Navigating the E-Invoicing Mandate in Malaysia: A Short Guide for Businesses
The Malaysian government has mandated the implementation of a nationwide e-invoicing system, set to become compulsory for all businesses by July 1, 2025. This significant shift from paper-based invoices to digital ones marks a crucial step towards enhancing tax compliance, streamlining business processes, and fostering greater transparency within the Malaysian economy.
Understanding the E-Invoicing Mandate in Malaysia
E-invoicing, also known as electronic invoicing, refers to the issuance and transmission of invoices in a digital format. Under the new mandate, businesses will be required to generate and exchange invoices electronically through a standardized format, ensuring secure and seamless communication between businesses and the Inland Revenue Board of Malaysia (IRBM) (Crowe Malaysia, 2023).
Benefits of E-Invoicing for Businesses
The adoption of e-invoicing brings a multitude of benefits to businesses of all sizes, including:
- Enhanced Tax Compliance: E-invoicing simplifies tax compliance by automating the process of invoice generation, submission, and validation. This reduces the risk of human error and ensures timely filing with the IRBM
- Streamlined Business Processes: E-invoicing eliminates the need for manual data entry and physical invoice storage, streamlining business processes and reducing administrative costs
- Improved Efficiency: E-invoicing expedites the invoicing process, enabling faster payment cycles and improved cash flow management.
- Greater Transparency: E-invoicing fosters transparency and accountability within the supply chain, reducing the risk of fraud and promoting ethical business practices
Businesses Affected by E-Invoicing Mandate
The e-invoicing mandate applies to all individuals and legal entities engaged in commercial activities within Malaysia. This encompasses businesses that provide goods and services, as well as specific non-business transactions between individuals. All taxpayers are obligated to comply with e-invoice requirements, including:-
- Bodies of persons
- Business trusts
- Cooperative societies
- Limited liability partnerships
- Property trust funds
- Property trusts
- Real estate investment trusts
- Representative offices and regional offices
- Trust bodies
- Unit trusts
E-Invoicing Models and Mechanisms
To facilitate the transition to e-invoicing, taxpayers can choose the most appropriate method for submitting e-invoices to the Inland Revenue Board of Malaysia (IRBM) based on their business requirements and circumstances. There are two options for e-invoice transmission mechanisms:
- MyInvois Portal: A free portal hosted by IRBM accessible to all taxpayers, including those who cannot issue e-invoices through an Application Programming Interface (API) connection.
- Application Programming Interface (API): A set of programming code that allows for direct data transfer between taxpayers’ systems and the MyInvois system. This option requires initial technology investments and adjustments to existing taxpayer systems. It is suitable for large taxpayers or businesses with a high volume of transactions.
Scenarios Requiring E-invoicing:
- Proof of Income: This document is issued whenever a transaction or sale generates income for taxpayers.
- Proof of Expense: This document covers purchases made or other expenses incurred by taxpayers. It also encompasses returns, discounts, and corrections or deductions to previously documented income receipts. In certain circumstances, such as foreign transactions, taxpayers may need to issue self-billed e-invoices to document expenses. For instance, if a taxpayer purchases goods or services from a foreign supplier and receives an invoice from the foreign supplier who does not utilize Malaysia’s MyInvois System, the taxpayer must issue a self-billed e-invoice to document the expense.
Types of E-invoices:
- Invoice: A commercial document that details and records a transaction between a supplier and a buyer, including the issuance of self-billed e-invoices to document expenses.
- Credit Note: A credit note is issued by suppliers to rectify errors, apply discounts, or account for returns in a previously issued e-invoice, effectively reducing the value of the original e-invoice. This is used in situations where reducing the original e-invoice does not involve returning funds to the buyer.
- Debit Note: A debit note is issued to indicate additional charges on a previously issued e-invoice.
- Refund: A refund e-invoice is a document issued by a supplier to confirm the refund of a buyer’s payment. This is used in situations where funds are returned to the buyer.
The date of implementation for taxpayers will be staggered across the years and shall be based on the annual sales revenue of the entity.
|Annual Sales Revenue in 2022
|More than RM100 million
|June 1, 2024
|More than RM50 million and up to RM100 million
|January 1, 2025
|More than RM25 million and up to RM50 million
|January 1, 2026
|RM25 million or below, and certain non-business transactions between individuals
|January 1, 2027
|January 1, 2027