E-invoicing Integration in Malaysia – Finding the Right Fit for Your Business

 

Malaysia is set to adopt an electronic invoice (e-invoice) system beginning in August 2024, marking a significant shift in the country’s compliance and transactional space. The Malaysian Inland Revenue Board (IRB) issued the e-Invoice Guideline Year 2023 on 21 July 2023, providing detailed clarification on the scope, coverage, and data fields required for compliance. Since then, the authority has also released the software development kit to understand the scope of e-invoicing integration in Malaysia better.

This blog outlines the key steps for a smooth and efficient e-invoicing implementation.

E-Invoicing Compliance in Malaysia – The Road Ahead

Based on the IRB’s latest e-invoicing implementation timeline, e-invoice compliance will apply to all taxpayers, including individuals and legal entities. To ensure a smooth transition, the implementation will be mandatory based on annual turnover or revenue, referencing the numbers reported in audited financial statements for the financial year 2022 or tax returns for the year of assessment 2022.

Key Changes in Your Processes

The accounts receivable and accounts payable functions would constitute major changes while doing the e-invoicing integration in Malaysia.

Broadly, these are the first requirements that all taxpayers would need to implement-

1. Invoices need to be validated by the MyInvois portal.

2. Buyers receiving foreign invoices must self-e-invoice.

E-invoicing brings with it a chance for entities to change, update, and optimize their account functions in their entirety. This can be done via technology and process intervention.

Major Changes in The Accounts Receivable Functions

1. Order Master Data—Additional fields and checks are required in master data such as TIN validity and SST registration number.

2. Pre-sale Activities – Additional checks to run for every pre-sale activity.

3. Sales order management – Terms and conditions need to be revisited.

4. Shipping – Additional checks are required before acceptance of goods.

5. Performa Invoice – Checks for vendor invoice data accuracy before processing.

6. Invoice Processing – Change in invoice receipt method – e-invoice XML/ JSON.

7. Payment Processing – Additional controls on invoice receipt.

Major Changes in The Accounts Payable Functions

1. Supplier onboarding and master data—Additional fields and checks are required in master data, such as TIN validity and SST registration number.

2. Purchase requisition processing – Additional checks to run for every purchase requisition.

3. PO processing – Terms and conditions need to be revisited.

4. Receipt processing – Additional checks are required before the acceptance of goods.

5. Invoice receipt and capture – Change in invoice receipt method – e-invoice XML/ JSON.

6. Invoice processing – Checks for vendor invoice data accuracy before processing. Self-invoice for foreign invoices.

7. Payment processing – Additional controls for vendor payments.

Checklist for Getting Ready While E-Invoicing Integration in Malaysia

To get into e-invoicing processes, your ERP or accounting systems have to be integrated smoothly with the IRB e-invoice portal. So, how do you do that? Well, here is a quick checklist that would help you integrate your systems better with the portal so, you can reap the benefits of e-invoicing integration.

Strategy and Governance

What is your group/global strategy in adopting non-uniform models across countries? Has your business incorporated e-invoice requirements as part of its master data governance?

Organization and Process

Are your impacted stakeholders aware of the e-invoicing timeline and the plan for implementation? Have you assessed the impact of e-invoicing on your Accounts Receivable (AR)/Accounts Payable (AP)?

Data and Technology

What is your game plan in relation to the 53 data fields listed in Appendix 1 of IRB’s e-Invoice Guideline 2023? Have you selected the right tool to transmit the e-invoice data to IRB’s e-invoice database?

People and Performance Matrix

What is your game plan to upskill your people to adopt this new requirement?

Evaluating Your Data Integration Options

Based on the IRB’s guidelines, there are two mechanisms to transmit e-Invoices to the IRB’s database –

Option – 1 Direct Integration Through API

Across the globe, API solutions work well with major ERP systems like SAP, Oracle, or SAP S/4HANA. These are the more established Enterprise Resource Planning or billing systems and are used in multiple national organizations worldwide. So, in Malaysia as well, e-invoice API integration with such systems becomes a breeze.

The direct integration with ERP via API solutions allows e-invoices to be generated in real time within the ERP system and sent directly to the IRB database without human intervention. This e-invoicing integration method ensures immediate availability for further processing, such as validation and approval while e-invoicing integration in Malaysia.

Pros

• Real-time invoice generation and transmission.
• Immediate availability for processing.

Cons

• Requires frequent updates of the ERP/billing system from the in-house IT team.
• Potentially high costs and resource requirements for system updates and reconfigurations. This includes multiple one-time development costs and maintaining a stable connection as a recurring expense.
• Also, these systems are established according to global standards, so one has to evaluate how they meet Malaysia’s local requirements.

Option 2- Integration Through Middleware

Coming to the other solution, which is Middleware. It facilitates the exchange of invoices between the supplier’s AR and the buyer’s AP functions without either party owning the platform. This solution minimizes changes to the ERP/billing system and is regularly updated to meet compliance requirements.

Pros

• You will have to incorporate very limited changes in your ERP/ accounting systems.
• The solution provider automatically updates the solution without your intervention.
• All it requires is the availability of mandatory data from your end.
• The solution is equipped with modern technology like cloud-based applications, customization, AI-driven automation, etc.
• Supports additional features like QR code printing on invoices.

Cons

• Dependency on third-party middleware providers.

Types of Middleware

The Malaysian government has facilitated the taxpayer to generate e-invoices via three middleware options –

1. Clearance Through Centralized (CTC) Model

This model of e-invoicing integration in Malaysia requires the tax authority to clear invoices before seller sends to the buyer. This ensures high compliance and real-time tax reporting. However, due to the clearance step, you could experience potentially higher latency in invoice processing.

2. Pan-European Public Procurement Online (Peppol)

Peppol is an international standard for e-invoicing and e-procurement. The best part of this solution is that it features uniformity across countries while e-invoicing, facilitates cross-border transactions and standardizes invoice formats. It also ensures compliance with global e-invoicing standards and simplifies international trade.

3. E-Invoicing Software

You can choose software solutions like Complyrobo software – specifically designed for e-invoicing integration in Malaysia. E-invoicing software offers flexibility, customization, and regular updates to comply with local regulations. Additionally, it includes features such as QR code printing, end-to-end e-invoicing compliance, and digital signature-affixed e-invoices, among others.

Selecting the Best Solution for Your Business

When choosing between direct integration and Middleware, consider your current system setup and operational requirements. Here are some features to evaluate-

1. E-Invoice format

Able to generate and issue e-Invoices via API in XML/JSON format.

2. End-to-end process integration

Simplifying compliance with end-to-end process integration and capability to extend to e-reporting.

3. Data source

Able to collate the mandatory data fields from multiple data sources to meet e-invoice requirements.

4. Integration scenarios

Able to accommodate various scenarios for both outbound and inbound invoices.

5. Digital signature

Capability to log into the available IRBM APIs via the Digital Certificate issued by IRBM (authentication mechanisms).

6. Dashboard

Able to provide a dashboard for a summary of transactions and reconciliations.

7. Compliance readiness

Able to meet the regulatory requirements of IRBM authority.

8. Scalability

It has the ability to adapt to future regulatory changes and business expansion.

9. Cost-effectiveness

It can provide the balance between upfront costs and long-term maintenance.

Moving Forward- What’s Next?

As the mandatory deadline of January 2027 approaches for all taxpayers, conducting a comprehensive impact assessment is crucial. This includes everyone regardless of the threshold mandates. This assessment should cover technical, system, process changes, and data requirements to ensure minimal disruptions during and after implementation. Here are some considerations –

Diverse project team – Include IT, tax, finance, and project management experts.

AR billing process – Understand the full scope of your current processes and potential challenges.

Foreign transactions – Develop a plan for self-e-invoicing for foreign customers.

Mandatory data fields – Ensure you can collate necessary data like the buyers’ tax identification number (TIN).

Team upskilling – Train your AR and AP teams to handle new responsibilities.

Pivoting Towards the Digital Shift

The transition to e-invoicing and e-reporting requires a deep assessment of the already implemented process and existing systems. You’d have to evaluate your business’s needs and preferences to guide you to the best solution for e-invoicing integration in Malaysia, ensuring an efficient journey into the future of digital invoicing. Taking the necessary and right steps from the get-go can help you ditch predictable and unpredictable problems in the future.