E-Invoicing in Malaysia: Transformation’s Next Frontier

The Malaysian government noticed that many countries around the world are shifting to electronic invoicing, which made them implement the same in Malaysia. The Ministry of Finance shared in the 2023 Pre-Budget statement that Malaysia aims to modernize tax administration by adopting electronic invoicing.

In October 2023, the Inland Revenue Board of Malaysia (IRBM) announced a delay in implementing e-invoicing. They now plan to roll it out gradually, starting from August 1, 2024.

This article breaks down what e-invoicing means in Malaysia, why they’re doing it, the kinds of transactions it covers, who it applies to when it’s happening, and other important details.

What is e-invoicing in Malaysia?

An e-invoice is a document, the format of which is according to the specifications set by the Inland Revenue Board of Malaysia (IRBM). The purpose of an e-invoicing system is to introduce automatic processes of e-invoicing by a related system. It serves as a digital confirmation of a transaction occurring between a seller and a buyer.

In essence, e-invoicing replaces the need for physical paper or other electronic documents like invoices, credit notes, debit notes, or invoices in non-specified formats like images, PDFs, and Excel files. An e-invoice is valid in Malaysia if it contains 53 mandatory fields. These fields encompass crucial information such as the details of the seller and buyer, a description of items, quantity, price, tax information, total amount, payment specifics, and more.

What are the types of e-invoices mandatory in Malaysia?

The e-invoicing in Malaysia requires the following documents to be generated in electronic format:

  1. Invoices: These documents are commonly utilized to document transactions between a supplier and a buyer. Invoices also have self-billed invoices, which are issued to monitor expenses.
  2. Credit Notes: Sellers issue credit notes as a means to rectify errors in a previously issued e-invoice, typically reducing the original invoice’s value without refunding money to the buyer. Credit notes are commonly used for adjusting errors, applying discounts, or accounting for returned items.
  3. Debit Notes: Debit notes are generated to document additional costs associated with a previously issued e-invoice.
  4. Refunds: A refund e-invoice is an official document issued by a seller to a buyer to show a refund has been issued. It is used to document and formalize the return of funds to the buyer.

Which transactions are covered under e-invoicing in Malaysia?

e-invoicing in Malaysia

It’s important to note that the flow of e-invoicing for B2G transactions is similar to that of B2B.

The scope of e-invoicing in Malaysia extends to all commercial activities, covering the sale of goods, services, and specific non-business transactions between individuals.

For Business-to-customer (B2C) transactions, sellers are not required to issue e-invoices directly to end consumers. Instead, they should provide a regular invoice or receipt. However, within a specified timeframe, sellers are obligated to aggregate all individual invoices or receipts and issue a consolidated e-invoice.

Why implement e-invoicing in Malaysia? It’s important, and what is the timeline for implementation?

The government aims to boost the growth of the digital economy and improve the effectiveness of Malaysia’s tax administration by implementing e-invoices. This initiative aligns with the goals of the Twelfth Malaysia Plan, which emphasizes the strengthening of digital services infrastructure and the digitalization of tax administration.

The Malaysian government focuses on:

  1. Eliminate paper invoicing and mitigate tax leakage: By transitioning to e-invoices, the government seeks to reduce reliance on paper-based invoicing systems and minimize opportunities for tax evasion.
  2. Streamline tax compliance for businesses: The adoption of e-invoicing is intended to help businesses save time and resources in meeting tax compliance requirements, fostering a more efficient and streamlined process.
  3. Facilitate international trade for entities: E-invoicing is expected to enhance the ease of doing business, particularly for entities engaged in international trade, by providing a more modern and efficient invoicing system.

The Inland Revenue Board of Malaysia (IRBM) has devised a phased approach for the gradual implementation of e-invoicing to ensure a seamless transition. The Malaysia e-invoice implementation timeline is as follows:

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How to report e-invoicing in Malaysia?

Under E-invoicing in Malaysia, businesses have the flexibility to utilize various transmission modes for reporting e-invoices:

  1. MyInvois Portal hosted by IRBM: Accessible to all businesses, the MyInvois Portal is particularly suitable for those dealing with a small volume of data. It is a feasible option for Micro, Small, and Medium-sized Enterprises (MSMEs) due to its simplicity and user-friendly features.
  2. Application Programming Interface (API): This option involves utilizing API in either XML or JSON format. While adopting API requires a technological investment and adjustments to existing systems, it stands out as the preferred e-invoice generation mode for large businesses dealing with a substantial volume of transactions.

Benefits and challenges of e-invoicing

The implementation of e-invoicing in Malaysia brings several advantages, providing businesses with a smooth and efficient experience. The benefits of e-invoicing include the following:

  1. Unified Invoicing Process: Businesses can simplify the creation and submission of documents, allowing for an automated data entry process.
  2. Integrated Tax Return Filing System: The seamless integration of e-invoicing facilitates the efficient and accurate reporting of tax returns, contributing to better tax compliance.
  3. Streamlined Operations: Businesses experience improved efficiency, leading to significant resource savings.
  4. Improved Cash Flow: E-invoicing helps to reduce human errors. This increases the duration of payment cycles and decreases payment disputes, resulting in increased cash flow for businesses.
  5. Digitized Financial Reporting: E-invoicing aligns financial reporting and processes with industry standards, contributing to the digitalization of financial reporting practices.

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However, benefits often come with challenges.

Malaysia’s transition may also face a few challenges:

1. Regulatory Compliance:

The e-invoicing regulations in Malaysia were postponed, and the revised implementation date is August 2024 for selected businesses only. Gradually, the authorities will add the sectors to cover all tax-registered businesses by 2027. To comply with these regulations for all businesses might be troublesome.

2. Technological Transition:

Adapting new technologies for a shift from the traditional invoicing process to the automated system might be quite demanding. Businesses may find it a bit difficult to integrate a new system with the existing one. To be on the same pace with all the staff during this digital transition can be challenging.

3. Data Security Concerns:

As financial data flows electronically, addressing concerns related to data security and privacy becomes crucial for companies.

4. Resistance to New tech:

Overcome employees’ resistance to learning new things is one of the biggest obstacles. Employees practicing conventional invoicing methods may not accept e-invoicing.

5. Technological Readiness:

Small businesses with limited IT infrastructure may not have the resources to adapt to new technology for e-invoicing. To adapt to new changes, the business might need to be more resourceful in order to go hand in hand with the market.

6. Data Accuracy and Merge:

Incorporating e-invoicing technology with existing systems, such as enterprise resource planning (ERP) solutions, requires detailed planning to ensure easy data exchange and synchronization. Maintaining data accuracy and consistency across departments becomes a vital challenge in this integration process.

7. Supplier Engagement:

Collaborating with suppliers for e-invoice integration can be challenging. To ensure that that all partners align with e-Invoicing procedures and technology can be a time-consuming process.

What best practices you can use to smooth the e-invoicing implementation process?

Transitioning to e-invoicing in Malaysia brings significant changes in how companies handle their finances, specifically in the areas of Accounts Receivable (AR) and Accounts Payable (AP). In the AR domain, businesses need to validate invoices through the MyInvois portal. For those dealing with foreign invoices, there’s a new responsibility to self-issue e-Invoices.

  1. To make this e-invoicing in Malaysia smoother, consider the following practical steps:
  2. Check if e-Invoicing is Relevant for Your Company:
  3. Understand whether e-invoicing is mandatory for your business or if you want to opt for it voluntarily.
  4. Think about how it might apply in the future.
  5. Look into whether your current financial systems can work well with e-invoicing software.
  6. Understand the Rules of E-Invoicing:
  7. Get familiar with the specific guidelines and rules that come with e-invoicing.
  8. Choose the Right Way to Connect and Find a Reliable Partner:
  9. Decide between using the MyInvois Portal or API (Direct Integration) for sending e-Invoices.
  10. Choose the direct integration option for a more easy experience.
  11. Pick a reliable partner or vendor who has experience in this and who offers easy-to-use solutions and customization options.

Get Ready for E-Invoicing

  1. Assemble a diverse team with the right expertise to make sure everything goes smoothly.
  2. Understand how your current billing procedures work and make sure they align with the e-invoicing timeline.
  3. If you deal with customers from other countries, figure out how you’ll handle their invoices.
  4. Plan to collect important data for e-Invoicing, like your customers’ tax identification numbers.

Malaysia is embracing e-invoicing to modernize tax administration, starting the phased rollout on August 1, 2024. Covering various transactions, e-invoicing replaces paper, ensuring 53 mandatory fields for validity. The government aims to boost the digital economy, enhance tax compliance, and streamline international trade. Successful implementation promises streamlined operations, improved cash flow, and digitized financial reporting.

VATrobo Software- Simple E-Invoicing Solutions for Malaysian E-Invoicing

With the e-invoicing in Malaysia mandate making its entry, it might seem like a daunting task for businesses, finance experts, and large enterprises alike to navigate the e-invoicing practices. As Malaysia gears up for a new way of invoicing and a new change coming along the way, businesses in Malaysia are stepping into a new era. This might sound new, and that’s where VATrobo Software comes in.

VATrobo Software is a cutting-edge solution that delivers impeccable results and eases your E-Invoicing processes conveniently. How? We have your question answered –

1. User-Friendly Interface

VATrobo offers an intuitive and user-friendly interface, ensuring a smooth onboarding process for businesses, especially those new to E-Invoicing.

2. Compliance Assurance

We let you stay compliant with Malaysia’s E-Invoicing mandate effortlessly. VATrobo aligns seamlessly with regulatory requirements, helping you understand the e-invoicing laws every step of the way and reducing the burden of compliance for your businesses.

3. Efficient Workflow

The smart software streamlines your invoicing processes, thanks to VATrobo’s efficient workflow. From invoice creation to submission and sharing with your vendors, VATrobo optimizes the entire E-Invoicing cycle, saving time and effort.

4. Real-time Monitoring

Gain real-time insights into your invoicing status. VATrobo provides comprehensive monitoring features, allowing businesses to track the progress of their E-Invoices effortlessly.

5. Error Reduction

Minimize errors by 90% in your invoicing with VATrobo’s built-in 200+ validation checks. The software helps businesses maintain accurate and error-free E-Invoices, ensuring smooth transactions.

6. Integration Capabilities

Seamlessly integrate VATrobo with existing accounting systems. The software cohesively works with various platforms which enhances the overall efficiency in financial management.

7. Cost Efficient

VATrobo not only simplifies processes but also contributes to cost savings. Reduce manual errors and operational costs associated with traditional invoicing methods.

8. 12*6 Customer Support

Benefit from dedicated customer support provided by VATrobo support team 12*6. The support team is ready to assist businesses in navigating the software and addressing any queries or concerns.

9. Scalability

Grow your business without worries. VATrobo is scalable, accommodating the evolving needs of businesses of all sizes as they expand their operations.

10. Training and Resources

Access comprehensive training materials and resources offered by VATrobo. Businesses can empower their teams with the knowledge needed to leverage the full potential of E-Invoicing. We make sure your team is Malaysian E-Invoicing ready.

Frequently Asked Questions (FAQ):

Q1. How to determine the annual turnover while I implement e-invoicing in Malaysia?

In different situations, the determination of the relevant annual turnover is as follows:

  • Audit Done of the Financial Statements of Businesses: The annual turnover or revenue considered is the one specified in the financial statements for 2022.
  • No Audit Done of the Financial Statements of Businesses: The annual revenue to be considered is the amount reported in the tax return for the assessment year 2022.
  • Financial Year 2022 Change of Accounting Year End: In cases where there is a change in the accounting year end, the turnover or revenue will be distributed to cover 12 months to determine the applicable date for e-invoicing.

Q2. Which documents are mandatory for e-invoicing in Malaysia?

In Malaysia, having a Digital Certificate is essential for e-invoicing. This certificate is mandatory and serves the purpose of signing e-Invoices. The Inland Revenue Board of Malaysia (IRBM) will issue a digital certificate based on the taxpayer’s Tax Identification Number (TIN) along with additional information. This certificate ensures the non-repudiation, integrity, and authenticity of the e-invoice. The certificate is valid for 3 years.

Q3. Is e-invoicing in Malaysia mandatory for only domestic transactions?

No, the e-invoice is mandatory for both domestic and also international transactions.

Q4. Which e-invoice model is Malaysia planning to adopt?

The Inland Revenue Board of Malaysia (IRBM) introduced the Continuous Transaction Control (CTC) model e-invoicing implementation. With this model, IRBM will have the capability to validate e-invoices swiftly and almost instantly.

Q5. Can I cancel the invoice that is once submitted to the IRBM?

Yes, you can cancel the e-invoice within 72 hours from its generation time.

 

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