E-Invoicing in Malaysia: A Comprehensive Guide by Taxilla

Introduction:

In line with Malaysia's commitment to digital transformation and the Twelfth Malaysia Plan's emphasis on digital services infrastructure, the Inland Revenue Board of Malaysia (IRBM/LHDN) is set to revolutionize tax administration through the introduction of e-Invoicing. This groundbreaking initiative aims to streamline tax-related processes, providing real-time validation and storage of transactions for Business-to-Business (B2B), Business-to-Consumer (B2C), and Business-to-Government (B2G) transactions.

Phased Implementation of e-Invoicing:

The implementation of e-Invoices will occur in phases, ensuring a smooth transition for businesses and individual taxpayers based on the annual turnover as shown in below table.

Target Taxpayers

Date

• Annual Turnover more than RM100 million - 1 Aug 2024
• Annual Turnover between RM100 million and RM25 million - 1 Jan 2025
• All taxpayers - 1 Jul 2025

The e-Invoice model encompasses a standardized approach to the generation, transmission, and recordkeeping of transaction documents.

Scenarios Requiring e-Invoice Issuance:

Two key scenarios necessitate the issuance of e-Invoices: Proof of Income and Proof of Expense. These documents play a crucial role in recognizing taxpayers' income and documenting their spending, including returns, discounts, and corrections. Additionally, self-billed e-Invoices may be required for specific circumstances, such as foreign transactions.

Types of e-Invoices:

The e-Invoice model encompasses various types, including Invoices, Credit Notes, Debit Notes, and Refunds. Each serves a distinct purpose in correcting errors, applying discounts, indicating additional charges, or confirming refunds, ultimately contributing to a more transparent and efficient financial ecosystem.

1. Invoice: A commercial document that itemises and records a transaction between a Supplier and Buyer, including issuance of self-billed e-Invoice to document an expense.
2. Credit Note: A credit note is issued by Suppliers to correct errors, apply discounts, or account for returns in a previously issued e-Invoice with the purpose of reducing the value of the original e-Invoice. This is used in situations where the reduction of the original e-Invoice does not involve return of monies to the Buyer
3. Debit Note: A debit note is issued to indicate additional charges on a previously issued e-Invoice; and
4. Refund: A refund e-Invoice is a document issued by a Supplier to confirm the refund of the Buyer’s payment. This is used in situations where there is a return of monies to the Buyer.

e-Invoice Model Mechanisms:

To facilitate a seamless transition, IRBM has developed two transmission mechanisms: the MyInvois Portal and Application Programming Interface (API). Taxpayers can choose the most suitable option based on their specific needs and business requirements.

e-Invoice Model via API:

For businesses opting for API transmission, the e-Invoice model offers three methods:

1. Direct integration with the MyInvois System
2. Transmission through Peppol service providers
3. Transmission through non-Peppol technology providers.

e-Invoice Formats:

The e-Invoice structure supports Extensible Markup Language (XML) and JavaScript Object Notation (JSON) formats, offering flexibility for businesses.

There are 51 data fields that are required to issue an e-Invoice. These fields are grouped into nine (9) categories:

1. Address
2. Business Details
3. Contact Number
4. Invoice Details
5. Parties
6. Party Details
7. Payment Info
8. Products / Services
9. Unique ID Number

Pre-Submission Requirements:

Before submission, taxpayers must obtain a Digital Certificate for attaching digital signatures to e-Invoices, providing authentication. Configuration of systems or engagement with technology providers like Taxilla is necessary to prepare e-Invoices in the required XML or JSON format with mandatory and optional fields.

Submission and Validation Process:

The submission process involves creating an e-Invoice and submitting it to IRBM via API for near real-time validation. Upon successful validation, the Supplier receives a validated e-Invoice with a unique identifier, date and time of validation, and a validation link via API.

Notification and Sharing:

The MyInvois System incorporates a Notification API to inform Suppliers and Buyers about the validation status, facilitating efficient communication. After validation, Suppliers must share the validated e-Invoice with the Buyer, embedding a QR code for validation via the MyInvois Portal.

Rejection and Cancellation:

Buyers can request rejection within 72 hours of validation via API, providing reasons for rejection. Suppliers may then cancel the e-Invoice, with notifications sent to both parties. After 72 hours, rejection or cancellation requires issuing a new e-Invoice.

Suppliers also have the option to initiate cancellations within 72 hours of e-Invoice validation, particularly in cases where errors were identified or if an e-Invoice was erroneously issued. The cancellation request, made via the API, must contain the unique identifier of the e-Invoice. Upon successful cancellation, a notification is sent to the Buyer, who may then be informed of the need for a new e-Invoice issuance.

Timely Actions and Compliance:

The strict 72-hour timeframe for both rejection requests and Supplier-initiated cancellations underscores the importance of timely actions in the e-Invoice lifecycle. Adhering to these deadlines is crucial for maintaining compliance with the e-Invoicing mandate. Failure to reject or cancel within the specified timeframe necessitates the issuance of new e-Invoices for any adjustments, reinforcing the need for accuracy and efficiency in financial transactions.

Storing, Reporting, and Dashboards:

All e-Invoices submitted via API are stored in IRBM's database. API integration enables Suppliers and Buyers to request and retrieve e-Invoices, accessing essential details in various formats, including XML/JSON, metadata, CSV reports, and PDF files.

In conclusion, Malaysia's e-Invoice mandate represents a transformative leap towards a digitally driven tax administration system. Businesses and individual taxpayers are encouraged to embrace this evolution, and with the support of innovative solutions, such as those offered by global e-Invoice solution provider Taxilla, the transition becomes even more seamless.

As Malaysia progresses towards its digital future, partnering with a globally recognized e-Invoice solution provider like Taxilla becomes a strategic move. Embracing innovation and leveraging advanced technologies, Taxilla brings forth a reliable and robust platform to facilitate e-Invoice generation, transmission, and recordkeeping. With Taxilla's support, businesses can not only meet the compliance standards set by the IRBM but also enhance their overall financial processes, contributing to a more streamlined and transparent financial ecosystem in Malaysia.

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