Charting the Course: Malaysia’s Journey Towards Seamless E-Invoicing

In Malaysia, the dawn of the digital era brings forth a transformative wave in invoicing practices. As the nation embraces technological advancements, e-invoicing emerges as a cornerstone of modernising tax administration and fostering economic growth. With meticulous planning and strategic implementation, Malaysia charts a course toward seamless, efficient, and transparent invoicing processes.

On August 1, 2024, Malaysia introduced its mandatory e-invoicing regime for B2B, B2C, and B2G transactions. This began with a soft launch, allowing taxpayers the option to report monthly consolidated e-invoices. The e-invoices, formatted in UBL 2.1, must be submitted to the LHDN through the MyInvois portal in XML format or via direct API connection for JSON format.

Government’s Stance:

The Malaysian government is gearing up to introduce e-invoicing gradually, aligning with its commitment to bolstering the digital economy. This initiative, outlined in the Twelfth Malaysia Plan, aims to fortify the digital services infrastructure and modernise tax administration. By embracing e-invoicing, the government anticipates enhancing the efficiency of Malaysia’s tax administration management.

Mandatory E-Invoicing Timeline and Details:

E-Invoicing Standards:

Why Businesses Need to Pay Attention to the e-Invoice Model

The e-Invoice initiative in Malaysia is designed to enable near real-time validation and storage of transactions across Business-to-Business (B2B), Business-to-Consumer (B2C), and Business-to-Government (B2G) interactions. Key features and benefits of the e-Invoice model include:

• Seamless Taxpayer Experience: E-Invoicing streamlines the invoicing process, reducing manual efforts and human errors while facilitating efficient tax filing.
• Enhanced Business Efficiency: The digitalisation of invoicing processes improves operational efficiency and system integration, resulting in significant time and cost savings.
• Increased Tax Compliance: With a unified invoicing process and seamless system integration, e-invoicing enhances tax compliance among businesses, aligning financial reporting and processes with industry standards.
• Flexibility in Transmission Mechanisms: Taxpayers have the option to choose between the MyInvois Portal and Application Programming Interface (API) for transmitting e-Invoices to the Inland Revenue Board of Malaysia (IRBM). While the MyInvois Portal offers a cost-effective solution accessible to all taxpayers, the API provides a direct data transmission option suitable for large taxpayers or businesses with substantial transaction volumes.

Who Needs to Comply with E-Invoicing in Malaysia?

The introduction of e-invoicing in Malaysia brings about a significant shift in the landscape of commercial transactions, impacting various entities engaged in business activities across the nation. E-invoicing covers typical transaction types such as Business-to-Business (B2B), Business-to-Consumer (B2C), and Business-to-Government (B2G). For B2G transactions, the e-invoice flow mirrors that of B2B transactions, emphasising a seamless transition across different transaction types.

All taxpayers undertaking commercial activities in Malaysia are required to comply with the e-invoice requirement. 

This mandate encompasses a wide range of entities, including:

1. Association
2. Body of persons
3. Branch
4. Business trust
5. Co-operative societies
6. Corporations
7. Limited liability partnership
8. Partnership
9. Property trust fund
10. Property trust
11. Real estate investment trust
12. Representative office and regional office
13. Trust body
14. Unit trust

Regardless of their legal structure or organisational form, all individuals and legal entities engaged in commercial activities fall under the purview of e-invoicing regulations in Malaysia.

Who Are Exempt from E-Invoicing in Malaysia?

These entities are exempt from issuing e-invoices.

1. Ruler, Ruling Chief, and Consorts: Individuals holding the title of Ruler, Ruling Chief, or Consort of a Ruler are currently exempted from issuing e-invoices. This exemption also extends to former Rulers, Ruling Chiefs, and their Consorts.
2. Government Entities: Various government bodies, including federal, state, and local authorities, statutory authorities, and bodies, as well as government facilities and consular offices, are exempt from the e-invoicing requirement.
3. Non-Business Individuals: Individuals who are not conducting business activities are also exempt from issuing e-invoices.
4. Entities Owned by Exempted Persons: While the exempted individuals mentioned above are not required to issue e-invoices, entities owned by them, such as companies or limited liability partnerships, are still mandated to implement e-invoicing.

Exemption Criteria and Clarifications:

• Replacement of Buyer’s Details: Suppliers engaging in transactions with exempted persons, as specified in the e-Invoice Specific Guideline, have the flexibility to replace the buyer’s details with specific information. This provision streamlines the invoicing process and ensures compliance with regulatory requirements while accommodating the unique circumstances of exempted entities.

• Use of General TIN: In transactions involving certain government entities and authorities, suppliers are permitted to utilise the general Tax Identification Number (TIN) assigned in the e-Invoice Specific Guideline. This facilitates seamless invoicing procedures and enhances operational efficiency, particularly in dealings with government bodies where standardisation is essential.

• Supplier’s TIN: The supplier’s Tax Identification Number (TIN), also known as the issuer’s TIN, is assigned by the Inland Revenue Board of Malaysia (IRBM). This unique identifier plays a crucial role in e-invoicing processes, ensuring accuracy and compliance with tax regulations.

In Malaysia, while certain entities and income types are exempt from the mandatory e-invoicing requirement, there’s a strong encouragement for exempted persons to adopt e-invoicing voluntarily. This initiative aligns with the government’s broader digital agenda aimed at modernising tax administration and promoting efficiency in financial transactions. Additionally, certain types of income or expenses, such as employment income, pensions, alimony, dividend distributions, zakat, and scholarships, are exempt from the e-invoicing requirement. These exceptions acknowledge the unique nature of these financial transactions and the potential challenges associated with implementing e-invoicing for them. However, the government continues to review and update e-invoicing regulations to ensure alignment with evolving digital trends and business needs.

Generating E-Invoices: Understanding Scenarios and Types

In the realm of e-invoicing in Malaysia, the generation of e-invoices is governed by specific scenarios and invoice types. Let’s delve into the circumstances that necessitate the issuance of e-invoices and understand the various types:

Scenarios Requiring E-Invoice Issuance:

1. Proof of Income:
2. Proof of Expense:

For instance, if a taxpayer procures goods or services from a foreign supplier and receives an invoice that is not generated through Malaysia’s MyInvois System, they must issue a self-billed e-invoice to document the expense accurately.

By understanding these scenarios and types of e-invoices, taxpayers can ensure compliance with regulatory requirements while maintaining accurate records of their financial transactions.

Understanding Types of e-Invoices

In Malaysia’s e-invoicing landscape, various types of e-invoices serve distinct purposes and play crucial roles in documenting transactions accurately. 

Let’s explore the different types of e-invoices and their significance:

1. Invoice:

• An invoice is a fundamental commercial document that outlines and records a transaction between a Supplier and a Buyer.
• It itemises the products or services provided, their quantities, prices, and other relevant details.
• In addition to standard invoices, Suppliers may issue self-billed e-invoices to document expenses, particularly in cases involving foreign transactions or when the supplier does not utilise Malaysia’s MyInvois System.

2. Credit Note:

• A credit note is issued by Suppliers to rectify errors, apply discounts, or account for returns in a previously issued e-invoice.
• It serves to reduce the value of the original e-invoice without involving the return of money to the Buyer.

3. Debit Note:

• A debit note indicates additional charges or adjustments made to a previously issued e-invoice.
• It reflects an increase in the amount owed by the Buyer to the Supplier.

4. Refund Note:

• A refund note e-invoice is issued by a Supplier to confirm the refund of the Buyer’s payment, typically in cases involving product returns or cancellations.
• It documents the return of money to the Buyer and serves as a record of the refunded amount.

Example Scenario:

Ms. Smith, a Supplier, provides catering services to XYZ Events (Buyer) and issues an e-invoice for the catering order. XYZ Events pays RM3,500 for the catering services but later cancels a portion of the order due to a change in the event schedule.

In this case, Ms. Smith issues a refund note e-invoice amounting to RM500 (reflecting the canceled portion of the order) to accurately document the refunded amount.

Understanding this empowers businesses to navigate transactional complexities effectively while ensuring compliance with regulatory standards

Exploring E-Invoice Transmission Mechanisms in Malaysia

To facilitate taxpayers’ transition to e-invoice, the Inland Revenue Board of Malaysia (IRBM) has introduced two distinct e-invoice transmission mechanisms. Taxpayers can choose the most suitable channel based on their specific needs and business requirements:

1. MyInvois Portal: This portal, hosted by IRBM, offers taxpayers a user-friendly platform to generate and transmit e-Invoices. Accessible to all taxpayers at no cost, the MyInvois Portal is designed to cater to businesses of all sizes, providing a convenient option for those who prefer a straightforward approach to e-invoice submission. Additionally, this portal is accessible to taxpayers who need to issue e-invoices but do not have access to an Application Programming Interface (API) connection.
2. Application Programming Interface (API): An API is a set of programming codes that enables direct data transmission between the taxpayers’ systems and the MyInvois system hosted by IRBM. While utilising API requires an upfront investment in technology and adjustments to existing systems, it offers a more integrated and automated approach to e-invoice transmission. This mechanism is particularly suitable for large taxpayers or businesses with substantial transaction volumes, providing enhanced efficiency and accuracy in e-invoice processing.

By offering these two transmission mechanisms, IRBM aims to provide taxpayers with flexibility and choice in adopting e-invoice, ensuring a smooth transition to digital invoicing practices across Malaysia’s business landscape.

The introduction of e-invoicing in Malaysia promises to revolutionise business operations by streamlining transaction processes and enhancing tax administration efficiency. With near real-time validation and storage capabilities, e-invoicing benefits businesses of all sizes, fostering improved accuracy in financial reporting, increased tax compliance, and significant time and cost savings. 

The phased implementation ensures a smooth transition, aligning with Malaysia’s goal of driving digitalisation and efficiency across various sectors of the economy, marking a significant step towards modernising tax administration and fostering digital transformation.

In the next blogs, we will be covering in detail how each of these individual channels can be used for e-invoice generation. 

About Marmin

Marmin Technologies, a leader in e-invoicing and compliance solutions, is now operating in Malaysia as Marmin Technologies Sdn. Bhd. After achieving success in the Middle East, particularly Saudi Arabia, Marmin brings its government-compliant e-invoicing systems to support Malaysia's digital transformation. Trusted by global brands like Lenovo, Hitachi Veritas, Palo Alto Networks and Ethiopian Airlines, Marmin delivers reliable, secure solutions while building long-term relationships with local businesses, enhancing regulatory compliance and operational efficiency.

Want to know more about Marmin's e-Invoicing, reach out to us at my.support@marmin.ai