Mandatory CTC Electronic Invoicing model in Malaysia as of August, 2024
The Malaysian Inland Revenue Board has published a statement to announce a 6-month grace period from the date of mandatory implementation of e-Invoices to issue e-Invoices consolidated for all transactions as follows:
1. Allow all activities/industries to issue e-Invoices which consolidated including self-billing e-Invoices;
2. Allowing any description of the transaction to be entered in the "Product or Service Description" field;
3. If there is an e-Invoice request from the buyer, the seller is also allowed to only issue consolidated e-Invoices without issue e-Invoice for each transaction.
During these six months, there will be no prosecution action under section 120 of the Income Tax Act 1967 against non-compliance with e-Invoicing rules provided the taxpayer complies consolidated e-Invoicing requirements as stated above.
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The Malaysian tax authority, Inland Revenue Board, and the Malaysian Digital Economy Corporation (MDEC) are the entities responsible for the mass adoption of electronic invoicing in Malaysia. The adoption of electronic invoicing will impact all types of B2B, B2C, and B2G transactions.
The mandatory use of electronic invoicing will begin in August 2024 for taxpayers with an annual turnover of more than MYR 100 million.
The National Electronic Invoicing Initiative aims to promote interoperable electronic invoicing by digitizing the way businesses send invoices to other companies.
Key dates for electronic invoicing in Malaysia
The planned implementation schedule for the adoption of the national electronic invoicing system in Malaysia is as follows:
- May 1st, 2024: Start of the pilot phase.
- August 1st, 2024 to January 31st, 2025: Electronic invoicing for taxpayers with an annual turnover of MYR 100 million or more.
- January 1st, 2025 to June 30th, 2025: Mandatory electronic invoicing for taxpayers with an annual turnover of more than 25 million MYR and up to 100 million MYR.
- July 1st, 2025 to December 31st, 2025: Mandatory electronic invoicing for all other taxpayers.
Electronic Invoicing Model in Malaysia: Clearance
Starting from August 1st, 2024, it is mandatory to submit an electronic invoice model with specific fields to the IRBM. To comply with this requirement, the IRBM has established a platform where all electronic invoices must be sent for validation and registration. The documents covered by the law include invoices, debit notes, and credit notes.
Scenarios that will require the issuance of electronic invoices
- Proof of Income: Document issued upon making a sale or other transaction to record taxpayers' income.
- Proof of Expense: These documents pertain to purchases made or other expenses incurred by taxpayers. They can also be used to correct or modify a proof of income based on documented amounts. Additionally, there are specific circumstances in which taxpayers would need to issue their own electronic invoice to document an expense, such as transactions conducted abroad.
There are two methods available for transmitting invoices to the IRBM portal
- Manually via the MyInvois portal hosted by IRBM.
- Automatically via API in either XML or JSON format.
This approach constitutes a validation framework by the tax authority, wherein each document is allocated a distinctive identifier and QR code by the IRBM. Following validation, both the sender and the recipient will be informed by the IRBM. The eligible documents for interchange include invoices, credit and debit notes, as well as refund invoices.
- e-Invoice issuance: When a transaction is made, the supplier creates an electronic invoice and shares it with the IRBM.
- The IRBM receives electronic documents and assigns a unique identifier and a QR code to each document. Once validated, the IRBM will notify both the issuer and the recipient.
- The IRBM grants a 72-hour period for the cancellation or rejection of electronic invoices.
- After validation by the IRBM, the issuer can share the invoice with the recipient. In case of sharing a readable format (PDF or paper), the issuer must include the QR code so that the recipient can validate the invoice with the IRBM.
e-Invoicing Software Development Kit (SDK) Released for Malaysia e-Invoicing
The IRB has released a beta version of the Electronic Invoicing Software Development Kit (SDK) and an update to the guidelines.
The e-Invoice Software Development Kit (SDK) is a collection of tools, libraries, and resources providing a set of functionalities, Application Programming Interfaces (APIs), and development guidelines to assist businesses in integrating their existing system into the MyInvois System via API.
Access here: Software Development Kit + Guideline 2.2.
Testing Environment Available in Malaysia: MyInvois Sandbox
Malaysia has launched the Electronic Invoicing Sandbox, a dedicated testing environment aimed at facilitating integration tests for businesses and service providers in Malaysia.
The IRBM has initially released the MyInvois Sandbox test environment for pilot companies, expanding to all others starting from April 22.
This platform enables taxpayers and service providers to test integration with MyInvois through API.
How does self-billing electronic invoicing work in Malaysia?
One notable aspect of electronic invoicing in Malaysia is that the law requires declaring all transactions with domestic companies. Therefore, in certain situations, the taxpayer must issue what is called a self-billing electronic invoice.
For example, if the taxpayer acquires goods and/or services from a foreign supplier and receives an invoice from the foreign supplier that does not use Malaysia's MyInvois system, the taxpayer must issue a self-billing electronic invoice to document the expense.
For electronic invoicing purposes, the buyer will issue self-billing electronic invoices for the following transactions:
- Payment to agents, dealers, distributors, etc.,
- Goods sold or services provided by foreign suppliers,
- Distribution of profits (e.g., dividend distribution),
- E-commerce transactions,
- Payment to all betting and gaming winners,
- Acquisition of goods or services from individual taxpayers (not engaged in business activities) (applicable only if other self-billing circumstances do not apply),
- Interest payments, with several exceptions.
Access our webinar in collaboration with Deloitte
Watch our webinar in collaboration with Deloitte where we explain how to streamline your operations while achieving efficiency, and read the FAQs regarding legal requirements and electronic invoicing implementation.
MDEC: Use of Peppol for electronic invoicing in Malaysia
The MDEC agency is committed to complete digitalization of electronic invoicing processes, facilitating the creation and sending of invoices between companies through the Peppol network.
As the Peppol Authority, MDEC accredits Peppol service providers in Malaysia, specifying local requirements and technical standards. EDICOM is an accredited Peppol Service Provider in Malaysia certified by MDEC.
Peppol Service Providers are responsible for creating and maintaining the connectivity gateways that function as access nodes on the e-Invoicing network, compliant with the Peppol standards, routing of e-Invoices to the correct destination APs, as well as for registering and updating participant details in the Malaysia SMP.
The use of Peppol is not mandatory in Malaysia's electronic invoicing model. It is an initiative to facilitate and help companies digitize electronic invoicing processes before the legal obligation to send them to the IRBM.
The main objectives are:
- Increased efficiency: Manual data entry and physical paper handling processes can be eliminated with the implementation of electronic invoicing, thus helping companies process invoices more efficiently and seamlessly, with precise traceability.
- Improved cash flow: Thanks to Electronic Invoicing, billing and calculation errors can be significantly reduced, thus accelerating payments and minimizing disputes over irregularities.
- Tax compliance: The implementation of an interoperable electronic invoicing framework in accordance with standards will ensure an organized work process and facilitate effective tax reporting.
Through the EDICOM Peppol Access Point, it is possible to generate the complete invoice in electronic format and send it to the final recipient. Peppol Access Points facilitate generating invoices in electronic format for companies to send them to both the final recipient and to comply with the obligation to send them to the IRBM platform. Once the IRBM validates that invoice, it will return it to the EDICOM Access Point, and EDICOM will transmit it to the recipient's Access Point.
For the exchange of electronic invoices through the Peppol network, the government has published technical specifications for the use of the PINT format. Peppol International Invoice (PINT) is the specification that facilitates interoperable invoice exchange through the Peppol network worldwide. In Malaysia, it has been named MY PINT and the documents can be consulted here: Malaysia Electronic Document Specifications.
Context of electronic invoicing in Malaysia
In the pre-budget report for 2023 from the Ministry of Finance, the intention to develop an electronic invoicing model in the country was already mentioned. This statement aimed to reinforce recovery and facilitate reforms towards sustainable socioeconomic resilience.
As the momentum of the recovery gained traction in the post-COVID-19 period, the government decided to focus on reforms to improve the welfare of the rakyat, particularly income and social protection, the competitiveness of Malaysia, and strengthen the nation's resilience against future setbacks, while also consolidating the government's fiscal position.
The government is committed to prioritizing its digital transformation in order to have a positive impact on society and the economy. Efforts will be intensified to increase the use of digital technology to improve the quality of service and productivity of government services.
To support the growth of the digital economy and improve efficiency in the management of the country's tax administration, electronic invoicing will be a relevant part of its digital transformation. As part of its strategies to increase tax revenues, the government has announced a phased plan to implement electronic invoicing in the country.
The implementation of electronic invoicing will improve the quality of services and increase taxpayer compliance, as well as increase the efficiency of business operations.
