E-Invoicing in Malaysia: A Comprehensive Guide for 2024

What Is an E-Invoice?

According to the Inland Revenue Board Malaysia (IRBM), An e-Invoice is a digital transaction record between a supplier and a buyer, effectively replacing conventional paper or electronic documentation like invoices, credit notes, and debit notes. This contains identical vital details as traditional documents, such as supplier and buyer information, item descriptions, quantities, and prices, excluding taxes, tax amounts, and total sums. It meticulously captures transaction data essential for daily business activities.

Below is the format of e-Invoices required by LHDN for e-Invoicing in Malaysia:

Who Are Required to Comply With E-Invoice Requirement?

According to LHDN for Section 1.3 in e-Invoice Guideline Version 2.3, all individuals and legal entities are mandatory e-Invoicing entities engaged in commercial activities in Malaysia. Compliance with e-Invoicing requirements is obligatory for taxpayers as below:

• Association
• Body of persons
• Branch
• Business trust
• Co-operative societies
• Corporations
• Limited liability partnership
• Partnership
• Property trust fund
• Property trust
• Real estate investment trust
• Representative office and regional office
• Trust body
• Unit trust

When Should E-Invoice Issued?

There are 2 scenarios in which businesses would need to issue the e-Invoice as below:

a. Proof of Income
This document is generated upon a sale or transaction completion to record the taxpayer's income.

b. Proof of Expense
This document encompasses purchases, expenditures, returns, and taxpayer discounts. It rectifies or deducts an income receipt based on the documented amounts. Moreover, in specific cases, taxpayers must issue self-billed e-Invoices to validate expenses, particularly for foreign transactions. For instance, if a taxpayer procures goods or services from a foreign supplier who does not utilise Malaysia's MyInvois System, the taxpayer must issue a self-billed e-Invoice to substantiate the expense.

4 Types of E-Invoices to Be Issued by Businesses

There are 4 various types of e-Invoices to be issued, as highlighted in Section 1.4 in e-Invoice Guideline Version 2.3 are as follows:

a. Invoice
This commercial document details and records a transaction between a Supplier and a Buyer. It includes the issuance of a self-billed e-Invoice to document an expense.

b. Credit Note
Suppliers issue credit notes to rectify errors, apply discounts or address returns in previously issued e-Invoice. The aim is to decrease the value of the original e-Invoice. This is applicable when reducing the original e-Invoice value, which does not involve refunding money to the Buyer.

c. Debit Note
A debit note indicates additional charges on a previously issued e-Invoice.

d. Refund Note
This e-Invoice document confirms the refund of the Buyer's payment by the Supplier. It is utilised in situations where money is returned to the Buyer.

What Are the Benefits of Having an E-Invoice?

Integrating e-Invoicing enhances the taxpayer experience by providing a seamless process, boosting business efficiency, and promoting tax compliance. Below are the benefits of e-Invoice:

a. Cost Efficiency
E-Invoice significantly reduces operational costs associated with traditional paper-based invoicing systems. Businesses can save on materials, labour, and time by eliminating the need for printing, postage, and manual processing. This helps businesses to be cost-effective in their business activities, too. Additionally, e-Invoicing minimises the risk of errors often associated with manual data entry, reducing potential financial losses due to inaccuracies.

b. Streamlined Processes
Adopting e-Invoice streamlines invoicing processes, leading to faster payment cycles and improved cash flow management. Automated workflows enable swift invoice creation, delivery, and reconciliation, enhancing overall efficiency. Moreover, e-Invoicing facilitates seamless integration with accounting and enterprise resource planning (ERP) systems, allowing for real-time tracking and reporting of financial transactions. This will also help with business tax reporting.

c. Enhanced Accuracy and Compliance
E-Invoices offer greater accuracy in data recording and compliance with regulatory requirements. By digitising invoicing processes, businesses can minimise the risk of human errors and discrepancies commonly found in manual paperwork. Furthermore, e-Invoicing solutions often incorporate built-in validation checks and audit trails, ensuring adherence to tax regulations and financial standards.

d. Environmental Sustainability
Adopting e-Invoice contributes to environmental sustainability by minimising paper consumption, waste generation, and carbon emissions associated with traditional invoicing methods. By embracing digital documentation, businesses can minimise their ecological footprint and demonstrate corporate responsibility towards environmental conservation.

Process Flow of E-Invoice in Malaysia

Here is the process flow of e-Invoicing from LHDN to help businesses transition smoothly to e-Invoicing. Businesses can choose the transmission method that best fits their needs and situation when sending e-Invoices to the Inland Revenue Board Malaysia (IRBM).

Businesses have two options to choose from.

1. The MyInvois Portal

It is managed by the Inland Revenue Board of Malaysia (IRBM) and offers a convenient platform accessible to all businesses at no cost. It is a central hub for e-Invoicing-related activities, including generation, submission, viewing, cancellation, or rejection. Even for businesses that do not have a connection to the Application Programming Interface (API), the MyInvois Portal provides an accessible and user-friendly alternative for managing e-Invoice processes efficiently. It is suitable for small businesses; meanwhile, large-volume transactions might take longer.

2. Application Programming Interface (API)

The Application Programming Interface from LHDN facilitates direct data transmission between the business and MyInvois systems, necessitating an initial investment in technology and adjustments to existing systems. This option is particularly suitable for large businesses with significant transaction volumes.

The figure below outlines the LHDN e-Invoice workflow, from sale or transaction initiation to e-Invoice issuance via the MyInvois Portal or API. It concludes with validated e-Invoices stored on IRBM's database for taxpayers' access to historical records.

What Are E-Invoice Guidelines?

Businesses can refer to the latest guidelines about e-Invoice from LHDN.

Here are 3 important things about e-Invoicing guidelines highlighted below:

1. For B2C Small Transactions

For B2C businesses engaging in numerous smaller transactions, like restaurants and retail outlets, issuing customers a regular receipt or invoice is sufficient unless they specifically request an e-Invoice. In such B2C transactions, the buyer has 30 days from the transaction date to make this request; beyond this timeframe, the business reserves the right to decline. Meanwhile, the business can either submit each e-Invoice individually or consolidate all transactions monthly, submitting a single e-Invoice to LHDN within seven days after month-end.

2. For High-Value Transactions

Certain activities require an e-Invoice to be issued for each transaction, and the consolidation of e-Invoices is not allowed, as outlined in the IRBM E-Invoice Specific Guidelines.

No	Industry/Activity	Types of Activities/Transactions Where Consolidated e-Invoice is Not Allowed
1	Automotive	Sale of any motor vehicle.
2	Aviation	1. Sale of flight ticket 2. Private charter
3	Luxury Goods & Jewellery	Details are yet to be confirmed by LHDN.
4	Construction	Construction contractors undertake construction contracts as defined in the Income Tax (Construction Contracts) Regulations 2007.
5	Wholesalers & Retailers of Construction Materials	Sale of construction materials as defined under the Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994, regardless of volume sold.
6	Licensed betting and gaming	Pay-out to winners for all betting and gaming activities
7	Payment to Agents/Dealers/Distributors	Payments made to agents, dealers, or distributors.

3. Internal Expenses Deduction

Section 6 in the IRBM E Invoice Specific Guideline (Version 2.1) indicates that employment perquisites and benefits encompass various forms of compensation received by individuals under a contract of service from their employers or third parties. These benefits may include financial liabilities, club memberships, gym memberships, professional subscriptions, and allowances such as travel, petrol, tolls, parking, and meals.

Employees must submit expense claims to their employers, supported by relevant documents. With the implementation of e-Invoicing, employees will request e-Invoices to serve as proof of expenses wherever possible. Recognising potential challenges in obtaining the e-Invoice in the employer's name, the Inland Revenue Board of Malaysia (IRBM) grants concessions.

• Businesses may use e-Invoices issued in the employee's name or existing supporting documents from suppliers as proof of expenses for tax purposes. Additionally, suppose payments to foreign suppliers relate to perquisites and benefits outlined in the employer's policy. In that case, self-billed e-Invoices are not required, and IRBM accepts foreign supplier receipts, bills, or invoices as proof of expense.

The Implementation Timeline for E-Invoicing in Malaysia

IRBM has devised a phased approach to implementing e-Invoicing to facilitate a seamless transition. Below is the timeline detailing the stages of e-Invoice implementation in Malaysia.

What Consequences Will Occur if You Fails to Comply With E-invoicing?

The Inland Revenue Board of Malaysia (IRBM) can impose penalties ranging from RM200 to RM20,000, imprisonment for up to six months, or both, for non-compliance with e-Invoicing regulations. Offences encompass instances such as the failure to issue e-Invoices, self-billed e-Invoice, or consolidated transaction invoices, as reported by The Edge Malaysia on 15 March 2024.

4 Main Things Businesses Need to Prepare for E-Invoicing

1. Utilise the New E-invoicing Software That Complies With LHDN Standards

Businesses must use e-Invoicing software that aligns with the Inland Revenue Board of Malaysia (IRBM) standards. By adhering to these standards, businesses ensure compliance with regulatory requirements and minimise the risk of penalties for non-compliance. Compliant e-Invoicing software enhances data security, accuracy, and interoperability, facilitating smooth invoicing processes and promoting stakeholder trust.

Here are some e-Invoicing software you can consider taking out their latest version for your business e-Invoicing solution, such as Bukku Cloud Based Accounting Software, ClearTax E-Invoicing Software, AutoCount Accounting Software, and SQL Accounting Software.

According to MDEC, Peppol Service Providers, also known as Peppol Access Points (AP), play a crucial role in maintaining the connectivity gateways that serve as access nodes on the e-Invoicing network. Their responsibilities include ensuring compliance with Peppol standards, directing e-Invoices to the correct destination APs, and managing participant details within the Malaysia SMP. Providers interested in offering Peppol Access Point services in Malaysia can seek accreditation from MDEC as the designated Peppol Authority for Malaysia. Businesses can check out the latest list of Peppol service providers published by MDEC for more information.

2. Provide Training and Assign An E-Invoice Specialist

Employees must be trained to use e-Invoicing software effectively, ensuring they understand its features and functionalities to maximise efficiency. Besides that, it would be good if each department had at least one e-Invoicing specialist to act as a checker for the overall operation, align with the latest e-Invoicing standard, and keep the team members updated about the latest guidelines about e-Invoicing from LHDN.

3. Necessary Change in Business Processes

Necessary changes in business processes for e-Invoicing involve adapting various operational procedures to accommodate the transition to electronic invoicing. Below are some key areas where businesses may need to make adjustments:

a. Document Handling
Businesses must shift from manual handling of paper-based invoices to electronic document management systems. This includes digitising existing paper invoices and implementing procedures for receiving, storing, and processing e-Invoices.

b. Workflow Integration
Integrating e-Invoicing into existing workflows and systems is crucial for seamless operation. This may involve integrating e-Invoicing software with accounting, enterprise resource planning (ERP) or ERP Systems, and other relevant systems to ensure data consistency and streamline processes.

c. Data Security
With the shift to electronic invoicing, ensuring the security of sensitive financial data becomes paramount. Businesses must implement robust security measures to protect against unauthorised access, data breaches, and cyber threats.

d. Compliance and Regulations
Adhering to e-Invoicing regulations and standards set by regulatory authorities is essential. Businesses must ensure that their e-Invoicing processes comply with legal requirements to avoid penalties and maintain regulatory compliance.

e. Staff Training and Education
Training and education of your staff members is crucial for successful e-Invoicing implementation. Staff must understand how to use e-Invoicing software effectively and adhere to established procedures and guidelines.

f. Supplier and Customer Communication
Businesses need to communicate with suppliers and customers regarding the transition to e-Invoicing. This includes informing them of the new invoicing process, providing guidance on submitting and receiving e-Invoices, and addressing any concerns or questions they may have.

4. Ensure Your Vendor Is Ready For E-Invoicing

Businesses need to ensure vendors are ready for e-Invoicing by assessing their preparedness. You can ask your vendors if they're ready to use e-Invoicing.

You can email all vendors with your business's e-Invoicing details to ensure smooth operation and ask for their e-Invoicing information. Then, you can decide whether to continue working with vendors who aren't on board, knowing that doing so might cause problems with LHDN.

Conclusion

Businesses need to understand the fundamentals of e-Invoicing to navigate their implementation and compliance requirements and embrace digital invoicing solutions that integrate data integration with ERP integration and API integration. By adopting e-Invoicing, businesses benefit from cost efficiency, streamlined processes, enhanced data accuracy, and environmental sustainability. However, failure to comply with e-Invoicing regulations may result in penalties imposed by the Inland Revenue Board of Malaysia (IRBM). 

Businesses must use compliant software, train employees, adapt business processes, and ensure vendor readiness. With proper preparation and adherence to tax reporting guidelines, businesses can leverage e-Invoicing to optimise their financial operations and stay ahead in today's digital economy. Check out our comprehensive checklist for seamlessly implementing e-invoicing in your business.