Reasons for Rejection and Cancellation of e-Invoice in Malaysia

What if you make errors while generating an e-invoice? Can it be corrected? Or what if the e-invoice sent by your supplier has errors? 
Not all the e-invoices a company generates will be validated by the IRBM or accepted by the buyer.  This article explores the reasons for the rejection and cancellation of e-invoices, the process of rejecting or cancelling the e-invoice and some ways to reduce the rejections.

E-Invoicing Process

Before we understand how e-invoices could be rejected or cancelled, let’s understand the e-invoicing process quickly.

Step 1 - Creation and Submission

• Taxpayers can create e-Invoices individually or in batches.
• Validation is done in near real-time, and errors must be corrected for successful validation.

Step 2 - e-Invoice Validation

• Validated e-invoices are received with a unique identifier and validation link.
• Errors lead to invalidated e-Invoices, requiring correction and re-submission.

Step 3 - Notification

• Both Supplier and Buyer are notified of the validation status

Step 4 - Sharing of e-Invoice

• Validated e-Invoice with a QR code is shared with the Buyer for validation.

Steps 5, 6, and 7 - Reasons for Rejection or Cancellation

• If there are any errors, Buyer can request rejection within 72 hours, and the Supplier can cancel if errors exist.
• If the e-invoice contains errors or was erroneously issued, the Supplier can himself cancel the e-invoice within 72 hours of validation by giving valid justifications.
• Failure to reject or cancel within 72 hours requires a new e-Invoice for adjustments.

Step 8 - Storing e-Invoices

• All validated and accepted e-Invoices are stored in IRBM's database, and taxpayers are advised to retain records.

Step 9 - Reporting and Dashboard Services for Taxpayers

• Taxpayers can request and retrieve e-Invoices in various formats through the MyInvois Portal.

Validations, Rejections, and Cancellation of e-Invoice

As you can see in the above e-invoicing process, there are two instances where an e-invoice can be rejected – the first one is on the validation stage, where the IRBM validates the details of the e-invoice then the next is when the validated e-invoice is sent to the buyer.  Besides, the seller could cancel the validated e-invoice within 72 hours of validation.

Let's look into the reasons why an e-invoice could be rejected and cancelled-

Reason for Rejection of e-Invoice by MyInvois Portal or System

e-Invoices submitted to the MyInvois Portal or System may be rejected based on several validation criteria established by the Inland Revenue Board of Malaysia (IRBM/LHDN). These validation criteria, outlined in the Software Development Kit (SDK) beta release by LHDN, serve as guidelines for determining the validity of e-Invoices. 

• Structure Non-Compliance: The document structure, including format and hierarchy, must comply with standards. Failure to adhere to prescribed formats for XML and JSON-based documents would result in rejection.
• Incomplete or Inaccurate Core Fields: There are 55 essential fields that the supplier should fill while issuing the e-invoice. Any missing or incorrect data, such as Tax Identification Number (TIN), addresses, product/service descriptions, and other mandatory details, could lead to rejection.
• Invalid Digital Signature: The validity of the submitted digital signature is verified to ensure authenticity and integrity. 
• Taxpayer Validation: The referenced taxpayers must be valid at the issuance date of the e-invoice. If the taxpayer is not available or 
• Reference Document Invalidity: If the e-invoice references original documents, such as previous invoices or contracts, the validity of these referenced documents is verified. Invalid reference documents would lead to e-invoice rejection.
• Invalid Code Usage: Various codes used within the e-invoice, such as currency or tax type codes, are validated for accuracy. IRBM rejects e-invoices with missing or wrong code fields.
• Duplicate Submission: The system would reject any duplicate document with similar details (date, time, invoice number, etc) issued within a short time.

Reason for Rejection of e-Invoice by Buyer

After validation of the e-invoice by IBRM, the buyer is notified and given a time of 72 hours to reject the e-invoice in case of any discrepancy. Here are some of the major reasons why an e-invoice could be rejected.

• Incorrect Details: Errors in items, quantity, quality, or supplier details.
• Difference in Agreed Upon Terms: Mismatch in price, discount, or payment terms.
• Discrepancies with Purchase Order: Misalignment with details specified in purchase order like item specifications.
• Unauthorized Charges: Inclusion of unapproved fees or charges.
• Mismatch in Tax Details: Inaccurate tax rate or other details.
• Late Submission: Exceeding the agreed submission timeframe.

Reason for Cancellation by Supplier

The supplier may have several reasons for initiating the cancellation of an e-invoice. Here are some potential reasons. 

1. Error in Invoice Details: If the supplier identifies a mistake in the e-invoice details after validation, such as incorrect pricing, quantities, or other information.
2. Duplicate e-invoice: If the supplier accidentally issues a duplicate invoice for the same transaction.
3. Change in Terms or Conditions: If there's a change in the terms or conditions of the transaction after the e-invoice has been issued.
4. Customer Request: The customer might request cancellation of the invoice due to various reasons, such as incorrect items, pricing disputes, or changes in the order. 
5. Regulatory Compliance: If the original invoice does not comply with regulatory requirements or changes in tax laws or regulations affect the invoice.

What is the process for rejection or cancellation of e-invoice in Malaysia

1. Buyer to request rejection of the e-invoice:
   
   In case of any errors in the e-invoice, buyer can request a rejection of the e-invoice within 72 hours of validation.
   
   1. The rejection request should specify the reason for rejection.
   2. Upon the Buyer initiating the rejection request, a notification is sent to the Supplier.
   3. If the Supplier agrees with the reason provided, they proceed to cancel the e-invoice.
       
2. Supplier to perform cancellation of e-invoice:
   1. If the e-invoice contains errors or was erroneously issued, the Supplier can cancel the e-invoice within 72 hours from the time of validation.
   2. Cancellation requests must also be accompanied by justifications.

If the e-invoice is not rejected or cancelled within 72 hours, any subsequent adjustments require a new e-invoice, such as a credit note, debit note, or refund note e-invoice.

Example: Stationery Hub Sdn. Bhd. (Supplier) generates an e-invoice for the sale of 50 stationery items purchased by Mrs. Kim (Buyer) using the MyInvois Portal. Upon validation, both parties are notified. Mrs. Kim reviews the e-invoice and can request a rejection within 72 hours if errors are detected.

How to Avoid Rejection or Cancellation of e-Invoices

While completely avoiding any type of rejection or cancellation is practically impossible, there are certain steps that your business could take to ensure that the least number of e-invoices are cancelled or rejected.

Here are a few  ways 

1. Training: Ensure all personnel involved in the billing, accounting and e-invoicing process receive thorough training on e-invoicing regulations, system usage, and best practices.
2. Robust Billing, POS, and ERP System: Utilize robust billing, Point of Sale (POS) systems, and Enterprise Resource Planning (ERP) systems that allow customers to automatically fetch and feed data.
3. Avoid Manual Data Entry: Implement the API e-Invoicing model to automate data transmission between systems.
4. Pre-Submission Checks: Conduct thorough pre-submission checks of all data fields, ensuring compliance with regulatory requirements.
5. Confirmation with the Buyer: Before submitting e-invoices, confirm details with the buyer to ensure accuracy and address any discrepancies or concerns. 
6. Opting for an e-Invoicing Solution Provider: Consider partnering with a leading e-Invoicing solution provider like ClearTax in Malaysia. ClearTax acts as middleware, seamlessly integrating your ERP or POS systems with MyInvois System. 
   With additional data checkpoints, data enrichment, anomaly detection systems, and reconciliations, Clear Tax ensures the highest level of accuracy and compliance. Moreover, e-invoice storage in the cloud provides secure access and minimizes the risk of data loss or unauthorized access.

Conclusion

By following the outlined processes and adhering to submission requirements, taxpayers can avoid rejection or cancellation of e-invoices and save time and resources, ensuring seamless e-invoicing transition and implementation.