Understanding e-Invoicing for Cross-Border Transactions in Malaysia

Since the implementation of the e-invoicing mandate on August 1, 2024, businesses operating in Malaysia are required to generate an e-invoice for every transaction. However, when either the buyer or seller is located outside Malaysia, the transaction is classified as a cross-border transaction, and the Malaysian party must issue a self-billed e-invoice to record sale or purchase.

In this blog, we will discuss what cross-border transactions entail, how to generate e-invoices for them, the details required, regulatory compliance related to cross-border e-invoicing, and much more.

What is e-invoicing in Malaysia?

In the Malaysian context, e-invoicing (electronic invoicing) refers to the generation, transmission, and storage of invoices in a structured digital format that allows for automated processing by business systems and the Inland Revenue Board of Malaysia (IRBM). 

e-invoices are created in standardized formats, ensuring that they can be processed and validated in real time by both the issuing party and IRBM for tax compliance purposes. 

Typically, the seller issues the e-invoice to document a sale, but in specific cases—such as cross-border transactions—the buyer may issue a self-billed e-invoice to substantiate their expenses.

Cross Border Transactions: Overview, Types and E-invoicing Compliance

According to the e-invoicing guideline, cross-border transactions involve business activities where at least one party is located in Malaysia and at least one other party is located outside Malaysia.

These transactions can occur in various forms and typically fall into two main categories:

Goods/Services Sold by Foreign Sellers to Malaysian Buyers

In this Foreign sellers issue invoices, bills, or receipts according to their local practices. Malaysian buyers must issue a self-billed e-invoice to document the expense.

Timeframe for Issuing Self-Billed e-invoices

• For Importation of Goods: The Malaysian Purchaser must issue a self-billed e-invoice by the end of the month following the month in which customs clearance is obtained.
• For Importation of Services: The Malaysian Purchaser should issue a self-billed e-invoice by the end of the month following the earlier of:
  1. The month of payment made by the Malaysian Purchaser, or
  2. The month of receipt of the invoice from the foreign supplier.

Note: For self-billed e-invoices, if service tax on imported taxable services is applicable under the relevant SST legislation, the taxpayer must include the service tax amount in the self-billed e-invoice.

Goods/Services Sold by Malaysian Sellers to Foreign Buyers

Malaysian sellers are required to issue e-invoices for sales but are not obligated to share the e-invoice with the foreign entity.  Once validated, the e-invoice is notified only to the Malaysian seller.

Steps to Generate e-invoice for Cross-Border Transactions

For Imports of Goods and Services:

1. Receive Foreign Invoice: The Foreign Seller issues a standard invoice.
2. Generate Self-Billed e-invoice: The Malaysian buyer creates a self-billed e-invoice using their business system with API integration with MyInvois System, or via MyInvois Portal or ClearTax Portal.
3. Enter Seller Details: Input the Foreign Seller’s details as specified in the e-invoicing guidelines by IRBM. Note that not all details might be available.
4. Store e-invoice: Save the self-billed e-invoice for records. Sharing it with the Foreign Seller is not required.

For Exports of Goods and Services:

1. Issue e-invoice: Follow the normal e-invoicing process through the business system with API integration with MyInvois System, or via MyInvois Portal or ClearTax Portal.
2. Submit Required Details: Ensure that all details are submitted as suggested in the relevant tables in the e-invoicing guidelines.

Details Submitted for Generating e-invoices for Cross-Border Transactions

Why is Issuing e-invoices for Cross Border Transactions Important?

All businesses operating in Malaysia must generate e-invoices to comply with tax regulations, even if one party is located outside Malaysia. Here are some consequences

• Avoiding Penalties: Failure to issue e-invoices can result in direct penalties of up to RM20,000. Compliance helps avoid these costly fines.
• Proof of Expense and Revenue: Malaysian tax authorities require e-invoices to recognize sales transactions. Without them, businesses would face discrepancies in financial records, complications with tax filings, and potential legal issues. Additionally, e-invoices are necessary for claiming business expenses.
• Import and Export Transactions: The Royal Malaysian Customs Department mandates e-invoices for importing and exporting goods. Without e-invoices, goods might not be cleared by the department for import or export.
• Payment Processing: Banks scrutinize payments related to cross-border transactions. Payments may be delayed or blocked if e-invoices are not provided.

Conclusion

The shift to mandatory e-invoicing for cross-border transactions in Malaysia aims to streamline tax compliance and enhance accuracy in financial reporting for businesses dealing with foreign entities. 

For imports, Malaysian buyers need to generate self-billed e-invoices to document their expenses, while for exports, Malaysian sellers must issue e-invoices as per standard procedures. Properly generating e-invoices is crucial for ensuring smooth customs processes, payment  and tax compliance.