Since the last decade, Malaysia has been growing exponentially, especially in the digital universe. So, it was no surprise when the Malaysian Tax Authority announced they were set to introduce e-invoicing in Malaysia by August 2024.
What does it mean for businesses operating in the country, though?
Will it be beneficial for them somehow?
In this article, we’ve discussed everything while offering basic guidance on e-invoicing in Malaysia. Hence, without any further ado, let’s begin.
E-Invoicing in Malaysia – A Fundamental Overview
An e-invoice is a type of document exchanged between a supplier and a buyer through an electronic software program.
The paperwork is sent through a well-integrated and secure environment so that no one can intercept it. Now, it has two primary benefits —
- Firstly, it can be sent almost as immediately as you’ve completed documenting it.
- Besides, as it’s coming through an electronic medium, the paperwork will be a bit easier to manage.
Speaking on the second point, the documentation you send or receive as an e-invoice will be kept on a centralised platform. Therefore, almost anyone can view it whenever needed, as long as they have the authority.
Also, unlike manual invoicing, you can automate the task of e-invoicing in Malaysia. In a way, it requires even less time to complete and has a lower risk of making an error.
A: E-invoicing in Malaysia – The Key Components
Before you learn how to create an e-invoice in Malaysia, it’s best to learn about the major components of it first. Let’s discuss a little about it.
I. Structured Data Format
Technically speaking, you can categorise an e-invoice through structured data formats. A good example of it could be JSON (JavaScript Object Notation).
XML (eXtensible Markup Language) may also be an option here, but it’s much rarer than the former. But what’s the benefit of these structures for e-invoicing in Malaysia?
Well, as the document is well-structured, it will provide a standardised representation of a piece of information available in the invoice.
It, in turn, makes it machine-readable and facilitates seamless integration with more than one business system. Thus, in a way, you can send the invoice from almost any associated software program you have within your organisation.
II: Automation and Workflow Integration
As we have mentioned in the previous section, e-invoicing in Malaysia will rely solely on automation. Thus, in a way, it will eliminate manual intervention and make your business a lot more agile, efficient, and effective.
If needed, you can also integrate it with an ERP system (such as SAP) to enable —
- Automatic generation of e-invoices,
- Their quick and secure transmission,
- Processing of the documentation.
However, before you begin using the automation feature of the system, it’ll be best if you can create the documentation manually. This will help you check if there’s an error with a document that has been created through the automation technique.
III: Data Elements and Fields
E-invoices usually contain many data elements and fields, which are extremely important in maintaining transactional accuracy. It might encompass a wide array of information…
- The number and date of the invoice
- The descriptions, quantities, taxes, and prices of the line items
- The payment terms and how they have been structured
- The details of the buyer and the supplier
While you’re at it, ensure that you’re standardising these elements accordingly. Or else it will become impossible for the data to interoperate among different software or systems.
Also, before you automate the entire project, we will ask you to keep a backup of all the information on the invoice. This way, even if the data gets intercepted, you’ll not lose the important bits and bobs from the table.
IV: Compliance and Legal Requirements
Like any other business-related operation, adhering to regulatory and legal standards will be highly fundamental for e-invoicing in Malaysia. But the hitch is — different countries tend to have unique regulations regarding the —
- E-invoicing formats,
- Authenticity,
- Archiving, and
- Data retention periods
So before you begin working on e-invoicing in Malaysia, it’s important to ensure proper compliance with them. This, sequentially, can help you facilitate cross-border or national transactions alike while avoiding legal ramifications effectively.
V: Authentication and Electronic Signature
Various authentication mechanisms, such as encryption techniques and digital signatures, are quite integral for e-invoicing. These usually focus on ensuring the authenticity as well as the integrity of the documentation you are sending.
Moreover, it can also safeguard the information available in invoices, protecting it from unauthorised access and unlawful tampering.
Digital signatures, on the other hand, offer proof of origin and maintain the integrity of the invoice you’re sending. However, this only works during transmission.
So, it’s important to utilise a combination of authentication and electronic signature while working on e-invoicing in Malaysia.
VI: Archiving and Audit Trails
While sending an e-invoice, most people tend to forget to archive it. And that’s why most of them end up losing whatever important data was available there during a data breach.
Once a file is sent, archiving it is a must, as it can help you —
- Follow the legal compliance for e-invoicing in Malaysia effectively
- Keep a record of whatever document you are sending to your suppliers
Apart from this, you should also focus on maintaining an audit trail by offering a checked and transparent history of your invoice transactions. Later, these can be used for reference and audits, especially for dispute resolution purposes.
VII: Supplier and Buyer Portals
If you’re creating a separate e-invoicing system, make sure to include a portal or platform on it. This can allow your suppliers to upload invoices with a single click.
Similarly, the buyers can access the same page to review or process them. There’s no need to check the history of transactions manually anymore.
These portals can also facilitate —
- Status tracking,
- Communication between the buyers and sellers,
- Resolution of discrepancies.
Hence, in a way, having such a portal can reduce the risks of making an error and foster a much-improved sense of collaboration between the trading partners.
Where is E-Invoicing Being Mandated?
When people heard about the initiation of e-invoicing in Malaysia for the first time, most considered it something new. However, that’s simply not true.
E-invoicing has been an integral part of the business world for quite a while now. Many countries, such as Taiwan, South Korea, Vietnam, India, and Indonesia have also started using it.
For instance, a European standard came into fruition in 2017, which focused more on paying, sending, and processing digital invoices. The primary aim it was to simplify the receiving and sending of e-invoices within the countries of Europe.
Nonetheless, most of the European countries are now moving forward with integrating an obligatory rule of e-invoicing. This is applicable for either the B2B or B2G suppliers now — however, the scenario might change later on.
According to a report, a valid and proper e-invoice will contain a varied set of mandatory or permanent fields. This might include the following —
- Buyer and seller details
- Item quantity and description
- Total amount, price, and Tax
- Payment details
Besides, there are several types of transactions that might be covered under e-invoicing in Malaysia. Here’s what you need to know about them —
- Business to Business
- Business to Government
- Business to Customer
Note: The report also suggests that the B2G transactions will be quite similar to B2B. So, in a way, it might be easier for businesses to handle and take care of them.
Note (2): According to the Malaysian government, e-invoicing will apply to most, if not all, types of commercial activities in Malaysia.
These might include the sale of the goods or services of an organisation. Some specified non-business transitions can also be added to the same.
Note (3): However, in the aspect of a B2C transaction, a seller doesn’t have to issue their e-invoice to the end customers. Instead, they can create a normal receipt or invoice while asking for the required amount for their offered services.
Once a specific timeline has been met, the seller can aggregate all of the normal invoices and issue a properly consolidated e-invoice. It’s a long process, but it’s more secure.
E-Invoicing in Malaysia — The Types of Transactions Covered in E-Invoicing Requirement
According to the IRBM guidelines, there are two types of e-invoices mandated in Malaysia currently. Here’s what you need to know about them —
1: Proof of Income
Whenever your business supplies the services or goods to the recipient, issuance of a new e-invoice becomes mandatory for you. It can help the government recognise the sales that you’ve made and the amount of money you’ve generated through the same.
Furthermore, you will also need to issue an “‘other transactions”’ tab, in which the taxpayer is earning their fortune. However, the guidelines related to “other transactions” are yet to be issued in Malaysia. So, you may not have to stress too much about it at the moment.
2: Proof of Expenses
Whenever someone makes a purchase from you, whether it’s a service or a product, it will be important to send an e-invoice to them. But this should only be done if the expense is incurred by your taxpayer in order to keep a record.
In some cases, the proof of expenses may also include the discounts you have provided to your consumers.
Note: If the transaction is being made between a foreign seller and a Malaysian, then the recipient has to issue a self-invoice to document it.
Like everything else, the tax department of Malaysia might ask for it. So, it’s important to keep a backup or two of the documentation as well.
3: The Types of E-Invoices
When e-invoicing arrives in Malaysia, there are several documents that can be replaced in an electronic format. Here’s what might get included in the list —
I: Invoices:
An invoice is a commercial document that records the sales transactions and anything related to them between the recipient of the services and the suppliers. It may also include self-invoicing as a part of the process.
II: Credit Notes
Credit notes are another type of e-invoice that can only be issued by the supplier. You can send it to the recipient where there’s a decrease in the value of the transaction they have made. It’s mostly used when an error occurs while creating the e-invoice.
Note: Contrary to what you might be thinking, this is not employed in a situation where a case of return of money is involved.
III: Debit Notes
The debit notes, conversely, are different from their credit counterparts. You may only issue them where there’s a sufficient increase in the transaction value.
IV: Refund E-Invoice
A refund e-invoice can only be issued to the recipient and offered by the supplier. This is mostly employed to confirm the refund of a specific payment made by the person who’s used your services. So, no matter when someone refunds you money, you must issue this document quickly and accordingly to keep a record. It’ll help you during an audit.
Note: Each e-invoice you make must have a unique identifier number. It also needs to have 51 validations, with 35 of them being compulsory.
Implementation Date for E-Invoicing in Malaysia
The implementation of e-invoicing in Malaysia will be completed in a span of two years or so. The process will begin on 1 August 2024 and will continue till 2027.
Here’s a rundown of what’s supposed to happen during this period.
| Serial No. | Type of Taxpayers | Integration Date | |
| 1. | Taxpayers who have an annual turnover or revenue of more than 100 million RM | 1st August 2024 | |
| 2. | Taxpayers who have an annual turnover or revenue of more than 25 million and up to 100 million RM | 1st January 2025 | |
| 3. | All taxpayers |
|
|
The annual revenue or turnover of a taxpayer will be based on their audited financial and business-related statements. However, if you don’t fall under the same category, then it’ll be based on your yearly revenue reported in the year of 2022.
The parameters and timelines we’ve mentioned here are fixed. There will not be any sort of change to it, as far as the businesses are concerned. However, if there’s something that needs to be reviewed, it’ll be done periodically in the subsequent financial years.
Also, the change will be done at the discretion of the business to issue an e-invoice from an earlier date — irrespective of whatever their annual revenue or turnover is.
E-Invoicing in Malaysia – Why Is It Being Implemented?
The Malaysian government’s push toward adopting e-invoices aligns with a broader strategy aimed at leveraging technology to transform the country’s economic landscape.
By transitioning further away from traditional paper-based invoicing systems, several key objectives are being targeted:
1. Combat Tax Leakage and Improve Compliance
- Minimise Errors: E-invoicing in Malaysia offers a more accurate and transparent way of documenting transactions, reducing the chances of errors or discrepancies that could lead to tax leakage.
- Real-time Tracking: Enhanced visibility into transactions helps authorities monitor and track invoices in real time, making it easier to identify and address potential tax evasion or irregularities.
2. Boost Efficiency and Cost Savings for Businesses
- Streamlined Processes: Automation and digitalisation of invoicing processes reduce the administrative burden on businesses, freeing up time and resources that can be redirected toward core operations.
- Lower Compliance Expenses: Simplifying tax compliance procedures through e-invoicing in Malaysia can lead to cost savings for businesses. It may also allow them to focus on innovation and growth.
3. Facilitate International Trade and Business Operations
- Global Compatibility: E-invoicing in Malaysia aligns with various international standards, facilitating smoother transactions and trade interactions across borders.
- Simplified Cross-Border Transactions: By embracing digital invoicing, entities engaged in international trade can benefit from smoother, more standardised processes, thus improving the ease of doing business internationally.
4. Support the Digital Economy and Infrastructure Development
- Catalyse Digital Transformation: The shift to e-invoicing forms part of a larger strategy to promote digital services infrastructure, fostering a more robust digital economy.
- Encourage Innovation: Embracing digital tools like e-invoicing might encourage innovation in business practices. It’ll also pave the way for further advancements in the digital world and improve your business’s overall efficiency as a whole.
Benefits of E-Invoicing in Malaysia
If you’re still with us at this point in the article, we’re sure that you have an idea or two about what we’ll talk about here. So, without any further ado, let’s keep on reading to make it all a little clearer for you.
Advantage – 1: Process Automation
Like any other paper-related process, traditional invoicing is quite manually intensive. In addition to this, as it’s done by humans, the results are prone to error as well. This can lead to two different issues, including the following —
- Has a longer processing lifecycle, mostly for businesses,
- Can lead to increased expenses and a prolonged deadline,
It, sequentially, can make it difficult for an organisation to work efficiently. In addition, you might also miss out on your potential clients, as you can’t deliver on time.
However, if you’re using process automation, it’ll instantly give you an instant edge over your competitions in the market. For example, process automation can help you get better at meeting your deadlines while reducing the mistakes due to less human intervention.
Also, as your employees aren’t getting involved in time-consuming tasks anymore, they’ll begin working on higher-value tasks. It can improve your organisation even more.
Advantage – 2: Saving Expenses
Does your business love saving money at any chance it gets? Well, then, using a paper or traditional invoicing method is quite the wrong path for you.
Why?
In this case, you have to buy the papers and pay a lot of money to print and mail each of the invoices. Furthermore, you’ll also have to reimburse the staff who are working manually on your project. And if they make a single mistake, it’ll make a huge difference in your budget as well. So, in a way, it’s a lose-lose method for you.
But these don’t apply to e-invoicing in Malaysia.
Due to using an electronic medium, all you have to do is pay the electric bill, and that’s it. And you can ask the AP (Account Payable) and AR (Account Receivable) teams to focus on value-generating tasks. Also, as most of the tasks are automated here, you won’t have to worry about making mistakes.
Advantage – 3: Much Shorter Cycle Time
E-invoicing has the ability to accelerate the receipt and settlement of invoices, leading to improved financial liquidity. This rather shortened cycle involves reducing the duration between issuing an invoice and its payment.
Simplifying payment procedures through e-invoicing expedites customer payments. It can benefit sellers with quicker cash flow and buyers by avoiding late fees and accessing potential early payment discounts.
In comparison to traditional paper-based methods – e-invoicing in Malaysia significantly expedites B2B payments, potentially cutting payment durations by as as much as 60%.
However, the extent of time saved varies based on factors like company size and payment complexities.
Advantage – 4: Data Availability and Quality
Electronic invoices demand secure storage methods, ensuring the safekeeping of signed documents as per legal requirements.
This cuts down on storage expenses and facilitates online access to previous invoices. Additionally, transferring invoice data guarantees information integrity, eliminating the chance of clerical mistakes and enhancing data precision within systems.
For buyers, this minimises the risk of erroneous payments or inputting incorrect details. Meanwhile, most suppliers can boost their invoice acceptance rates from customers and expedite payment processing timelines.
Advantage – 5: Better and More Efficient Security
E-invoices demand secure storage methods for safely preserving the signed originals according to legal timelines.
This lowers storage expenses while enabling convenient online access to past invoices. Additionally, transferring invoice data carries no information loss or clerical error risk, thereby enhancing data accuracy and accessibility within your systems.
For buyers, it’ll minimise the chance of paying incorrect invoices or inputting erroneous details. For suppliers, it will boost the likelihood of customer acceptance and speeds up payment processing.
E-Invoicing in Malaysia: Where Do You Begin?
Decision-makers should consider embracing e-invoicing in Malaysia immediately due to its internal advantages in streamlining processes.
With e-invoicing mandates emerging in Europe or Asia, and adoption increasing globally, businesses will need to adopt it to stay competitive and access various markets.
It’s quite probable that within the next decade, e-invoicing will become the norm. When initiating e-invoicing in Malaysia, remember these key points.
1: Research a Lot!
To guarantee a seamless shift and sidestep typical challenges, it’s important to invest in comprehending the available choices, grasping top-notch methods, and assessing suitable e-invoicing service providers.
As the vendors offer fresh e-invoicing solutions, it’s crucial to collaborate with a vendor well-versed in the complete process — from integrating with your current systems to producing accurately structured E-invoices and ensuring their efficient delivery.
2: Focus on Your Consumer Base
By comprehending the needs and desires of your customers, you’ll be able to customise your e-invoicing solution to specifically address those requirements.
This approach not only enhances or sustains customer satisfaction but also allows for the creation of a more suitable pricing strategy aligned with their budget.
3: Ensure that You are Legally Compliant
Different countries have varied legal demands for e-invoicing. Hence, adhering to these regulations can expedite payment.
Utilising a rather suitable service provider for e-invoicing in Malaysia not only provides a competitive advantage but also simplifies meeting tax obligations.
E-Invoicing in Malaysia: The Challenges
Even though e-invoicing in Malaysia will offer numerous advantages, its implementation can present several hurdles for businesses. Here’s what you need to know about them.
1: Technical Compatibility
E-invoicing necessitates that businesses possess matching systems and software to electronically exchange invoices.
Guaranteeing technical compatibility can pose difficulties, particularly for small businesses lacking the resources to invest in new technology.
2: Resistance to Change
Some companies might hesitate to embrace electronic invoicing because they see it as complex and costly to integrate new technology.
3: Fraud and Security
E-invoicing involves sharing sensitive financial details, posing susceptibility to cyber threats and fraudulent activities.
Therefore, businesses must implement strong security protocols to safeguard their financial information.
The Bottom Line
The global shift towards e-invoicing signifies a move away from manual paperwork, leading to better visibility, adherence to regulations, and cost savings for organisations worldwide. Embracing this digital future is crucial, and now is the ideal time to explore partnering with a reputable service provider.
E-invoicing in Malaysia will rapidly become the de-facto norm in business operations, so it’s important to adopt this approach quickly.
However, if you’re seeking guidance on initiating this transition or seeking tailored recommendations for your enterprise, reach out to us!
At cbs, we’re enthusiastic about assisting emerging businesses. Through e-invoicing, we ensure your processes are optimised for efficiency right from the start.
