Implementation of e-invoicing for Insurance and Takaful Industry

The insurance and takaful industries play a crucial role in Malaysia's economy. They provide essential risk management solutions and contribute significantly to financial stability.

The first phase of e-invoicing in Malaysia begins August 1, 2023, targeting businesses with a turnover exceeding RM 100 million. This covers most insurance and takaful companies in Malaysia. Given the insurance industry's unique challenges in policy management, claims processing, and compliance with Sharia principles, the Inland Revenue Board of Malaysia (IRBM) has developed specific FAQs on e-invoicing for Insurance and Takaful companies.

This article will summarise the key aspects of the IRBM's FAQs along with an explanation if necessary.

Scope of e-invoicing for the Insurance and Takaful Industry in Malaysia

The insurance and takaful industry in Malaysia, known for its regulatory complexity and diverse financial transactions, spans a wide range of business-to-business (B2B) and business-to-consumer (B2C) interactions. The scope of e-invoicing extends to all primary and secondary revenue and expense sources within this sector.

Major Revenue Sources Requiring e-invoicing: e-invoices are required as proof of revenue for the following sources, which include but are not limited to a: 

• Policy Premiums
• Reinsurance Agreements
• Claims Management Fees
• Underwriting Services
• Commission from Agents and Brokers
• Profit-sharing from Takaful Pools
• Administrative Fees

Proof of Expenses Covered by e-invoicing: e-invoices are required as proof of expense for the following expenses that include but are not limited to:

• Claims Payouts
• Reinsurance Premiums
• Commission Paid to Agents and Brokers
• Regulatory Fees and Taxes

General FAQ for Insurance and Takaful companies

Can insurance companies issue a consolidated e-invoice for income from policies sold to policyholders who don't need an e-invoice?

Yes, insurance companies can issue consolidated e-invoices for transactions where policyholders do not require e-invoices. Refer to Section 3.6 of the e-invoice Specific Guideline for further guidance.

Can annual premium statements be used to create consolidated e-invoices?

Yes, annual premium statements can be used to create consolidated e-invoices for policyholders who do not require e-invoices. In such cases, insurance companies will issue a regular statement or bill according to current business practices. These statements or bills are not required for IRBM validation. Companies can aggregate these to create and submit a consolidated e-invoice for IRBM validation within seven calendar days after the end of the issuance month. Refer to Section 4.3 of the e-invoice Specific Guideline for more details.

If the first annual premium statement covering January 2024 to December 2024 is available in February/March 2025, can the full year data be transmitted then, or must the period from January to July 2024 be excluded given the implementation date of August 1, 2024?

It is acceptable to transmit the full year data in February/March 2025 if the first annual premium statement is available then, covering January 2024 to December 2024. There is no need to exclude the period from January to July 2024.

Since premium statements are issued annually, can customers request validated e-invoices from the insurance company on an ad-hoc basis outside the usual statement issuance cycle?

The issuance of e-invoices should follow the current process. Insurance companies should inform customers on how to request validated e-invoices within the established process, such as during the regular premium statement issuance cycle.

Can individual policyholders request e-invoices for products that are not eligible for tax relief?

Yes, policyholders can request an e-invoice regardless of the product's eligibility for tax relief. The insurance company is required to issue an e-invoice upon the policyholder's request.

FAQs on Underwriting and Distribution

Will the insurance company need to provide a detailed breakdown of the premium paid for insurance policies in the e-invoice upon its implementation?

Yes, for e-invoice purposes, the insurance company must include a detailed breakdown of the premium paid for the insurance policies in the e-invoice (e.g., Life, Medical, Others) along with the appropriate classification codes, such as: 

• 014: Insurance – Education and medical benefits 
• 015: Insurance – Takaful or life insurance
• 022: Others
• 024: Private retirement scheme or deferred annuity scheme

Whose details should be used as the Buyer's information for a joint insurance policy (e.g., fire insurance) that covers two policyholders under a single policy? 

The current process can be maintained, meaning one e-invoice should be issued for one insurance policy. In the case of joint policyholders, the principal policyholder receiving the invoice from the insurance company should be indicated as the Buyer in the e-invoice. However, if the other policyholder requests an e-invoice, the insurance company must issue a separate e-invoice to that policyholder.

Currently, the insurance company includes collections on behalf (e.g., stamp duty, third-party fees, etc.) in the policyholder’s invoice along with the premium. Will this practice continue unchanged upon the implementation of e-invoice, or will the insurance company need to adjust its current approach?

If the e-invoice for collections on behalf is issued to the insurance company, these collections must be included in the e-invoice. It's important to note that collections on behalf by the insurance company from their policyholders will not be recognized as the insurance company's income, and the appropriate classification code should be selected by the insurance company.

However, if the e-invoice for collections on behalf is issued directly to the policyholder, the collections on behalf do not need to be included in the e-invoice issued by the insurance company.

How are insurance products sold through intermediaries typically handled?

Insurance products sold through intermediaries generally operate in two main scenarios:

Scenario 1: Master policy between insurance company and intermediary with end customers as insured persons:

• The intermediary issues an invoice or receipt to the policyholder (end customer) for the premium received.
• The insurance company subsequently issues an invoice to the intermediary for the premium received from them.
• The insurance company may directly provide a cover note or insurance policy to the end customers, with the intermediary listed as the master policyholder.

Scenario 2: Individual policy between insurance company and end customer:

• The insurance company issues individual policies directly to end customers, even if purchased through intermediaries.
• The premium may or may not pass through the intermediary.

How does e-invoice handling differ in these scenarios?

The handling of e-invoices varies based on the scenario:

Scenario 1: Master policy between insurance company and intermediary with end customers as insured persons

• Who receives the e-invoice? The insurance company issues the e-invoice to the intermediary instead of the end customers.
• Intermediary's role: The intermediary then issues an e-invoice to the end customers for the premium received.
• Exception: If the intermediary does not issue an e-invoice to the end customers, the insurance company should issue the e-invoice directly to the end customers instead.

Scenario 2: Individual policy between insurance company and end customer

Who receives the e-invoice? 

If the contract is directly between the insurance company and the end customer (where the intermediary is not the policyholder), the e-invoice should be issued to the policyholder, who is the end customer.

What happens if premiums flow through intermediaries when there is an individual policy between an insurance company and the end customer?

Even if the premium passes through intermediaries in Scenario 2, the e-invoice should still be issued directly to the policyholder, who is the end customer, if the intermediary is not the policyholder.

Upon policy termination, must the insurance company issue a refund note e-invoice to the policyholder for the return of premium?

When a policy is terminated and involves a refund to the policyholder, the insurance company is required to issue a refund note e-invoice according to its current billing and invoicing procedures. This requirement excludes cases where payments were made in error by policyholders, overpayments, or return of security deposits.

Whose details should be used as the Buyer's details for issuing e-invoices when the policyholder is below 18 years of age?

As a rule, the Buyer for e-invoicing purposes is considered to be the policyholder. However, in cases where the policyholder is a minor, the Buyer's details should be those of the parent, guardian, or any other relevant party as applicable.

Currently, customers can request separate invoices for entities under a master group policy to document the premium payable/paid. Will this practice continue with e-invoicing?

Generally, for e-invoicing purposes, the Buyer refers to the policyholder. If individual policies are issued to each group entity, separate e-invoices should be issued to each entity. If there is only one group policy issued, then the e-invoice would be issued to the master policyholder. However, to accommodate customer requests for separate e-invoices to entities under a master group policy, insurance companies can issue separate e-invoices based on their current business processes.

In cases where the employer collects insurance contributions from employees and pays them to the insurance company, to whom should the insurance company issue the e-invoice?

As a rule, for e-invoicing purposes, the Buyer refers to the policyholder. If the policyholder is the employee, the insurance company should continue issuing the e-invoice to the employee. It's important to note that employer collection of insurance contributions is solely a settlement mechanism for the insurance policy.

Cash before cover policy is currently adopted by insurance and takaful companies, where payment precedes policy issuance. Will this practice be allowed with the implementation of e-invoice?

For e-invoicing purposes, the current processes can continue to be followed. There is no change to the existing practices, allowing insurance companies to issue invoices upon policy issuance or when premiums are due for B2B/group transactions, and annual statements for B2C transactions involving life, medical, and education policies.

FAQs on Claims and Benefits Payment

What is the e-invoice treatment for insurance claims, insurance compensation, and benefit payments (such as maturity benefit payout or any other form of benefit payout based on product features) made by insurance companies to a policyholder/beneficiary?

Insurance companies must issue self-billed e-invoices for insurance claims, insurance compensation, and benefit payments to the policyholder/beneficiary, regardless of whether the recipient is an individual or a business. For self-billed e-invoices, the Supplier will be identified as the policyholder/beneficiary, irrespective of the entity receiving the claim payment (e.g., hospitals, workshops, attorneys, etc.). Insurance companies are permitted to issue consolidated self-billed e-invoices for claims and benefit payments to individuals not engaged in business.

Is an e-invoice required to be issued to workshops/salvage contractors for the disposal of scrap or wreckage from damaged assets?

The issuance of an e-invoice should be determined by the ownership of the damaged assets:

• If the damaged assets owned by the policyholder are transferred to the insurance company upon claiming compensation and subsequently disposed of by the insurance company, the insurance company must issue an e-invoice to the workshops/salvage contractors for the disposal.
• If the asset owner is the policyholder (e.g., a company, partnership, or individual conducting business), the policyholder is required to issue an e-invoice to the workshops/salvage contractors for the disposal of damaged assets.
• If the asset owner is an individual not engaged in business, a non-Malaysian individual, a foreign company not operating in Malaysia, or a person exempted under Section 1.6.1 of the e-invoice Guideline, the workshop/salvage contractor must issue a self-billed e-invoice.

Under a Knock-for-Knock arrangement, where Driver A makes a claim against their insurer while an investigation is ongoing for an accident involving another vehicle (Vehicle B), what is the e-invoice treatment upon conclusion of the investigation?

For insurance claims received by Driver A and Driver B from their respective insurance companies, please refer to Question No. 1 under Part C – Claims and Benefit Payments for the appropriate e-invoice treatment.

Regarding the recoupment of claims from Driver B’s insurance company to Driver A’s insurance company, Driver B’s insurance company must issue a self-billed e-invoice to Driver B, even though the payment is made to Driver A’s insurance company. Insurance companies are permitted to issue consolidated self-billed e-invoices for claims and benefit payments to individuals not engaged in business.

FAQs on Payment to Agents, Dealers, and Distributors

If an insurance company covers registration or examination fees on behalf of agents, paid to the Insurance Association or Examination Body, and subsequently recovers this amount from the agents, is this considered a pass-through transaction exempt from requiring an e-invoice to the agents?

When the Insurance Association or Examination Body issues the e-invoice for registration or examination fees directly to the insurance company, IRBM mandates that the amount paid on behalf of the agents must be included in the e-invoice issued by the insurance company to the agents. It's important to note that any amounts recovered by the insurance company from their agents will not be classified as income for the insurance company. The insurance company should apply the appropriate classification code as per regulatory requirements.

However, if the Insurance Association or Examination Body directly issues the e-invoice for these fees to the agents, the insurance company is not required to include these amounts in the e-invoice issued to the agents.

E. Others

Are interfund charges (e.g., investment-linked policy charges, wakalah fees, qard, actuarial surplus transfer, etc.) subject to e-invoicing?

Interfund charges do not require e-invoicing as they involve transactions within the same legal entity. However, if the insurance company currently issues invoices to record these transactions, they may continue this practice upon implementing e-invoicing.

Transitional Issues: How should policy endorsements issued after the implementation of e-invoicing be handled regarding the IRBM unique identifier number?

For policy endorsements where the insurance company issues a new e-invoice:

• No reference to the original invoice (issued before e-invoicing implementation) or original e-invoice is necessary.

If the insurance company issues a debit note, credit note, or refund note e-invoice for the policy endorsement:

• The "Original e-invoice Reference Number" field must be completed as follows:
  • For original invoices issued before e-invoicing implementation: Input "NA".
  • For original e-invoices: Input the relevant IRBM unique identifier number of the original e-invoices.