Six-Month Grace Period for e-Invoicing Malaysia: Relaxation Announced By IRBM

The Inland Revenue Board of Malaysia (IRBM) has announced a six-month extension to the original e-invoicing compliance deadline of August 1, 2024. This extension concerns taxpayers covered under the first phase of e-Invoicing implementation, particularly those with a turnover exceeding RM 100 million. 

This relaxation is due to the technical challenges that many companies are facing. During this period, penalties for not generating e-invoices will be waived, if buyers issue consolidated e-invoices.

In this blog, we'll cover all the details of the IRBM’s grace period, what it means for taxpayers, and the incentives available for companies that adopt e-invoicing in Malaysia by the original deadline.

Existing e-Invoicing Implementation Timeline in Malaysia

• 1st August 2024: Applicable to taxpayers with an annual turnover or revenue exceeding RM 100 million.
• 1st January 2025: Extended to taxpayers with annual turnovers or revenues between RM 25 million and RM 100 million.
• 1st July 2025: Mandatory for all taxpayers in Malaysia, regardless of their annual turnover or revenue.

Relaxations Provided During the Grace Period

The IRBM has introduced a grace period for businesses that were set to start generating e-invoices for all transactions. During these six months, the following relaxations apply:

• No Prosecution: There will be no prosecution under Section 120 of the Income Tax Act 1967 for non-compliance with e-invoicing regulations if taxpayers meet the requirements for issuing consolidated e-invoices.
• All Activities/Industries: Businesses are allowed to issue consolidated e-invoices, including self-billed e-invoices, for all transactions.
• Transaction Descriptions: Any description can be included in the "Product or Service Description" field.
• Buyer Requests: If a buyer requests an e-invoice, the seller can issue only a consolidated e-invoice instead of one for each individual transaction.

Reasons for the Grace Period

The extension has been granted to address several reasons and challenges:

• Complex Business Environments: Many industries operate in challenging and complex business environments that require additional time to transition to the new e-Invoicing system.
• System Readiness: Ensuring that the necessary IT infrastructure and systems are in place to support e-Invoicing.
• Operational Adjustments: Allowing businesses sufficient time to adapt their operations and processes to comply with the new requirements.
• Compliance Training: Providing businesses the opportunity to train their staff and ensure a comprehensive understanding of the e-Invoicing procedures.

Benefits of Early Adoption: Accelerated Tax Deductions for Investments In ICT Equipment And Software

While IRBM has eased some compliance requirements, taxpayers are still expected to meet the deadlines. To encourage timely adoption, IRBM is offering benefits to businesses that implement e-invoicing by the original deadline of August 1, 2024.

Businesses that adopt e-invoicing by this deadline will benefit from an accelerated capital allowance for ICT equipment and software packages. Instead of spreading the allowance over three years, it will be reduced to two years for the Assessment Years 2024 and 2025.

For example, if your company invests RM 1 million in new ICT equipment and software, adopting e-invoicing by the deadline will allow you to claim capital allowance over two years rather than three.

Here’s a simple comparison:

• Without Early Adoption: Claiming the capital allowance over three years means spreading your RM 1 million deductions across three years, resulting in approximately RM 333,333 in deductions per year.
• With Early Adoption: By adopting e-invoicing by August 1, 2024, you can claim the same RM 1 million investment over just two years, resulting in approximately RM 500,000 in deductions per year.

This accelerated deduction improves the cash flow by lowering taxes in short periods.

Impact of the Grace Period on Businesses

The six-month grace period will have several impacts on businesses:

• Reduced Immediate Pressure: Businesses will have more time to prepare for and implement the e-invoicing system, reducing the immediate pressure and potential for errors.
• Operational Continuity: The flexibility allows businesses to maintain operational continuity without disrupting their current processes.
• Training and Adaptation: Additional time to train staff and adapt to the new requirements ensures a smoother transition.
• Risk Mitigation: Reduced risk of non-compliance and associated penalties during the initial phase.

Conclusion

Authorities and compliance experts strongly recommend implementing e-invoicing as per the existing timeline. Doing so will enhance your business's resilience, adaptability, and effectiveness in meeting e-invoicing requirements before the grace period ends.

Additionally, adopting e-invoicing sooner allows you to benefit from accelerated tax deductions on ICT equipment investments, which can help reduce your tax liability.