The Present Status of Malaysia's E-Invoicing Mandate - What You Should Know

The latest updates on Malaysia's E-Invoicing Mandate, enforced by IRBM / LHDN. Understand the mandatory regulations, compliance requirements, and how it impact businesses. Stay informed with key insights into the present status of the e-invoicing system under the guidance of the Inland Revenue Board of Malaysia (IRBM) / Lembaga Hasil Dalam Negeri Malaysia. (LHDN).

By
Ajith Kumar M
March 12, 2024
60 min

In Malaysia, e-Invoicing is becoming increasingly important for businesses to ensure compliance with tax regulations and to streamline their invoicing processes. This guide provides a comprehensive overview of e-Invoicing in Malaysia, covering key aspects such as the process flow, types of e-Invoices, and the benefits of adopting e-Invoicing.

History and Evolution of E-Invoicing in Malaysia

The journey of e-Invoicing in Malaysia began as part of the government's initiative to digitize financial transactions and improve tax compliance. Over the years, the adoption of e-Invoicing has gained momentum, driven by technological advancements and the need for more efficient business operations. Today, e-Invoicing is a critical component of Malaysia's digital economy, with widespread adoption across various industries.

What is an e-invoice in Malaysia?

An e-Invoice is an electronic document that serves as a digital version of a traditional paper invoice. It contains all the transaction details required for billing and tax purposes, formatted in a way that is recognized and accepted by both businesses and the Malaysian tax authorities.

What is the process flow of e-Invoice in Malaysia?

The e-Invoicing process in Malaysia involves the following key steps:

  1. Generation: The seller creates an e-Invoice using their financial software or e-Invoicing platform.
  2. Delivery: The e-Invoice is electronically sent to the buyer, typically via email or a dedicated portal.
  3. Receipt: The buyer receives and processes the e-Invoice in their accounting system.
  4. Payment: The buyer makes payment based on the details provided in the e-Invoice.
  5. Reporting: Both parties report the transaction to the tax authorities as required.

Types of Transactions Included in Malaysia's

E-Invoice System

E-Invoicing in Malaysia is designed to accommodate different types of business transactions. Here's a simple breakdown:

1. Business-to-Business (B2B):

This is when two companies do business with each other. For example, a supplier selling raw materials to a manufacturing company.

2. Business-to-Consumer (B2C):

This occurs when a business sells directly to individual consumers. An example would be an online retailer selling products to people shopping from home.

3. Business-to-Government (B2G):

In these transactions, businesses provide goods or services to government agencies. For instance, a construction company building a new public school.

All companies engaged in commercial activities in Malaysia need to use e-Invoicing, regardless of whether they are large corporations or small partnerships. This helps ensure that all transactions are recorded transparently and accurately, making tax compliance easier for businesses and the government.

E-Invoicing in Malaysia covers a wide range of transactions, including:

  • Domestic and international sales of goods and services
  • Government procurement and contracts
  • Intercompany transactions and transfers

Type of e-invoices in Malaysia

In Malaysia, e-Invoices come in various forms, including:

  • Standard e-Invoices: For regular business-to-business (B2B) transactions.
  • Credit Notes: Issued for refunds or adjustments to previously issued e-Invoices.
  • Debit Notes: Used to increase the amount of an existing e-Invoice.
  • Refund Notes: For confirming the refund of the buyer's payment in situations where there is a return of monies to the buyer.

Why is e-invoice implemented in Malaysia?

The implementation of e-Invoicing in Malaysia is driven by several factors:

  • Efficiency: Streamlining invoice processing and reducing manual errors.
  • Transparency: Enhancing visibility and traceability of transactions for tax compliance.
  • Cost Savings: Lowering operational costs associated with paper invoicing.
  • Sustainability: Reducing the environmental impact of paper-based processes.

How can Businesses Report E-Invoices in Malaysia?

E-Invoices must be reported to the Malaysian tax authorities in compliance with the guidelines provided by the Inland Revenue Board of Malaysia (IRBM). Businesses are required to submit their e-Invoices through designated electronic reporting platforms or integrated accounting software.

Benefits of e-invoicing in Malaysia

Adopting e-Invoicing in Malaysia offers numerous benefits, including:

  • Improved Cash Flow: Faster invoice processing leads to quicker payments.
  • Reduced Costs: Lower expenses related to printing, postage, and storage.
  • Enhanced Accuracy: Minimized errors and discrepancies in invoicing.
  • Better Compliance: Easier adherence to tax regulations and audit requirements.

What are the challenges of e-Invoicing for businesses in Malaysia?

Businesses may encounter challenges such as:

  • Integration: Ensuring compatibility between e-Invoicing systems and existing software.
  • Adoption: Convincing suppliers and customers to transition to e-Invoicing.
  • Security: Protecting sensitive data in electronic transactions.

Example:

Consider a manufacturing company that uses an ERP system to manage its operations. The company needs to send invoices to its customers, who require e-Invoices to be submitted through a specific e-Invoicing network.

Without middleware, the company would have to manually extract invoice data from the ERP system, format it according to the e-Invoicing network's requirements, and then upload it to the network. This process would be time-consuming and prone to errors.

With middleware, the company can automate this process. The middleware solution would extract the invoice data from the ERP system, transform it into the required format, and then securely transmit it to the e-Invoicing network. This automation saves time, reduces the risk of errors, and ensures that invoices are submitted in compliance with the network's requirements.

Best practices for e-Invoicing in Malaysia

To successfully implement e-Invoicing, businesses should:

  • Understand the Guidelines: Familiarize yourself with the IRBM's e-Invoicing regulations.
  • Choose the Right Solution: Select an e-Invoicing platform that fits your business needs and integrates seamlessly with your existing systems.
  • Train Your Team: Educate your staff on the new processes and ensure they are comfortable with the technology.
  • Monitor and Improve: Regularly review your e-Invoicing practices and make adjustments as needed to enhance efficiency and compliance.

By embracing e-Invoicing, Malaysian businesses can position themselves for success in the digital economy, benefiting from streamlined operations, improved compliance, and enhanced financial performance.

Getting Ready for the E-Invoicing Rollout:

Before launching your e-Invoicing system, it's essential to conduct comprehensive testing to identify and resolve any potential issues. Additionally, providing your staff with adequate training on the new system will help ensure a smooth transition and effective adoption of the e-Invoicing process.

By following these steps and leveraging the insights from the E-Invoice Guideline provided by the Inland Revenue Board of Malaysia, businesses can make informed decisions when selecting an e-Invoicing solution provider and preparing for the implementation of e-Invoicing.

E-Invoicing Implementation Timeline in Malaysia

The e-Invoicing implementation in Malaysia is a structured plan laid out over several years with significant milestones:

July 2023: Initiation of Guidelines

  • The launch of the E-invoicing 1.0 guidelines signifies the commencement of e-Invoicing in Malaysia, providing businesses with initial frameworks and standards to adopt e-Invoicing.

September 2023: Refinement of Guidelines

  1. Introduction of E-invoicing 2.0 guidelines and e-Invoicing specific guidelines, indicating a progression in the e-Invoicing framework with more detailed protocols for businesses to follow.

November 2023: Software Development Kit Release

  • The Inland Revenue Board of Malaysia (IRBM) plans to tentatively release a software development kit by the first week of November. This will aid software developers in creating e-Invoicing solutions that are compliant with Malaysian standards.

April 2024: Pilot Phase Commencement

  • A pilot phase for all companies begins, offering businesses the opportunity to test and adapt to the e-Invoicing system in a controlled environment. This is a crucial step towards full implementation.

In Malaysia, the e-Invoicing system is being rolled out in phases. The criteria for each phase are primarily based on the annual turnover or revenue of the taxpayers. Below is the table outlining the targeted taxpayers and the implementation dates:

PhaseImplementation DateCriteriaAnnual Turnover ThresholdPhase 11 August 2024Taxpayers with an annual turnover/revenue > RM100 millionMore than RM100 millionPhase 21 January 2025Taxpayers with an annual turnover/revenue between RM25 million and RM100 millionRM25 million to RM100 millionPhase 31 July 2025All other taxpayersAll other turnovers

Phase 1: Large Enterprises (Starting 1 August 2024)

Criteria: Taxpayers with an annual turnover or revenue of more than RM100 million.Annual Turnover Threshold: More than RM100 million.Implementation Date: 1 August 2024.This phase targets the largest players in the economy, enforcing e-Invoicing to streamline and enhance their invoicing and tax compliance processes.

Phase 2: Medium-sized Enterprises (Starting 1 January 2025)

Criteria: Taxpayers with an annual turnover or revenue of more than RM25 million and up to RM100 million.Annual Turnover Threshold: Between RM25 million and RM100 million.Implementation Date: 1 January 2025.Medium-sized businesses will be required to comply with e-Invoicing, aiming to broaden the adoption of digital invoicing to improve tax efficiency and accuracy.

Phase 3: Small and Other Enterprises (Starting 1 July 2025)

Criteria: All other taxpayers.Annual Turnover Threshold: No specific threshold; applies to all other businesses regardless of turnover.Implementation Date: 1 July 2025.The final phase includes all remaining businesses. By this stage, e-Invoicing will become a norm across the economic landscape in Malaysia.

With these phases, the Malaysian government aims to gradually bring all businesses into the fold of digital invoicing. This structured approach allows for a smoother transition for companies of all sizes, ensuring that they have adequate time to update their systems, train their employees, and integrate the new processes into their workflows.

Why is Middleware Solution Important for the

E-Invoicing Process?

Middleware solutions play a crucial role in the e-Invoicing process, acting as a bridge between different systems and applications. They are essential for ensuring smooth and efficient communication between a company's internal systems and external e-Invoicing platforms or networks. Here's why middleware solutions are important for the e-Invoicing process:

Seamless Integration

Middleware solutions facilitate seamless integration between a company's Enterprise Resource Planning (ERP) system, accounting software, and the e-Invoicing platform. This integration ensures that invoice data can be automatically transferred from the company's systems to the e-Invoicing platform without manual intervention, reducing the risk of errors and saving time.

Data Transformation

E-Invoicing often requires data to be formatted in a specific way to comply with regulatory standards or the requirements of the e-Invoicing network. Middleware solutions can transform data from the format used in a company's internal systems to the required format for e-Invoicing, ensuring compliance and smooth processing.

Connectivity

Middleware solutions provide connectivity between different systems, enabling them to communicate with each other and with external e-Invoicing networks. This connectivity is essential for the real-time exchange of invoice data and for ensuring that invoices are delivered and received promptly.

Scalability

As businesses grow, their e-Invoicing needs may change. Middleware solutions can be scaled to accommodate increased volumes of invoices or to integrate additional systems and applications as needed, ensuring that the e-Invoicing process continues to run smoothly.

Security

E-Invoices contain sensitive financial information that needs to be protected. Middleware solutions can provide security features such as encryption and authentication to ensure that invoice data is securely transmitted and accessed only by authorized parties.

How Complyance Streamlines E-Invoicing in Malaysia

Complyance offers leading e-Invoicing solutions in Malaysia, seamlessly integrating your systems with the Inland Revenue Board of Malaysia (IRBM) and the Royal Malaysian Customs Department (LHDN). Our advanced e-Invoicing and API technology ensures compliance and efficiency in the e-Invoicing landscape of Malaysia.

Benefits of Complyance's E-Invoicing Solutions:

  • Significant Time Reduction: Drastically cut down the processing time for e-Invoicing, streamlining your financial operations.
  • Error Minimization: Automated data validation reduces errors, ensuring accurate and reliable invoicing.
  • Customization: Tailor e-Invoicing solutions to fit any ERP system, providing flexibility for your specific business needs.
  • Zero Rejection Rate: Achieve a 0% rejection rate, ensuring all your invoices are accepted without any issues.
  • Enhanced Security: Robust security measures protect your sensitive invoice data, giving you peace of mind.
  • Language Customization: Customize the language in your invoices, catering to the diverse linguistic needs of your customers.
  • Personalized Account Management: Complyance assigns a dedicated account manager to each client, providing specialized guidance on both compliance and technical aspects of e-invoicing. This personalized approach ensures that you have a knowledgeable point of contact to help you navigate the complexities of e-invoicing with ease.
  • Robust Data Validation: Complyance ensures thorough data validation before sending information to the Inland Revenue Board of Malaysia (IRBM). This careful process guarantees a 99.99% success rate in e-invoice generation, providing you with accurate and reliable e-invoices.
  • Seamless ERP Integration: Complyance offers rapid integration with Enterprise Resource Planning (ERP) systems. With the ability to seamlessly incorporate Complyance's web APIs within 2-3 weeks, you can achieve compliance efficiently and without disrupting your existing business processes.

Why Choose Complyance for E-Invoicing in Malaysia?

Choosing Complyance for your e-Invoicing needs in Malaysia means opting for reliability, efficiency, and compliance. Our solutions are designed to streamline your invoicing process, reduce errors, and ensure that you meet all regulatory requirements. With our expert support and advanced technology, you can focus on growing your business while we handle the complexities of e-Invoicing.

Don't Wait, Get Started Now!

Ready to revolutionize your e-Invoicing process? Don't wait for the perfect solution – you've already found it with Complyance. Feel free to request an enquiry or demo today and take the first step towards seamless e-invoicing in Malaysia.

Frequently Asked Questions ( FAQs)

What is e-Invoicing in Malaysia?

E-invoicing in Malaysia refers to the digital exchange of invoice documents between businesses and their clients or the government. It replaces traditional paper-based invoicing with a more efficient electronic system.

Why is e-invoicing being implemented in Malaysia?

The Malaysian government is implementing e-invoicing to enhance tax compliance, streamline business transactions, reduce errors, and promote environmental sustainability by reducing paper usage.

What are the key benefits of adopting e-Invoicing?

Benefits include improved efficiency, reduced costs, faster payments, enhanced accuracy, and better compliance with tax regulations.

Who is required to comply with e-invoicing in Malaysia?

All taxpayers engaging in commercial activities in Malaysia, including businesses and legal entities, are required to comply with e-invoicing requirements.

What types of transactions are covered under Malaysia's e-Invoice system?
The e-Invoice system covers Business-to-Business (B2B), Business-to-Consumer (B2C), and Business-to-Government (B2G) transactions.

How does the e-Invoicing process work in Malaysia?The process involves generating an e-Invoice using financial software or an e-Invoicing platform, electronically sending it to the buyer, receiving and processing it in the buyer's accounting system, making payment, and reporting the transaction to tax authorities.

What are the different types of e-invoices in Malaysia?Types include standard e-Invoices for B2B transactions, credit notes for refunds or adjustments, debit notes for increasing invoice amounts, and refund notes.

What is the timeline for e-Invoicing implementation in Malaysia?The implementation is phased, starting with large enterprises in August 2024, medium-sized enterprises in January 2025, and all other taxpayers in July 2025.

How can businesses report e-Invoices to Malaysian tax authorities?Businesses must submit their e-Invoices through designated electronic reporting platforms or integrated accounting software in compliance with the Inland Revenue Board of Malaysia's guidelines.

What challenges might businesses face in adopting e-Invoicing?Challenges include integrating e-Invoicing systems with existing software, encouraging suppliers and customers to adopt e-Invoicing, and ensuring data security.

What is the role of middleware solutions in the e-Invoicing process?Middleware solutions act as a bridge between different systems and applications, facilitating seamless integration and communication for efficient e-Invoicing.

How does Complyance streamline e-Invoicing in Malaysia?Complyance offers e-Invoicing solutions that integrate with the Inland Revenue Board of Malaysia, providing compliance, efficiency, and features like time reduction, error minimization, and enhanced security.

What are the criteria for the phased implementation of e-Invoicing in Malaysia?The criteria are based on the annual turnover or revenue of taxpayers, with specific thresholds for each phase.

What is the significance of the software development kit (SDK) in e-Invoicing?The SDK provides tools and resources for software developers to create e-Invoicing solutions that comply with Malaysian standards.

What formats are supported for e-Invoice submission in Malaysia?The supported formats include Extensible Markup Language (XML) and JavaScript Object Notation (JSON), adhering to the Universal Business Language Version 2.1 (UBL2.1) structure.

What is the MyInvois Portal?The MyInvois Portal is a platform hosted by the Inland Revenue Board of Malaysia for taxpayers to perform e-Invoice actions, such as generating, submitting, viewing, and canceling invoices.

What are the key features of the e-Invoice model via API?Key features include direct integration with taxpayers' ERP systems, transmission through Peppol service providers or non-Peppol technology providers, and support for XML and JSON formats.

How can businesses prepare for e-Invoice submission?Businesses need to configure their systems or engage a technology provider to generate e-Invoices in the required format with mandatory and optional fields.

What is the process for e-Invoice validation and notification via API?Once submitted, the e-Invoice is validated in real-time by the MyInvois System, and the supplier or technology provider receives an API response with validation details. Notifications are sent to both the supplier and buyer upon validation.

What are the steps for sharing, rejecting, and canceling e-Invoices?Upon validation, the supplier must share the e-Invoice with the buyer. If there are errors, the buyer can request rejection within 72 hours, and the supplier can cancel the e-Invoice within the same timeframe. Any subsequent adjustments require issuing a new e-Invoice.