Self-Billed e-Invoice in Malaysia : An Overview

Malaysia is moving towards a fully digital invoicing system with the implementation of e-invoicing. This mandate requires all transactions to be billed digitally in a structured format, with details validated by the Inland Revenue Board of Malaysia (IRBM).

While e-invoices are typically issued by suppliers, there are scenarios where the buyer must generate a self-billed e-invoice. This occurs when transactions involve individual, unregistered sellers or foreign suppliers. In these cases, the buyer creates the self-billed e-invoice on behalf of the supplier to document the purchase, which IRBM must then validate to be recognised as a legitimate expense for tax purposes.

This blog will explain in detail about self-billed e-invoices in Malaysia, their issuance, the specific transactions that allow for them, and those that do not. It will also cover the parties involved in these transactions and the necessary details that must be included in a self-billed e-invoice.

What is a Self-Billed e-Invoice?

A self-billed e-invoice is a unique type of invoice created by the buyer instead of the supplier, primarily used in transactions with individual, unregistered sellers. 

In standard business transactions in Malaysia, suppliers issue e-invoices to confirm their income and provide buyers with records for expense tracking.  However, in scenarios where the supplier is not registered or not required to issue an e-invoice, the buyer can generate a self-billed e-invoice on the supplier's behalf. 

Why is a self-billed e-invoice required?

Self-billed e-invoices are required primarily for proof of expense. They serve as documentation of transactions between buyers and sellers, particularly in scenarios where suppliers' traditional issuance of invoices may not occur, such as transactions with individual, unregistered sellers or specific types of transactions outlined in the guidelines. By creating a self-billed e-invoice, the buyer can substantiate the expense incurred, providing evidence for tax purposes and ensuring compliance with regulatory requirements.

When is a Self-Billed e-Invoice Required?

For e-invoice purposes, the Buyer is responsible for issuing self-billed e-invoices in the following scenarios:

1. Payments to agents, dealers, distributors, etc.
2. Purchases of goods or services from foreign suppliers
3. Distribution of profits (e.g., dividends) 
4. E-commerce transactions
5. Payouts to winners in betting and gaming activities (see note)
6. Acquisitions of goods or services from individual taxpayers who are not engaged in business (applies only if other self-billed circumstances are not relevant)
7. Interest payments, excluding:
   1. Businesses (e.g., financial institutions, etc.) charging interest to the public 
   2. Interest payments from employee to employer
   3. Interest payments from foreign payors to Malaysian taxpayers

Note: Payouts to casino betting and gaming machine activity winners are currently exempt from self-billed e-invoice requirements until further notice.

The details of each self-billed e-invoicing transaction listed are provided in e-invoicing specific guidelines released by LHDN.

Steps to issue Self Billed e-invoice

Issuing a self-billed e-invoice is largely like issuing a regular e-invoice in Malaysia, with only minor differences. Here are the steps:

1. Submission of Transaction Details: When a transaction occurs that necessitates a self-billed e-invoice, the buyer uploads all required transaction details to the Inland Revenue Board of Malaysia (IRBM).
2. Validation by IRBM: The submitted details of self-billed e-invoice is then validated by IRBM and a QR code and Unique Identification Number.
3. Notification of Validation: Once the e-invoice has been validated, both the supplier and buyer receive notification. However, notification may be optional for foreign entities and businesses registered outside Malaysia or those without access to Malaysian communication channels.
4. Sharing of e-invoice: After validation, the buyer can share the self-billed e-invoice, which includes an embedded QR code, with the supplier.
5. Request and Retrieval: The buyer has the option to request and retrieve the self-billed e-invoice, which should be stored for record-keeping purposes

Parties involved in self-billed e-invoice

When it comes to self-billing in transactions, multiple parties are often involved. For instance, agents, dealers, and distributors act as intermediaries between the seller and the end buyer. Likewise, in e-commerce transactions, there's typically the platform, the seller, and the buyer.

To provide clarity on self-billed e-invoicing, the IRBM has outlined the roles of the parties involved in the e-invoicing specific guidelines.

Details to be submitted to Generate Self-Billed E-Invoice

The details required for generating a self-billed e-invoice differ from those needed for a regular e-invoice. Additionally, the specifics of what needs to be submitted for each self-billed e-invoice depend on the nature of the transaction. These details are outlined in the LHDN's specific guidelines for each type of transaction. 

However, some key information must always be provided:

1. Supplier's Name: The Buyer inputs the supplier's name, whether it is a business or an individual.
   • For non-Malaysian individuals: Full name as per passport / MyPR / MyKAS 
2. Supplier's TIN: The Buyer inputs the Taxpayer Identification Number (TIN) of the Supplier, with additional requirements for foreign businesses. 
   • For Malaysian individuals who only provide their MyKad/MyTentera identification number, the Buyer should input "EI00000000010" instead of the TIN.
   • For Foreign Businesses: Enter the foreign Supplier’s business registration number and TIN if available.  If TIN is unavailable, enter “EI00000000030”. If the business registration number is unavailable, enter “NA”.
3. Supplier's Registration/Identification Number/Passport Number: For both Malaysian , if the Supplier only provides the TIN, the Buyer should input "000000000000" in this field.
   • For Non-Malaysian Individuals: Option 1: TIN only. Option 2: TIN and passport number / MyPR / MyKAS identification number.

Note: TIN refers to the number assigned by IRBM. If a non-Malaysian individual does not have a TIN, use the general TIN from Appendix 1 of the e-Invoice Specific Guideline, along with the individual's passport number / MyPR / MyKAS identification number.

4. Supplier's Address: The Buyer inputs the business address for businesses or the residential address for individual Suppliers.
5. Supplier's Contact Number: The Buyer inputs the Supplier's telephone number.

1. Supplier's SST Registration Number: If applicable, the Buyer inputs the Sales and Services Tax (SST) registration number of the Supplier. 
   • Where Supplier is not registered for SST, Buyer to input “NA” 

4. Supplier's Malaysia Standard Industrial Classification (MSIC) Code: If applicable, the Buyer inputs the Supplier's MSIC code.
5. Supplier's Business Activity Description: The Buyer inputs a description of the Supplier's business activity.
6. Classification: The Buyer assigns a 3-digit classification code to the products or services.
7. e-Invoice Code/Number: If applicable, the Buyer includes the document reference number used by the Supplier for internal tracking purposes.

Self-Billed E-Invoice Exemption

The IRBM has recognised the challenges in issuing e-invoices for certain types of income or expenses. Self-billed e-Invoices is not required for the following types of expenses:

(a) Employment income

(b) Pension

(c) Alimony

(d) Dividend distributions for :

• Taxpayers who are not entitled to deduct tax under Section 108 of the Income Tax Act 1967
• Businesses listed on Bursa Malaysia are exempt from issuing self-billed e-invoices for dividend distributions.

(e) Zakat

Conclusion

Self-billed e-invoices are a crucial component of Malaysia's e-invoicing regulations. They serve as proof of expenses in cases where the buyer doesn’t receive a normal e-invoice. Failure to generate self-billed e-invoices can result in non-compliance with e-invoicing requirements and the disallowance of expenses.

In addition to self-billed e-Invoices, other documents such as credit notes or refund notes may also need to be self-billed. The e-invoicing specific guidelines released by LHDN provide comprehensive details on the requirements for each type of transaction.