Every business creates invoices. Many countries are changing from paper to electronic invoices, known as e-invoices. These e-invoices are becoming important and replacing old paper systems. With this digitization evolution across the word, Malaysia is not far behind. Malaysia, in Southeast Asia, is also on the road to adopting e-invoicing. They have a gradual plan starting E-invoicing in Malaysia is all set from August 1st, 2024.
What is called E-invoicing in Malaysia?
An e-invoice is a digital file that records all the necessary details of transactions between businesses or one party to another. These parties could be companies, businesses, vendors or any profit making entity. The e-invoices generated by an entity have to meet IRBM standards. IRBM is the regulatory authority in Malaysia that overlooks the functioning and implementation of the e-invoicing in Malaysia mandate.
There is a common portal of IRBM available for all that will work on a real-time basis to validate and authenticate the e-invoices from both the parties involved in a transaction. This format lets it be automatically processed by a compatible system and acts as proof of a transaction.
E-invoices replace paper and electronic documents like invoices, debit notes, credit notes, and more. In Malaysia, a valid e-invoice needs 53 mandatory fields with key details.
Read in-Depth:- E-Invoicing in Malaysia: Transformation’s Next Frontier
What are the types of documents under E-invoicing in Malaysia?
- Invoices: The government of Malaysia wants to track transactions happening between various parties via a streamlined e-invoicing system and these would be done via e-invoices. Here whenever there will be a deal or any exchange happening, the concerned parties will be required to create an e-invoice and present the same in front of the IRBM portal. This would in return help them track the transactions being done.
- Credit Notes: When there are gaps in the original invoice and one needs to record reduction in the value of the original e-invoice, credit notes are used.
- Debit Notes: When there is a need for recording an increase in the value of the original invoice, debit notes are used.
- Refund Notes: On overpayment by a buyer sellers use these to show the amount returned by them.
Why is E-invoicing in Malaysia mandatory?
The Malaysian government wants more e-invoices used to boost the digital economy and tax processes. This plan supports goals in the Twelfth Malaysia Plan to improve digital services and tax processes, making e-invoices important in this modernization.
How will E-invoicing in Malaysia be implemented?
The Inland Revenue Board of Malaysia (IRBM) has set forth a phased approach for the gradual implementation of e-invoicing. This strategy is aimed at ensuring a smooth and seamless transition for businesses. The Malaysia e-invoice implementation timeline is structured as follows:
Moreover, guidelines have been established to determine the annual turnover or revenue for e-invoice implementation:
There are three scenarios to determine the Annual Turnover of businesses:
- Scenario – 1
Businesses with audited financial statements Annual turnover or revenue specified in the financial statements for the fiscal year 2022. - Scenario – 2
Businesses without audited financial statements Annual revenue reported in the tax return for the assessment year 2022. - Scenario – 3
In case of a change in the accounting year-end for fiscal year 2022, turnover or revenue will be proportionately calculated in 12 months to determine the applicable e-invoice date.
Benefits of E-invoicing in Malaysia:
- E-invoices save money by cutting printing, postage, and related costs. QR codes in e-invoices make reading and archiving easier, saving time. This helps people focus on important tasks and boosts efficiency.
- E-invoices reduce errors by linking data directly to the Government portal. This makes employees more careful during invoice preparation, reducing mistakes like data entry errors and lost invoices. It improves efficiency across the board.
- E-invoicing in Malaysia ensures timely payments, preventing delays and freeing up working capital that would otherwise be tied up.
- Using digital signatures, QR codes, and encryption improves transaction security and reduces fraud risks.
- E-invoicing allows real-time tracking of invoice statuses, boosting buyer and seller confidence and improving overall customer satisfaction.
Challenges to implementation of E-invoicing in Malaysia:
1. Regulatory Compliance:
Malaysia is rolling out mandatory e-invoicing rules, starting in August 2024 for certain businesses and extending to all tax-registered companies by 2027. Complying with these rules, especially for complex systems, is a big challenge.
2. Technological Transition:
Shifting to e-invoicing means moving from manual to automated processes. This change might require help to adjust to new tech, integrate e-invoicing with existing systems, and train staff for this digital shift.
3. Data Security Concerns:
Sending financial data electronically raises concerns about data security and privacy that companies need to address.
4. Resistance to Change:
Getting employees to embrace e-invoicing can be tough, especially if they’re used to traditional methods. This highlights the need for good strategies to manage change effectively.
5. Technological Readiness:
Some businesses, especially smaller ones with limited tech setups, might need time to prepare for e-invoicing. Adapting systems to meet e-invoicing standards can be resource-intensive.
6. Data Accuracy and Integration:
Integrating e-invoicing with existing systems like ERP solutions requires careful planning to ensure smooth data exchange. Maintaining accurate data across departments is crucial during this process.
7. Supplier Onboarding:
Getting suppliers on board with e-invoicing can be challenging and time-consuming. Making sure everyone follows e-invoicing procedures and tech is key.
Consequences of non-compliance of E-invoicing in Malaysia:
1. Penalties and Fines:
Not following e-invoicing rules can lead to fines or penalties imposed by authorities, including monetary fines or other punishments.
Section 120(1) provides for a fine of not less than RM200 and not more than RM20,000 or imprisonment not exceeding 6 months or both, if a person fails to issue an e-invoice, a self-billed invoice or a consolidated transaction invoice.
2. Legal Consequences:
Businesses that don’t comply might face legal actions, like lawsuits or other legal processes, resulting in extra costs and harm to their reputation. This also includes a possible imprisonment of 6 months or less on compliance of e-invoicing in Malaysia.
3. Loss of Tax Benefits:
Not following e-invoicing rules can affect tax compliance, risking the loss of tax benefits or incentives from the government and causing financial setbacks. When one starts tracking and recording their transactional data via e-invoices, these records serve them taxation benefits. Because everything is stored at a single place to look and compare at the time of paying business taxes.
4. Disruption of Business:
Not adopting e-invoicing could disrupt operations, especially if partners or customers require electronic invoices, leading to delays and strained relationships. The working capital will be blocked for a longer period of time and this would result in heavy business losses.
5. Market Exclusion:
Some industries or partners may require e-invoicing, and not complying could lead to exclusion from markets and limit growth opportunities. Malaysia is now turning digital and if you are not a part of it then it would be a loss to your business.
6. Proper Audit Trails:
Every business fears an audit scrutiny whether small, mid or large. Now if a business is not following e-invoicing standards then they lose out on proper document opportunities. Imagine when an examiner comes for an audit and your authorized documents are ready in the form of e-invoices, it becomes easier for you to avoid any penalties and any discrepancies.
7. Competitive Disadvantage:
Businesses that don’t embrace e-invoicing may fall behind competitors who do, missing out on efficiency gains, cost savings, and improved customer satisfaction.
Penalty for messing up E-invoicing in Malaysia:
The Director General for Inland Revenue (DGIR) must electronically handle E-invoices. This rule applies to all taxpayers doing business in Malaysia, including transactions between businesses (B2B), companies and consumers (B2C), and corporations and government entities (B2G).
Failure to follow e-invoicing rules leads to penalties. For example, not issuing an e-invoice for goods or services can result in fines from MYR 200 to MYR 20,000, and possible imprisonment for up to six months.
Complyrobo helps users test performance, access reports, and stay updated with IRBM rules. It also stores historical data for quick access, ensuring compliance.
E-invoicing in Malaysia the service providers’ POV:
In Malaysia, you have many service providers to choose from. Look for one that offers these benefits:
Dedicated Account Manager:
You should get a dedicated account manager who can give expert advice on compliance and technical aspects of e-invoicing.
Thorough Data Checks:
Before sending data to authorities, the system checks it in over 150 ways. These checks are crucial for accuracy, leading to a success rate of 99.99% in e-invoice generation.
Efficient ERP Integration:
Pick providers that can quickly integrate with 50+ ERPs and use web APIs in 4-6 weeks for compliance.
Secure Data Storage:
Choose a platform that stores e-invoice data safely for up to seven years on secure cloud servers, ensuring data retention and accessibility.
Read more: E-Invoicing Software in Malaysia: 10 Key Factors to Consider
Additional Services:
Look for companies that offer additional services alongside core e-invoicing support. These services simplify the e-invoicing process for clients. Examples include:
- Spend/Sales analytics based on e-invoices.
- Error reports for input e-invoices.
- QR code generation.
- Convenient options like WhatsApp/SMS for sending B2C e-invoices.
- Customizable print templates for e-invoices.
Conclusion:
In today’s digital age, using e-invoicing is crucial for businesses to stay compliant and efficient. Choosing top software like Complyrobo for E-invoicing software in Malaysia brings significant benefits to your business. Complyrobo offers a range of features to simplify e-invoicing and ensure a smooth, compliant process.
Complyrobo is built to understand and perform for the special business requirements of Malaysian businesses. With a clean and simple dashboard, the software offers an easy to use interface and also gets the job done with minimal efforts of finance teams.
Complyrobo helps businesses in several ways. It ensures compliance with regulations by auto-regulating any new requirements and amendments of the Malaysian government. It also boosts efficiency as your teams adopt automated processes that reduce errors and save time.
Using Complyrobo helps businesses avoid penalties for non-compliance and inefficiencies. Our solutions not only protects businesses but also sets them up for growth and success in a competitive environment. Choosing Complyrobo improves your business e-invoicing standards, connects different business aspects conveniently, and ensures accuracy and efficiency throughout operations.
