error scenarios, complete with status codes for reference.

Integration Toolkit: This comprehensive toolkit includes installation guides, configuration guides, and user guides. It covers various integration scenarios, providing step-by-step instructions to streamline the integration process.

Evaluating E-Invoice Readiness

Preparing for the e-Invoice transition requires careful assessment:

1. Team Preparation: Train and empower your team to lead and manage e-Invoice adoption.
2. Data & IT Infrastructure: Assess data sources, IT capabilities, and process alignment with e-Invoice mandates.
3. Process Review: Examine existing procedures for issuing transaction documents (invoices, debit notes, credit notes, refunds).

By conducting these steps, businesses can ensure a smooth and standardized e-Invoice implementation.

Data Security and Privacy Monitoring by IRBM

IRBM is committed to ensuring the security and privacy of e-Invoice data. They follow a structured approach, including:

1. Assessing Data Protection Needs: IRBM identifies data types, legal obligations, and industry standards to define data security and privacy policies.
2. Implementation of Data Protection Controls: Technical and organizational controls such as encryption, authentication, and access control are implemented to protect e-Invoice data.
3. Monitoring and Auditing: IRBM continuously monitors data protection performance, benchmarks against objectives, and investigates incidents.
4. Review and Improvement: Based on monitoring results, IRBM reviews and enhances data protection practices.

Exemptions from Implementing e-Invoice

In the world of e-Invoicing, there are some exceptions to the rule. Here's a simplified breakdown of who's exempted and why:

1. Exempted Individuals and Entities

Certain individuals and entities don't need to bother with e-Invoices, including:

• Rulers and former Rulers.
• The spouses of rulers and former rulers.
• Government and state government bodies.
• Local authorities.
• Statutory authorities and bodies.
• Facilities provided by the government, like hospitals or clinics.
• Consular offices and their employees.

2. What Does This Mean?

These exempted folks can continue using regular receipts, bills, or invoices as proof of their expenses for tax purposes. However, if they receive goods or services from others, those suppliers still need to use e-Invoices.

3. Exceptions to the Exceptions

For some specific cases within the exemptions mentioned above (like rulers and their spouses), suppliers can use a simplified e-Invoice format. But keep in mind, any businesses owned by these exempted individuals or entities must follow the e-Invoice rules.

4. Optional Participation

Even though they're exempt, these individuals and entities are welcome to join the e-Invoice system to support the government's digital efforts.

5. Special Income and Expenses

Certain types of income or expenses, like employment income or scholarships, don't require e-Invoices. There are exceptions, of course, so it's always good to check the specific guidelines.

6. Keep an Eye Out

The exemptions mentioned here may change over time, so it's essential to stay updated with the latest information regarding e-Invoicing regulations.

Frequently Asked Questions

To address common queries about e-Invoicing, here are some answers:

1. Will all businesses be required to issue e-Invoice?
2. Yes, mandatory implementation will be based on turnover thresholds and will be phased in starting from June 1, 2024, based on annual turnover or revenue.

MyInvois Portal Functionality:

2. Does the MyInvois Portal allow for e-Invoice to be created and stored in draft form prior to finalization and issuance?

• Yes, suppliers can create e-Invoices in draft mode, with data and validation captured upon final submission.

3. Is there any adjustment window allowed to the supplier to cancel an invoice submitted to IRBM?

• Yes, there is a 72-hour timeframe for the supplier to cancel the e-Invoice. Refer to the guidelines for more details.

4. Does the MyInvois Portal allow for editing of information after the e-Invoice has been verified by IRBM?

• No, editing is not allowed. Suppliers must cancel the e-Invoice and issue a new one.

5. Will the supplier’s invoice serial number still remain, or will this be assigned by IRBM once a validated e-Invoice is returned to the supplier?

• The supplier will receive a cleared e-Invoice with a Unique Identifier Number assigned by IRBM upon validation. The supplier’s invoice serial number will remain as a separate field in the invoice document.

Disbursements and Reimbursements:

6. Is an e-Invoice required for disbursements and reimbursements?

• Guidance on disbursements and reimbursements is still under deliberation, and specific details and requirements will be issued later.

7. Does the API solution offer security and encryption services to prevent businesses from misusing the invoicing data?

• Yes, the API solution includes security and encryption measures to protect invoicing data.

8. Will IRBM provide any technical guidance on system integration?

• Yes, a Software Development Kit (SDK) will be provided to facilitate system integration, and further guidance may be provided in future SDK versions.

9. Is there any specific application required to scan the QR code?

• Any device capable of scanning QR codes, such as a mobile camera or QR code scanner application, can be used to scan the QR code on the e-Invoice.

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