What is The CTC Model for E-Invoicing in Malaysia – Complete Guide

 

CTC Model for E-invoicing in Malaysia

The whole purpose of adopting the e-invoicing model in Malaysia is to digitize the transactional flow of businesses and companies. This includes the real-time reporting of the invoices generated by one party (the supplier) while transacting with a buyer and reporting the same to the LHDNM (Hasil). The mandate will take effect from August 2024 and follows the CTC Model Malaysia (Continuous Transaction Control). This applies to both B2B and B2G transactions.

So, let’s understand what is the CTC model for e-invoicing in Malaysia and how taxpayers can smoothly implement the same for uninterrupted e-invoicing processes for their businesses.

What is the CTC Model Malaysia?

CTC model Malaysia is a regulatory framework or system that helps law enforcement authorities or tax administrations in a country monitor, receive, and manage real-time or near-real-time financial data relating to business activity in their countries.

In the CTC framework, data is obtained by the tax authority, in Malaysia’s case, the Inland Revenue Board of Malaysia (IRBM) or HASiL/ MyInvois, directly from business transaction processes or data management systems in real-time or near real-time.

Transmission Mechanisms - Continuous Transaction Control (CTC) Model

Who are the parties involved in CTC Model of Malaysia?

These are the involved parties in CTC model for Malaysia e-invoicing –

  • Supplier- Issues the e-invoice.
  • Buyer- Receives the e-invoice.
  • Tax Authority- IRBM, validates and records the e-invoice.

How the CTC Model Malaysia Works While E-invoicing?

The Continuous Transaction Controls model (CTC) in Malaysia requires specific processes and compliance steps to ensure the proper issuance and validation of e-invoices. Here is a detailed process flow emphasizing the role of the CTC model –

Step-by-Step Process Flow

1. Issuance of E-Invoice

Initiation– The supplier generates an e-invoice in XML or JSON format for transactions where e-invoicing is mandatory (e.g., automotive, aviation, construction) or when the buyer requests.

Format– The e-invoice must comply with the required format (XML or JSON).

2. Submission to IRBM’s MyInvois Platform

Submission – The supplier submits the e-invoice to the Inland Revenue Board of Malaysia’s (IRBM) MyInvois platform for validation.

Integration Options —Suppliers can use IRBM’s free solution or integrate their systems through specific APIs using the Software Development Kit (SDK) provided by IRBM.

3. Validation Checks by MyInvois Platform

Structural Validation– The platform performs validation checks on the e-invoice structure to ensure it meets the required standards.

TIN Validation– The platform also validates the supplier and buyer’s Taxpayer Identification Numbers (TIN).

4. Validation Outcome

Successful Validation– The e-invoice is marked as validated if it passes all validation checks. The IRBM provides a validation link, usually in the form of a QR code.

Rejection Requests—Buyers can submit rejection requests within a specified period, stating the reason for rejection.

5. Handling Rejections and Cancellations

Buyer’s Rejection—If a buyer submits a rejection request, the supplier can review and agree to it.

Supplier’s Cancellation– The supplier can cancel the e-invoice within a 72-hour if the rejection is accepted.

6. Exchange of Validated E-Invoice

Distribution– Once validated, the supplier handles the exchange of the validated e-invoice with the buyer.

Included Elements– The exchanged e-invoice should include-

The original validated e-invoice.

The validation link (QR code) is provided by IRBM.

A PDF copy of the e-invoice.

7. Verification

QR Code Verification– The QR code enables the buyer and other stakeholders to verify the existence and status of the e-invoice through the MyInvois portal.

LHDMN's E-Invoice Model

Types of Transactions Under the CTC Model in Malaysia E-invoicing

The e-invoicing via Continuous Transaction Controls (CTC model Malaysia) covers various types of transactions, segmented into Business-to-Business (B2B) and Business-to-Government (B2G) categories.

1. Business-to-Business (B2B) Transactions

B2B transactions involve the exchange of goods or services between businesses. The Malaysian government has mandated that these transactions adhere to specific e-invoicing requirements under the CTC model to ensure tax compliance.

2. Business-to-Government (B2G) Transactions

B2G transactions involve businesses providing goods or services to government entities. Under the CTC model pilot program, these transactions often have stricter compliance requirements to ensure transparency and accountability.

CTC Model in Malaysia E-invoicing

Types of CTC Model in Malaysia

The MDEC is ready to implement the CTC model Malaysia by majorly two major methods –

1. Centralized Transaction Control

As mentioned earlier, the centralized model of e-invoicing is quite a straightforward method of retrieving transaction data. This includes sending the e-invoice information directly to the Myinvois portal, where authentication will be done. Once done, the e-invoice goes back to the supplier with an added QR code and a unique identifier.

2. Decentralized Transaction Control

When considering the scale and volume of transactions of big enterprises in Malaysia, the centralized e-invoicing model might not suffice. This is where the decentralized transaction control mechanism comes in to play its role. In this, the MDEC facilitates the the creation and sending of invoices between companies through the Peppol network.

In the Peppol framework in Malaysia, your e-invoice first goes to the Peppol access point/ Peppol service provider or Peppol-ready access point, where it is generated according to the common formats of the Peppol guidelines for smooth acceptance by the LHDNM authority.

This includes sub-sets of two models –

1. Three-Corner Model

The three-corner model is a simpler CTC model Malaysia involving three main parties: the supplier, the buyer, and the tax authority.

– Process Flow

Supplier – Issues an e-invoice and submits it directly to the tax authority (IRBM) for validation.

Tax Authority – Validates the e-invoice and provides a unique identifier or QR code.

Buyer – Receives the validated e-invoice from the supplier, which includes the QR code for verification.

Use Cases

Small to medium-sized businesses with direct and straightforward invoicing processes.

Industries where the supplier and buyer prefer direct communication without intermediary service providers.

2. 4-Corner Model

The 4-corner model involves an additional layer of service providers, making it more suitable for complex and large-scale transactions.

– Process Flow

Supplier- Issues an e-invoice and sends it to their service provider (SP1).

Service Provider 1 (SP1)– Validates the e-invoice’s structure and compliance before forwarding it to the tax authority (IRBM).

Tax Authority- Conducts final validation and provides a unique identifier or QR code.

Service Provider 2 (SP2)– The buyer’s service provider (SP2) retrieves the validated e-invoice from the tax authority.

Buyer- Receives the validated e-invoice from SP2, which includes the QR code for verification.

– Use Cases

Large enterprises with complex supply chains and higher transaction volumes.

Businesses that utilize third-party service providers for enhanced compliance and process automation.

Types of CTC Model in Malaysia

Benefits of the CTC Model Malaysia

1. Real-Time Monitoring

The biggest advantage of the CTC model and the reason why it’s so popular worldwide is that it enables tax authorities to monitor transactions as they occur, reducing tax evasion and fraud. This also benefits businesses because they have the complete history of their transactions in one place, which improves business performance.

2. Improved Compliance

Compliance, whether SST-related or other laws and e-invoicing regulations in Malaysia, is a big problem for any business in Malaysia. With the e-invoicing mandate coming in and the adaptation of the CTC model lets you ensure your business complies with tax regulations continuously, minimizing errors and discrepancies.

3. Automated Processes

The CTC model of e-invoicing reduces manual intervention through automated validation and submission processes. This also facilitates quicker processing and handling of invoices, leading to faster transaction cycles.

4. Transparency and Fraud Prevention

Validates invoice structure and Taxpayer Identification Numbers (TIN) to prevent fraud. At the same time, QR codes and validation links allow buyers and tax authorities to verify the authenticity of invoices.

5. Enhanced Audit Trail

Provides a comprehensive audit trail for all transactions, enabling easier tracking and verification of financial records. It also maintains detailed and accurate records, aiding in audits and financial management.

6. Improved Interoperability

It uses XML or JSON formats, ensuring compatibility and seamless data exchange between different systems and platforms. This not only applies to the local exchange between Malaysian businesses but also to exports and international trade and transactions. By aligning with global e-invoicing standards, it makes it easier for Malaysian businesses to engage in cross-border transactions.

Challenges of the CTC Model

1. Implementation Complexity

Technical Integration – Integrating existing systems with the MyInvois platform through APIs can be technically challenging, especially for small and medium-sized enterprises (SMEs) with limited IT resources.

Initial Setup —The initial setup, including adopting XML or JSON formats and configuring software to comply with new standards, can be resource-intensive.

2. Cost Implications

Upfront Costs —Upgrading systems, training staff, and integrating with the MyInvois platform involve significant upfront costs.

Ongoing Maintenance – Continuous updates and maintenance of the e-invoicing system to keep up with regulatory changes can incur additional costs.

3. Data Security Concerns

Data Breaches – Despite the secure platform, there is always a risk of data breaches, which could compromise sensitive financial information.

Compliance with Data Privacy Laws – Ensuring compliance with stringent data privacy and protection laws can be challenging, particularly for businesses operating in multiple jurisdictions.

4. Operational Disruptions

System Downtime – Any downtime in the MyInvois platform or integration systems can disrupt business operations, causing delays in invoice processing and payments.

Training Requirements – Adequate training for employees to understand and effectively use the new e-invoicing system is necessary, which can be time-consuming and impact productivity in the short term.

5. Adaptation Resistance

Resistance to Change – Employees and stakeholders may resist transitioning from traditional invoicing methods to the CTC model, hindering smooth implementation.

Cultural Barriers – In some organizations, there might be cultural resistance to adopting new technologies and processes.

6. Compliance and Regulatory Challenges

Frequent Updates – Keeping up with frequent regulatory updates and changes in compliance requirements can be difficult and require constant monitoring and adaptation.

Penalties for Non-Compliance – Businesses may face penalties for non-compliance or errors in e-invoicing, adding pressure to maintain accurate and timely submissions.

7. Buyer and Supplier Coordination

Rejection Handling – Efficiently managing rejection requests and cancellations within the specified timeframe can be challenging, requiring close coordination between buyers and suppliers.

Dispute Resolution – Resolving disputes arising from rejected e-invoices can be time-consuming and may require additional resources.

The Way Ahead For Malaysia’s CTC Foundation

Undoubtedly, the CTC model of e-invoicing comes with its own set of challenges. But what we need to realize is a lot of these challenges are only going to stay in the initial stages of adoption of the model. Malaysian businesses, being very new to the e-invoicing framework, are bound to face either way. The CTC model is looked as one of most sort-after ways of bringing interoperability globally. It represents a transformative approach to transaction oversight and compliance in Malaysia.

When looking at the advantages of the module, businesses are guaranteed to bring more pace and proper systems in their operations and transactions. The model promises enhanced compliance, transparency, and real-time validation, which are critical for modern business environments.

The Role of E-Invoicing Software

While businesses are all preparing to establish a secure and smooth integration of their accounting systems with the Myinvois portal, e-invoicing software solutions are playing their own part in this transition. Well prepared with the framework and technology of both CTC model and Peppol, e-invoicing software is specially built to take the tedious e-invoicing tasks of businesses and help them adapt to the change quickly.

These software solutions typically offer features such as:

1. Seamless Integration

It provides easy integration with existing accounting and ERP systems, reducing the technical complexity of adoption. While implementing the e-invoicing system, the organization will have to connect with LHDNM’s e-invoicing API for timely approvals or authentications from the authority and a software that smoothly integrates with organization’s existing accounting and ERP systems is a must.

2. Automated Validation

It does automated checks for invoice accuracy and compliance, minimizing the risk of errors and rejections.

3. Real-Time Reporting

The need of the hour, the real-time submission and validation of invoices is tackled by e-invoicing software easily, ensuring timely compliance with tax and SST regulations.

4. Data Security

It provides enhanced security features like bank-grade security to protect sensitive financial data from breaches and unauthorized access.

5. Scalability

Software technology can scale operations as transaction volumes grow, accommodating the needs of both SMEs and large enterprises.

 

Read more:-

Choosing Right E-Invoicing Software in Malaysia: 10 Key Factors to Consider

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