Refund Notes for e-Invoices in Malaysia: A Comprehensive Guide

As Malaysia rolls out its e-invoicing mandate, starting August 1, 2024, for the first phase, all businesses must issue e-invoices for every transaction. This requirement extends beyond standard tax invoices and includes debit, credit, and refund notes. 

Refund notes play a crucial role in documenting the return of monies, and an e-invoice must be issued for each refund note to provide a transparent and verifiable record of revenue reduction. 

This guide will delve into the specifics of refund notes, including their purpose, issuance process, and how they differ from credit and debit notes.

What is a refund note?

A refund note is an official document issued by a supplier to confirm the return of payment to a buyer. It is used in situations where a customer has paid for a product or service and subsequently returns the product or cancels the service, making them eligible for a refund. 

Crucially, a refund note is issued only when money is returned to the buyer. For all other forms of adjustments, a credit note is issued. The refund note e-invoice acknowledges the return and specifies the refunded amount. 

Self-Billed Refund Note

In certain cases, the seller may not issue an e-invoice for the refund note. When this happens, the responsibility falls on the buyer to generate the e-invoice to record the refund amount. This is known as a self-billed refund note. 

The buyer must create an e-invoice to accurately document the refund transaction, ensuring compliance with the e-invoicing requirements set by the Inland Revenue Board of Malaysia (IRBM). This process is essential for maintaining accurate financial records and ensuring transparency in transactional exchanges between businesses.

Why is a Refund Note Important in Case of E-Invoicing?

According to IRBM e-invoicing guidelines, an e-invoice serves as proof of both expense and revenue. When revenue is recognized by issuing an e-invoice for a sale, the same details are recorded by the IRBM through the MyInvois portal for various tax, compliance, assessment, and audit procedures. If a refund needs to be issued to the buyer, it is crucial to document and send this information to both the buyer and the IRBM through a refund note e-invoice.

Issuing a refund e-invoice ensures that the previously recognized revenue for the seller and the expense for the buyer are accurately adjusted. This information is then fed to the IRBM, ensuring there are no discrepancies in revenue, expenses, and other records between the business and the IRBM.

Additional Benefits

1. Accurate Financial Reporting: Refund notes help maintain precise financial records by documenting changes in revenue and expenses.
2. Tax Compliance: Refund note ensures that the tax authorities have accurate records of sales and refunds, preventing potential issues during audits.
3. Audit Trail: Refund notes create a clear audit trail, documenting the reason and amount of the refund. 

What to Include in a Refund Note for E-Invoices in Malaysia?

In total, there are 55 fields, out of which 37 are mandatory and others are optional for a refund e-invoice. Most details are like any other e-invoice, including buyer, and seller details, shipping, total amounts, tax details, shipping information, and product and service information.

Here are the details that should be included in a refund note for e-invoices:

Supplier Information: Name, TIN, registration number, SST registration number, email, MSIC code, business activity description, address, and contact number.

Buyer Information: Name, TIN, registration number, SST registration number, email, address, and contact number.

E-Invoice Details

• e-Invoice Version: The current version of the e-invoice (e.g., 1.0, 1.1).
• (Important) e-Invoice Type Code: Identifies the document type 
  • 04: Refund Note
  • 14: Self-billed Refund Note
• e-Invoice Code/Number: Document reference number used by the supplier for internal tracking.
• (Important) Original e-Invoice Reference Number: LHDNM unique identifier number of the original invoice/document being adjusted.
• Other Important e-Invoice Details: Include the issuance date and time, issuer's digital signature, currency code and exchange rate, billing frequency and period dates, and the supplier's internal billing reference number.

Payment Details: Includes the payment mode, supplier’s bank account number, agreed-upon payment terms, and prepayment details (amount, date, time, and reference number).

Financial Details

• Total Amounts: Includes totals excluding and including tax, payable amount, net amount, discounts, fees, tax amounts, rounding amounts, and tax-exempt amounts.
• Details of Tax Exemption: Description of any tax exemption applicable at the invoice level.
• Additional Charges: Details of any other charges along with the amount payable.

Shipping Information: Recipient's name, address, TIN, and registration number. (optional)

Customs Information

• Reference number: For customs forms and details of Free Trade Agreements, if applicable.
• Authorisation Number for Certified Exporter: Unique identification number for certified exporters.

Product or Service Information: Covers product/service classification, description, unit price, quantity, measurement, discounts, fees, tariff code, and country of origin.

Steps to Issue a Refund Note e-Invoice

There are two ways to issue refund note e-invoices in Malaysia, depending on the e-invoicing model you have opted for:

Through API Integration

1. Create the refund note or Self Billing refund note detailing the transaction and refund amount through the ERP or business source system integrated with the MyInvois System.
2. Submit the refund note to the IRBM via the system your business uses (the process may vary based on the system).
3. The IRBM validates the refund note and issues a Unique Identification Number (UIN) and QR code if the details are correct.
4. Receive a validation notification through API or email, depending on the submission method.
5. Share the validated refund note, including the QR code and validation link, with the buyer.
6. Note: Both supplier and buyer have 72 hours to reject or cancel the refund note; if no action is taken, it is automatically accepted.
7. Store the validated refund note in the IRBM's database and maintain appropriate records.
8. Access and retrieve refund note details from the IRBM’s database in XML/JSON or PDF formats.

Through MyInvois Portal (Manual Entry)

1. Log in to MyInvois Portal.
2. Click "New Document," select "Refund Note," or “Self-Billed Refund Note” and choose the document version.
3. Provide the original document reference number against which the refund note is being issued.
4. Internal ID and Date Time Issued are auto generated; click "Continue."
5. Enter or validate supplier and buyer details, then click "Continue."
6. Select currency from the dropdown list.
7. Add line items: enter details for each item, including classification, quantity, price, and refund reason; click "Add" to save.
8. Review all entered information on the summary page.
9. Sign the document by selecting ID type, entering a User ID and Password, checking the acknowledgement box, and clicking "Submit."
10. After digital validation, the refund note e-invoice is created and confirmed.
11. Share the validated refund note with the buyer and store it in the IRBM's database.

Refund Note Sample

Below are the refund note e-invoice XML and JSON sample files released by the IRBM in SDK version 1.0. Refund note e-invoice generated like these samples can be submitted to the MyInvois System through your system using API integration:

Refund Note 1.1 Sample XML

Refund Note 1.1 Sample JSON

Conclusion

Refunds are an ongoing process in business transactions, making it essential to e-invoice refund transactions using refund notes alongside credit and debit notes. This practice ensures accurate revenue recording and informs the Inland Revenue Board of Malaysia (IRBM) of the reduction of expenses. By e-invoicing refund transactions, businesses maintain accuracy, transparency, and proper audit trails, thus ensuring compliance with Malaysian government regulations.

A refund note e-invoice must be issued when there is a return of money to the buyer. For all other adjustments, credit notes are used. In instances where the seller does not issue an e-invoice for the refund note, the buyer must generate a self-billed refund note. This ensures that the refund amount is accurately recorded and compliant with e-invoicing requirements.