Implementation of e-Invoicing in Malaysia for the Aviation Industry

The aviation industry is pivotal in Malaysia's economy, contributing $10.3 billion to GDP and an additional $5.1 billion from foreign tourists arriving by air. The Malaysian government introduced e-invoicing, which extends to the aviation sector. The e-invoicing initiative aims to enhance transparency and compliance within the aviation industry.

The first phase of e-invoicing, commencing on August 1, 2024, targets businesses with a turnover exceeding RM 100 million, likely covering most aviation service providers. Given the aviation industry's complexity in tax compliance, billing, and e-invoicing, the Inland Revenue Board of Malaysia (IRBM) has tailored FAQs to address the unique challenges service provider’s encounter.

This blog will highlight key clarifications from the IRBM's FAQs, offering essential guidance to aviation industry stakeholders navigating the new e-invoicing mandate.

Scope of e-Invoicing for the Aviation Industry in Malaysia

The aviation industry in Malaysia, renowned for its complexity and diverse revenue streams, encompasses a wide range of transactions including business-to-business (B2B and business-to-consumer (B2C). The implementation of e-invoicing extends to all primary and secondary sources of income within this sector.

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

• Passenger Ticket Sales
• Cargo Services
• Ancillary Services
• Codeshare Agreements
• Charter Services
• Frequent Flyer Programs
• Airline Alliances
• Airport Lounges
• Aircraft Leasing
• Advertising and Sponsorship

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

• Fuel Purchases
• Maintenance and Repairs
• Commission paid to travel agents, online booking platforms
• Lease or Purchase of Aircraft
• Airport Fees
• Catering Services
• Insurance Premiums
• Staff Salaries and Benefits
• Navigation Charges
• Marketing and Advertising
• Technology and IT Services
• Environmental Fees and Taxes

Challenges with E-Invoicing for Aviation

Implementing e-invoicing in the aviation sector presents several challenges that extend beyond standard invoicing processes due to the following complexities involved

1. Identification of Parties: Determining the correct supplier and buyer can be complex, especially in cases involving intermediaries like online booking platforms, travel agents, and corporate buyers purchasing employee tickets.
2. Point of Sale (POS) Determination: Clarifying whether the invoice should be issued in Malaysia, or another jurisdiction adds complexity, particularly for international flights and services.
3. Details Inclusion: Providing details in e-invoices for personal purchases, group bookings, and business transactions, which may involve different sets of information and compliance requirements.
4. Handling Additional Charges and Refunds: generating e-invoices for ancillary services and additional charges such as rescheduling fees, cancellation refunds, additional baggage fees, and seat selection charges pose challenges to invoicing accuracy and transparency.
5. Inclusion of Third-Party Services: Integrating third-party services bundled with air travel, such as catering, taxi rentals, hotel accommodations, and insurance, into e-invoices requires coordination and clear documentation.

E-invoicing for Aviation Industry: Clarifications based on FAQ

Issuing e-Invoices for Flight Tickets and Private Air Charter Services

Flight tickets refer to tickets issued for scheduled commercial flights operated by airlines, while private air charters involve the hire of an entire aircraft for exclusive use by individuals or organisations.

Issuance Requirement: The e-invoice requirements differ based on the point of sales for the tickets and services as 

• Local Airline Operators: All flight tickets and private air charter services must be sold through e-invoices, regardless of the point of sale.
• Foreign Airline Operators: E-Invoices are required for flight tickets and private air charter services sold where the point-of-sale is Malaysia. The determination of point-of-sale follows guidelines set by the International Air Transport Association (IATA).

Consolidated e-Invoices not Valid: Issuance of consolidated e-Invoices is not permissible to sell flight tickets or private air charters. Each transaction must be individually invoiced to maintain clarity and compliance with regulatory standards.

For further guidance on issuing e-Invoices in the aviation sector, refer to Sections 2.3, 2.4 and 3.7 of the e-Invoice Specific Guideline.

Buyer's Details to be provided

The buyer details to be provided while generating e-invoices differ for personal and group bookings.

Individual Purchases: When an individual purchases a flight ticket or private air charter for personal travel or on behalf of another individual who will be the passenger, the Buyer’s details should accurately reflect the person who made the purchase.

Group Purchases (Multiple Tickets in a Single Booking) For bookings that involve multiple tickets purchased together in a single transaction, the buyer’s detail can be handled in one of two ways, depending on the Supplier’s preference: 

1. Details of the Person Making the Purchase: The e-invoice can consolidate the details under the person who initiated and paid for the entire booking. 
2. Details of Each Passenger Within the Booking: Alternatively, the Supplier may opt to provide individual e-invoices for each passenger within the group booking.  In this scenario, each passenger’s e-invoice should accurately reflect their specific details as the Buyer.

Specific details to be included for each buyer

Due to data protection regulations, airline operators currently do not collect personal information such as National Identification Number and Tax Identification Number (TIN) from their buyers/passengers.

Acknowledging these challenges, IRBM has temporarily provided the following concession to Buyers of flight tickets or private air charters within the aviation industry:

• Buyer’s Name: Input "General Public" in the e-invoice.
• Buyer’s Tax Identification Number (TIN): Input "EI00000000020" in the e-invoice.
• Other Buyer’s Details (Address, Contact Number, SST Registration Number): Input "NA" in the e-invoice.

Treatment of Excess Baggage Fees in e-Invoice

When excess baggage fees are charged by the airline operator to a passenger, the following e-invoice treatment applies:

• Issuance of e-invoice (Upon Request): If the passenger requests an e-invoice, the airline operator is responsible for issuing one for the excess baggage fee.
• Receipt Issuance (If No e-Invoice Requested): If the passenger does not request an e-invoice, the airline operator must issue a receipt for the transaction conducted at the check-in counter. 
• Consolidated e-Invoice for Transactions Without e-Invoices: For transactions where no e-Invoice is initially issued (e.g., receipt issuance), the airline operator is required to aggregate these transactions in a consolidated e-invoice within seven (7) days from the end of the month

Treatment for Price Changes on Flight Tickets

When there are price changes on flight tickets (e.g., increases, reductions, or refunds) due to flight changes or cancellations, the airline operator must adhere to the following e-invoice guidelines:

• Increase in Price (Higher than Previous Flight): The airline operator must issue an e-invoice. Depending on the specific transaction details, this e-invoice can be either an invoice or a debit note. It should document the difference in amount between the previous and increased prices.
• Price Reduction (Lower than Previous Flight): The airline operator must issue an e-invoice. This e-invoice should be either a credit notes or a refund note, as appropriate for the transaction. It should detail the price reduction compared to the previous flight.
• No Change in Monetary Value (Flight Rebooking without price change:  No additional e-invoices must be issued. The airline operator can issue e-invoices with nil amounts for documentation purposes.

Treatment for Ancillaries Sold by Airline Operators

Ancillary services in airlines refer to additional products or services that passengers can purchase separately from their basic flight ticket.

E-invoices for ancillaries are issued upon the Buyer’s request, and the airline operator has the flexibility to issue combined or separate e-invoices based on their operational preferences and regulatory compliance. 

Flight-Related Ancillaries

Additional services directly related to air travel, such as baggage fees, seat selection, onboard meals, and entertainment.

• Sold Together with Flight Ticket in a Single Transaction: 
  • Option 1: Airline operator can issue a single e-Invoice detailing both the flight ticket and flight-related ancillaries.
  • Option 2: Alternatively, the airline operator can issue separate e-Invoices for the flight ticket and each flight-related ancillary.
• Sold Separately from Flight Ticket: The airline operator is required to:
  • Issue an e-invoice for the flight ticket, irrespective of whether the Buyer requests it.
  • Issue an e-invoice for the flight-related ancillaries upon the Buyer’s request or a receipt if the Buyer does not request an e-invoice.

Non-flight ancillaries

Supplementary services not directly tied to air travel, including travel insurance, ground transportation (like airport transfers and car rentals), accommodation (such as hotel bookings), and destination activities (such as tours and event tickets).

Airline Operator as Principal in Sale of Non-Flight Ancillaries: An airline operator acts as the principal seller when it sells products or services directly to customers under its own name and authority.

• Sold Together with Flight Ticket in a Single Transaction: The airline operator can issue a single e-invoice detailing both the flight ticket and non-flight ancillaries or separate e-invoices for the flight ticket and each non-flight ancillary.
• Sold Separately from Flight Ticket: The airline operator must:
  • Issue an e-invoice for the flight ticket and
  • Issue an e-invoice for the non-flight ancillaries upon the Buyer’s request or a receipt if the Buyer does not request an e-invoice.

Airline Operator as Agent for Non-Flight Ancillaries: An online operator acts as an agent when it facilitates transactions between customers and service providers (such as airlines) without taking ownership of the products or services themselves.

 If the airline operator is acting as an agent selling ancillary services on behalf of a service provider, the service provider (principal) is responsible for issuing an e-invoice upon the Buyer’s request or a receipt if the Buyer does not request an e-invoice.

Conclusion

The e-invoicing guidelines and compliance for airline and air travel-related services present unique complexities. IRBM's FAQs provide clarity on issuing e-invoices for aviation services such as flight tickets and private air charters, covering requirements based on point-of-sale locations, buyer details, price adjustments, and ancillary service management. As operators face challenges, IRBM may release additional FAQs. For further details, refer to the e-invoicing guidelines and specific guidelines.