e-Invoicing in Malaysia: A Complete Guide For Your Business

In March 2023, the Inland Revenue Board of Malaysia (IRBM), announced the mandatory adoption of e-invoicing through a phased implementation plan. In the first phase, all businesses with a turnover exceeding RM 100 million must generate e-invoices starting from 1st August 2024; this initiative mandates all businesses registered in Malaysia to generate e-invoices for all B2B, B2G and B2C transactions.

This article provides a comprehensive overview of e-invoicing Malaysia, covering its scope, process, applicability, implementation timeline, models, penalties, and essential information for businesses.

What is an e-invoice in Malaysia?

An e-invoice is a digital record of a transactional exchange between a seller (supplier) and a purchaser (buyer), which goes through the government portal in real time for validation and recordkeeping.

e-Invoice Malaysia would contain 55 fields with details of the transactions such as seller & buyer details, item description, quantity, price, tax, total amount, payment details, etc. Successfully validated and generated e-invoices would also have a Unique Identification Number (UIN) and QR Code, which is generated by the MyInvois Portal, enabling online validation of the invoice.

e-Invoicing implementation timeline in Malaysia

IRBM plans to implement e-invoice gradually in phases to ensure a smooth transition. Below is the Malaysia e-invoice implementation timeline:

Further, the guidelines provide how to determine the annual turnover or revenue to be considered for the implementation of e-invoice in Malaysia:

What is the process flow of e-Invoice in Malaysia? 

• Subsequent to the occurrence of transaction, the supplier creates an e-Invoice and send it to IRBM through MyInvois portal or through e-Invoicing software by way of an API.
• After that, the invoice gets validated by IRBM and is notified to the supplier and buyer.
• Once validated, it becomes the duty of the supplier to share the e-Invoice embedded with QR code to the buyer. 

Transactions covered under Malaysia e-invoice

e-Invoice covers transactions such as:
- Business to Business (B2B), 
- Business to Customer (B2C), and 
- Business to Government (B2G). It is to be noted that e-invoice flow for B2G transactions will be similar to B2B.

e-Invoice applies to all commercial activities in Malaysia, including the sale of goods and services and specified non-business transactions between individuals.

In the case of B2C transactions, sellers do not have to issue e-invoices to the end consumers; however, they shall issue a normal invoice or receipt. After a specified timeline, the seller should aggregate all the normal invoices or receipts and issue a consolidated e-invoice.

Click here for more information on transaction types of e-Invoicing in Malaysia.

e-Invoicing for Transactions with Buyers (B2C e-invoicing) in Malaysia

Currently, Suppliers issue receipts, bills, or invoices to consumers (Buyers) to document B2C transactions for consumption supplies like groceries, telephone bills, etc.

With the implementation of e-Invoice, Suppliers must issue e-Invoices even for all B2C transactions. However, many Buyers, particularly end consumers and specific businesses, would not need an e-invoice. 

In B2C transaction case, the generation of e-invoices will vary depending on the Buyer's requirements:

• Scenario 1: Suppliers will gather details from the buyer/consumers and generate e-invoices in real-time, like other B2B e-invoices.
• Scenario 2: When a buyer doesn’t require an e-Invoice to assist Suppliers in meeting e-Invoice requirements and alleviate the burden on both Suppliers and Buyers, the IRBM allows Suppliers to consolidate transactions with Buyers (who do not need an e-Invoice) into a monthly consolidated e-Invoice.

Who Needs to Comply with e-Invoicing in Malaysia?

LHDN has released guidelines outlining which entities, individuals, and businesses are required to adhere to e-invoicing rules, as well as those exempt from them.

Type of e-invoices in Malaysia

The below documents must be issued in electronic format under Malaysia e-Invoice:

• Invoices: It is generally used to record transactions between supplier and buyer. Invoices also include a self-billed invoice issued for tracking expenses.
• Credit notes: A credit note is a document issued by sellers to make corrections to an e-Invoice issued previously mainly to lower the original invoice's value without returning money to the Buyer. It is generally used to adjust errors, apply discounts, or account for returned items. 
• Debit notes: In contrast to credit notes, debit notes are issued to record additional costs related to a previously issued e-Invoice.
• Refund notes: A refund e-Invoice is an official document issued by a Seller to record refund issued to the Buyer.

Why is e-invoice implemented in Malaysia?

The government intends to support the digital economy growth and enhance the efficiency of Malaysia’s tax administration through e-invoices. e-Invoice aligns with the objectives of the Twelfth Malaysia Plan to focus on strengthening the digital services infrastructure and digitalizing the tax administration.

The Malaysian government intends to 

• Avoid paper invoicing and prevent tax leakage
• Help businesses save time and resources on tax compliance
• Enhance ease of business for entities in international trade.

e-Invoice authority in Malaysia

The Inland Revenue Board of Malaysia (IRBM) is the authority that oversees the e-invoice activities. Also, it issued e-invoice guidelines in July 2023 detailing the scope of the implementation of e-invoice.

The guideline explains the e-invoice concepts, such as 

• Implementation methodology
• Impact on compliance
• Record keeping
• Addresses common questions and concerns

Further, IRBM signed an MoU with the Malaysian Digital Economy Corporation (MDEC) to establish collaboration on the e-invoice initiative.

e-Invoicing Model Malaysia

In Malaysia, companies can choose any of the below transmission modes to report e-invoices:

1. MyInvois Portal hosted by IRBM: The MyInvois Portal can be accessed by all businesses. However, this portal is only suitable for a small volume of data and is feasible for Micro, Small, and Medium-sized Enterprises (MSMEs).
2. Application Programming Interface (API): API in either XML or JSON format. Adoption of API requires an investment in technology and modifications to the current systems. However, this is the ideal e-invoice generation mode for large businesses with a huge volume of transactions.

Click here for more information on how to report e-invoices in Malaysia.

Software Development Kit Version 1.0 (released on 6 April 2024)

For businesses opting for the API model to generate e-invoices, integration between their enterprise source system and the MyInvois system is necessary. Recognizing the complexity of such integration, the Lembaga Hasil Dalam Negeri (LHDN) has introduced the e-invoice Malaysia Software Development Kit (SDK).

The e-invoicing Malaysia SDK provides detailed information on document types, statuses, codes, APIs, validation rules, and other essential aspects crucial for e-invoicing. This SDK serves as a valuable resource for developers, enabling them to customize their business solutions to meet Malaysian e-invoicing requirements. It facilitates the generation, submission, and management of e-invoices with greater ease and efficiency.

Benefits of e-invoicing in Malaysia

Implementation of e-invoice provides a seamless experience to businesses. Further, it improves business efficiency and enhances tax compliance. Below are a few of the benefits of e-invoice in Malaysia:

1. Unified invoicing process: Businesses can streamline creating a document and submitting it. Further, they can automate the data entry process.
2. Integrated tax return filing system: Seamless integration helps in efficient and accurate reporting of tax returns.
3. Streamlined operations: Improved efficiency and significant resources saved for businesses.
4. Improved cash flow: E-invoicing significantly reduces calculation and billing errors. This move results in faster payment cycles and reduced disputes.
5. Digitized financial reporting: e-Invoice aligns financial reporting and processes to be digitalized with the industry standard.

What are the challenges of e-Invoicing for businesses in Malaysia?

The introduction of e-Invoicing has ushered in transformative changes in the Malaysian business landscape, affecting various operational aspects and overall efficiency. As Malaysia embraces e-Invoicing, businesses encounter several challenges on this digital journey:

1. Regulatory Compliance: Malaysia is in the process of implementing mandatory e-Invoicing regulations, set to commence in August 2024 for select businesses and gradually expanding to cover all tax-registered businesses by 2027. Complying with these regulations, especially for businesses with complex systems, can pose a significant challenge.
2. Technological Transition: Transitioning to e-Invoicing demands a shift from traditional manual invoicing processes to automated systems. Businesses may face hurdles in adapting to new technologies, integrating e-Invoicing with existing systems, and ensuring that their staff is proficient in this digital transition.
3. Data Security Concerns: As sensitive financial data flows electronically, companies must address concerns related to data security and privacy. 
4. Resistance to Change: Overcoming resistance to change within an organization is another obstacle. Employees accustomed to conventional invoicing methods may be hesitant to embrace e-Invoicing, necessitating effective change management strategies.
5. Technological Readiness: Not all businesses may be technologically prepared for e-Invoicing, particularly smaller enterprises with limited IT infrastructure. Adapting and upgrading systems to align with e-Invoicing standards can be resource-intensive.
6. Data Accuracy and Integration: Integrating e-Invoicing technology with existing systems, such as enterprise resource planning (ERP) solutions, requires meticulous planning to ensure seamless data exchange and synchronization. Data accuracy and consistency across departments become vital challenges in this integration process.
7. Supplier Onboarding: Collaborating with suppliers for e-Invoice adoption can be challenging. Ensuring that all partners are aligned with e-Invoicing procedures and technology can be a time-consuming endeavor.

Best Practices for e-Invoicing in Malaysia

As e-invoicing is still relatively new for Malaysian businesses, implementing best practices is crucial to ensure compliance. Here are some essential steps:

1. Analyze Requirements: Businesses must first analyse the applicability of e-invoicing rules and any potential exemptions. It's essential to assess the specific business requirements and transaction volumes accurately. 
2. Choose the Right e-Invoicing Model: Businesses in Malaysia have the option to choose between two primary e-invoicing models: MyInvois Portal and API Integration. The MyInvois Portal is suitable for businesses with low transaction volumes and simpler invoicing need, API Integration is recommended for businesses with higher transaction volumes, multiple sales channels, and complex billing systems.
3. Software, Systems, and Tools Check: Before implementing e-invoicing, it's crucial to assess the compatibility of existing billing, accounting, and ERP software. If necessary, businesses should be prepared to make changes or upgrades. 
4. Choosing the Right E-Invoicing Solution Provider: For businesses opting for API Integration, selecting the right e-invoicing solution provider is crucial. It's essential to choose a provider that offers robust integration solutions tailored to the business's specific needs. 
5. Staff Training and Internal Controls: Employees should be trained on compliance standards, e-invoice generation processes, and error handling procedures. Additionally, businesses need to establish internal controls, including approval mechanisms, authorization protocols, and other security measures.
6. Testing and Quality Assurance: Testing functionalities such as invoice generation, data transfer, and validation processes is crucial. User Acceptance Testing (UAT) should be conducted with representative users to ensure usability and functionality meet expectations. Moreover, rigorous validation of security measures, error response mechanisms, and system performance under various load conditions is crucial for a reliable e-invoicing system.

Role of e-Invoice in Malaysia for different industries

In Malaysia, e-Invoicing implementation is in a phased manner according to the turnover. The Malaysian Government is releasing FAQ’s indicating role of the same for different industries too. It has released FAQ’s for the following:

• Healthcare
• Construction
• Telecommunication
• e-Commerce
• Petroleum Operations

How can ClearTax help with e-Invoicing in Malaysia?

ClearTax offers one of the the best e-Invoicing solutions in Malaysia. ClearTax offers comprehensive support for e-Invoicing, acting as a middleware to seamlessly connect your ERP/POS system with the IRBM cloud, ensuring 100% IRBM compliance. The key features of ClearTax e-invoicing include:

1. Dedicated Account Manager: Each customer is assigned a dedicated account manager who provides expert guidance on compliance and technical aspects of e-invoicing with ClearTax.
2. Extensive Data Validations: ClearTax conducts over 150 data validations before transmitting information to IRBM, ensuring 99.99% success rate in e-invoice generation.
3. Rapid ERP Integration: ClearTax offers quick integration with over 50 ERPs. You can seamlessly incorporate ClearTax web APIs within 4-6 weeks to achieve compliance efficiently.
4. Data Archival: ClearTax ensures secure e-invoice data archival for up to seven years on SLA-based cloud servers, guaranteeing data retention and accessibility.
5. Value-Added Services: ClearTax goes beyond basic e-invoicing support by offering various value-added services to simplify the e-invoicing process for clients. These include features such as Spend/Sales analytics based on e-invoices, error reports for input e-invoices, QR code generation, and convenient options like WhatsApp/SMS for sending B2C e-invoices and custom print templates for e-invoices. 

ClearTax is a reliable partner in your journey towards seamless e-invoicing compliance in Malaysia.

Click here to read more FAQs on Malaysia e-invoice.