Implementation of e-Invoice in Malaysia for Financial Services, Stockbroking and Unit Trust

The financial services sector is vital to Malaysia's economy, including a wide range of businesses from large financial institutions to smaller brokers and unit trust management companies. Starting 1st August 2024, the first phase of the e-invoicing mandate in Malaysia will include financial service providers with annual turnovers exceeding RM 100 million. However, the adoption of e-invoicing in this sector poses challenges due to the high volume of transactions, numerous stakeholders, and strict regulatory requirements.

To assist financial service firms in complying with these new requirements, the Inland Revenue Board of Malaysia (IRBM) has released specific FAQs addressing the challenges and providing clarifications related to e-invoicing in the financial services, stockbroking, and unit trust sectors. This guide will explore these FAQs in detail, offering clarity and additional insights where necessary.

FAQs on Financial Services

According to the Financial Services Act 2013 (FSA) and the Islamic Financial Services Act 2013 (IFSA), financial institutions must keep customer information confidential. With the introduction of e-invoices, must these institutions get their customers' consent to send them individual e-invoices?

Yes, financial institutions need to obtain their customers' consent to issue e-invoices to comply with the requirements of the FSA and IFSA.

As per the e-invoice-specific Specific Guideline, regulated industries, including financial institutions, do not need to disclose the statement or bill reference number in the "Description of Product or Service" field in the consolidated e-invoice. In this case, what should be entered in this field?

Financial institutions should enter descriptions that are relevant and appropriate in the "Description of Product or Service" field in the consolidated e-invoice.

Do financial institutions need to issue e-invoices for income earned by their overseas branches?

Yes, resident companies engaged in banking must issue e-invoices for their activities both within and outside of Malaysia

Upon implementation of e-invoice, are customers of financial institutions required to issue e-invoices to financial institutions for income received (e.g., interest income from fixed deposits, etc.)?

Financial institutions must issue e-invoices to customers if requested. These e-invoices can be presented in the format of periodic statements/bills and will detail amounts owed by the customer (e.g., transaction charges) as well as payments/credits to the customer (e.g., rebate, interest income from deposits).

Are financial institutions allowed to issue consolidated e-invoices for income generated from financial services provided to customers who do not require an e-invoice (including walk-in customers)?

Yes, financial institutions are allowed to issue consolidated e-invoices for transactions where customers do not require an e-invoice unless the transactions fall under Section 3.7 of the e-invoice Specific Guideline. Refer to Section 3.6 of the e-invoice Specific Guideline for more guidance.

Financial institutions provide loans to individuals and businesses with interest charged on the borrowed amount. Borrowers are required to repay the principal in instalments, including the interest. Upon implementation of e-invoice, is the financial institution required to issue e-invoices for both the principal and interest charges?

Financial institutions are required to issue e-invoices for the interest charged. However, no e-invoice is required for the repayment of the loan principal.

What is the e-invoice treatment for interest arising from interbank lending and borrowing?

The lending bank must issue an e-invoice for the interest charged to the borrowing bank.

What is the e-invoice treatment for premiums or upfront fees received in relation to treasury products as well as Shariah-compliant products or services?

An e-invoice must be issued for the premium or upfront fee if it is non-refundable.

What is the e-invoice treatment for accounts that have more than one party as account holders, such as:

• Joint accounts
• Omnibus accounts
• Custodial accounts, including minor accounts
• Trust accounts
• Estate accounts
• Escrow accounts?

The current process can be maintained, i.e., issuing one e-invoice for an account jointly owned by more than one party. For joint account holders, the principal account holder receiving the statement from the financial institution should be indicated as the Buyer in the e-invoice. If other account holders request an e-invoice, the financial institution must issue separate e-invoices to the requesting account holders.

How should charges and fees (e.g., transaction fees, interchange fees, etc.) paid to both foreign and local card network processors and operators be treated in e-invoices?

• Foreign Processors/Operators: Financial institutions must issue self-billed e-invoices.
• Local Processors/Operators: They are responsible for issuing e-invoices to financial institutions.
• Current Statements/Bills: If local processors/operators issue statements/bills to financial institutions, they may issue e-invoices in XML or JSON format. These e-invoices should include the total amount owed and any payments/credits, and can be converted into visual statements/bills. Refer to Section 4.2 of the e-invoice Specific Guideline for further details.

How should an e-invoice be issued for processing/transfer fees charged by foreign agents in inward remittance transactions?

Financial institutions must:

1. Issue a self-billed e-invoice to the foreign agent for the processing/transfer fee.
2. Issue an e-invoice to the local recipient if the fee is charged to them.

Are financial institutions required to issue e-invoices for upfront payments collected from bidders in foreclosed property auctions?

• Non-refundable Upfront Payments: Yes, an e-invoice is required.
• Refundable Upfront Payments: No e-invoice is needed upon receipt.

What is the e-invoice treatment for cashbacks paid to cardholders?

Financial institutions may issue e-invoices in XML or JSON format, including amounts owed and cashback payments. These e-invoices can be converted into visual statements/bills. Refer to Section 4.2 of the e-invoice Specific Guideline.

What is the e-invoice treatment for goods, services, or air miles redeemed with reward points?

• Free Reward Points: No e-invoice is required.
• Goods/Services Redemption: No e-invoice is needed unless there are additional charges not covered by the reward points (e.g., administrative fees). In such cases, an e-invoice must be issued, which can include additional charges and payments/credits in XML or JSON format, and be converted into visual statements/bills. Refer to Section 4.2 of the e-invoice Specific Guideline.

Can financial institutions adjust previously issued e-invoices in the following month's e-invoice instead of issuing credit/debit/refund notes?

Yes, financial institutions may include adjustments in the following month's e-invoice in XML or JSON format, incorporating amounts owed and payments/credits, and convert these into visual statements/bills. Refer to Section 4.2 of the e-invoice Specific Guideline for more details.

Is an e-invoice required for income/gains from treasury products where invoices are not currently issued, such as:

• Realized income/gains/losses on shares, equity options, warrants, etc.
• Unrealized marked-to-market income/expenses
• Amortization/accretion of premium, fee, or reserve
• Foreign exchange (FX) gains and losses?

E-Invoices are not required for accounting or audit adjustments. Businesses can continue their current practices for:

• Any gains or losses (realized or unrealized)
• Amortization/accretion of premium, fee, or reserve
• FX gains or losses

B. Securities and Derivatives Broking

Note: The term "broker(s)" in this section includes participants of Bursa Malaysia, such as:

• Participating Organizations
• Trading Participants
• Trading Clearing Participants
• Clearing Participants
• Authorised Depository Agents
• Authorised Depository Members

Is an e-invoice required for trading securities and/or derivatives on local or foreign stock/derivatives exchanges?

Trading of securities and/or derivatives on exchanges is exempt from e-invoice requirements. This exemption will be reviewed periodically. Refer to Section 1.6.8 of the e-invoice Guideline for more details.

Which document should brokers submit for e-invoice purposes, considering they currently issue contract notes/statements and monthly account statements to clients?

Brokers can issue e-invoices in XML or JSON format, including amounts owed and payments/credits. These can be converted into visual statements/bills, such as contract notes/statements or monthly account statements. Refer to Section 4.2 of the e-invoice Specific Guideline for more guidance.

Should brokers disclose the statement/bill reference number in the "Description of Product/Service" field in the consolidated e-invoice?

No, brokers are not required to disclose the reference number but must include relevant and appropriate descriptions. Refer to Section 4.3.7 of the e-invoice Specific Guideline.

How should brokers handle e-invoices for fees charged to customers (e.g., brokerage fees, rollover fees, handling fees, clearing fees)?

Brokers should issue:

1. An e-invoice (upon request) or
2. A receipt (if no e-invoice is requested) to customers and subsequently issue a consolidated e-invoice. Refer to Sections 3.5 and 3.6 of the e-invoice Specific Guideline for more guidance.

How should brokers handle collections on behalf (e.g., stamp duty, third-party fees) in e-invoices?

If the third party issues an e-invoice/invoice to the broker, the broker must include the collection on behalf in the e-invoice to investors, using the appropriate classification code.

If the third party issues an e-invoice/invoice directly to the investors, the broker does not need to include the collection on behalf in their e-invoice to investors.

How should e-invoices be handled for Central Depository System (CDS) fees charged by BMDep (e.g., account opening fees, transfer fees, Transmission of Title (TOT) fees)?

BMDep must issue an e-invoice for the fees they charge.

Are Authorised Depository Agents (ADAs) required to issue e-invoices for rebate income related to CDS fees?

Yes, ADAs must issue e-invoices for the rebates earned.

How should e-invoices be handled for foreign dividends and admin/processing fees charged by nominee companies?

Answer:

• Clients must issue e-invoices (where applicable) for foreign dividend income received from foreign distributors.
• Nominee companies must issue e-invoices for admin/processing fees charged to clients.

How should e-invoices be handled for interest income received by brokers from placing clients’ trust monies with financial institutions, which is then passed back to clients after deducting handling fees?

• Local Financial Institution: Must issue an e-invoice to the account holder for the interest.
• Foreign Financial Institution: The account holder must issue an e-invoice for the interest received.
• Broker: Must issue a self-billed e-invoice for the full interest amount due to clients (before deducting handling fees) and a separate e-invoice for the handling fees charged to clients.

How should e-invoices be handled for rebates on initial listing fees charged by Bursa Malaysia Securities Berhad (BMS) to issuers of structured warrants and exchange-traded funds?

BMS must issue a refund note e-invoice for the initial listing fees refunded to the issuers.

How should e-invoices be handled for commissions paid by brokers to Commissioned Dealer’s Representatives?

Brokers must issue a self-billed e-invoice to the Commissioned Dealer’s Representative for the commission paid, according to Section 9 of the e-invoice Specific Guideline.

How should e-invoices be handled for Central Depository System (CDS) fees charged by Bursa Malaysia Depository (BMDep) to nominee companies?

• BMDep: Must issue an e-invoice to the nominee company for CDS fees.
• Nominee Company: Must issue an e-invoice to the beneficiaries for the CDS fees recharged to them.

How should e-invoices be handled for the Securities Commission (SC) Levy, currently invoiced by Bursa Malaysia Securities (BMS) to brokers?

The current practice will continue. If the SC issues an e-invoice/invoice to BMS, the collection on behalf must be included in the e-invoice issued by BMS to brokers, with the appropriate classification code.

C. Unit trust-related transactions

How should e-invoices be handled for sales charges imposed by Unit Trust Management Company (UTMC) to Institutional Unit Trust Advisors (IUTA), and subsequently by IUTA to end investors?

• UTMC to IUTA: UTMC must issue an e-invoice for the sales charge imposed on IUTA.
• IUTA to End Investors: IUTA must issue an e-invoice for the sales charge imposed on end investors.

How should e-invoices be handled when dividends from Unit Trust Fund (UTF) investments are distributed by UTMC to IUTA, and subsequently passed to end investors?

• UTMC to IUTA: UTMC must issue an e-invoice for the dividend payments to IUTA.
• IUTA to End Investors: IUTA must issue an e-invoice for the dividend income passed to end investors.

How should e-invoices be handled for management fees charged by Unit Trust Management Company (UTMC) to the local Unit Trust Fund (UTF), and for rebates on these fees given to eligible end investors?

• Management Fees:
• Rebates:

How should e-invoices be handled for management fees and rebates in a Fund of Fund (FoF) arrangement, where a local UTF invests in foreign investment funds?

• Management Fees:
• Rebates:

Is an e-invoice required for investment transactions where UTMC imposes no commission or sales charge?

No e-invoice is required if there are no commission or sales charges. However, UTMC can issue an e-invoice with a 'Nil' amount if preferred.

How should e-invoices be handled for fees charged by the Private Pension Administrator (PPA) to end investors in a Private Retirement Scheme (PRS)?

Upon implementation of e-Invoice, UTMC is required to issue e-Invoices to PRS end investors for the PPA fees charged by UTMC.