With the gradual implementation of e-invoicing by the Inland Revenue Board of Malaysia / Lembaga Hasil Dalam Negeri (IRBM), businesses across the country are adapting to a digital invoicing system.
This shift promises benefits such as improved efficiency and compliance but also presents several challenges. This article outlines common issues faced during the transition to e-invoicing in Malaysia and provides practical solutions, using the guidelines and FAQs from IRBM as a basis.
What is e-Invoice?
An e-Invoice is a structured digital document representing a transaction between a supplier and a buyer. Unlike traditional paper invoices, e-Invoices must be in a machine-readable format, such as XML or JSON, to be validated by IRBM. This digital transition aims to streamline the invoicing process, enhance tax compliance, and reduce administrative burdens.
Latest Update to e-invoicing Implementation in Malaysia
Six-Month Relaxation Period for e-invoicing Implementation
The Inland Revenue Board of Malaysia (IRBM) has announced a flexibility for taxpayers to issue consolidated e-Invoices during the six-month relaxation period starting from the mandatory e-Invoice implementation date for each phases. This relaxation period allows businesses to issue consolidated e-Invoices for all transactions without facing penalties for non-compliance during this time.
The flexibility is designed to facilitate a smoother transition to the e-invoicing system, providing businesses with additional time to adapt to the new requirements.
The relaxation period applies to all businesses, including those with complex transactions, enabling them to issue monthly consolidated e-Invoices rather than individual e-Invoices for each transaction. This measure also includes provisions for self-billing e-Invoices and allows businesses to use the “Product or Service Description” field flexibly by allowing any description to be filled in.
Addressing Common Challenges in e-invoicing Scope and Process
General
The scope of e-invoicing encompasses all commercial transactions. e-Invoices must adhere to specific data structure requirements set by IRBM. The MyInvois system provides near real-time validation, ensuring compliance with these standards.
Available Support and Assistance for e-invoicing
IRBM has established multiple support channels, including the MyInvois Portal and engagement sessions with stakeholders. Businesses can also access resources like the e-Invoice Software Developme Kit (SDK) for technical guidance. For specific queries, taxpayers can contact IRBM via email, the MyInvois Help Desk, or live chat on the MyInvois website.
Details of Supplier and Buyer
When issuing an e-Invoice, suppliers must include comprehensive details about the buyer, including the Tax Identification Number (TIN). For foreign buyers without a TIN, a placeholder code “EI00000000020” can be used. This information is crucial for accurate tax reporting and compliance.
Issuance of e-Invoices
e-Invoices should be issued promptly, ideally on the same day as the transaction. Specific timelines apply to certain transactions, such as consolidated e-Invoices, self-billed e-Invoices, and those involving foreign income. Delays or failures in issuing e-Invoices can result in penalties under Malaysian tax law.
Validation of e-Invoices
e-Invoices undergo validation by IRBM to ensure they meet the required standards. This process is typically completed within two seconds, thanks to the efficient MyInvois portal. Validation checks include ensuring the correct format and the inclusion of necessary data.
Sharing of e-Invoices
Upon validating the e-Invoice, the Supplier must share it with the Buyer. The e-Invoice generated through the MyInvois Portal includes a QR code for verifying its existence and status on the portal. Recognizing potential difficulties in sharing validated e-Invoices, the IRBM currently permits Suppliers to provide either the validated e-Invoice or its visual representation to the Buyer, until further notice.
Adjustments to e-Invoices
Errors in e-Invoices can be rectified within a 72-hour window by canceling and reissuing the document. Beyond this period, businesses must issue adjustment documents such as credit notes, debit notes, or refund notes, referencing the original e-Invoice. This process ensures accurate record-keeping and compliance with tax regulations.
e-Invoice Treatment for Certain Transactions
Specific rules apply to various types of transactions, such as intercompany charges, deposits, and director fees. For example, refundable deposits do not require an e-Invoice, whereas non-refundable deposits do. Similarly, director fees under a contract for service require an e-Invoice, while those under a contract of service do not.
e-Invoice Treatment for Vouchers, Gift Cards, and Loyalty Points
The treatment of vouchers, gift cards, and loyalty points varies depending on their nature. Non-refundable vouchers require an e-Invoice at the point of sale, while refundable vouchers only require one upon redemption. These guidelines ensure accurate tax reporting and compliance.
Import / Export of Goods or Services
For imports and exports, e-Invoices must include specific details, such as the actual transaction value and any applicable charges. These invoices must be issued in compliance with customs and tax regulations. The MyInvois system facilitates the inclusion of all necessary information, ensuring smooth customs clearance and tax reporting.
e-Invoice For MSME
Taxpayers or Micro, Small, and Medium Enterprises (MSMEs) with an annual turnover or revenue of less than RM150,000 are exempted from implementing e-Invoicing.
MSMEs who exceed the above threshold are required to implement e-invoicing, although the timeline may differ based on their annual turnover. MSMEs can use the MyInvois Portal and MyInvois Mobile App, available for free, to comply with e-invoicing requirements. This accessibility helps MSMEs, especially those with limited resources, to meet their obligations without significant financial burden.
e-invoicing Systems, Data Security, and Privacy
Issuance of e-Invoice to MyInvois System via API and/or MyInvois Portal
Businesses can submit e-Invoices through multiple channels, including API integration and the MyInvois Portal. This flexibility allows companies to choose the most suitable method based on their operational needs. The system supports batch submissions and has specific limits on file size and the number of e-Invoices per submission.
Data Security and Data Privacy
IRBM ensures high standards of data security and privacy for all e-Invoice submissions. The MyInvois system uses industry-standard encryption and security protocols to protect sensitive information. Additionally, the system complies with relevant data protection laws and guidelines, including the Personal Data Protection Act 2010, ensuring that all taxpayer data is handled securely.
e-invoicing for Financial Services, Stockbroking, and Unit Trust
1. Customer Consent and Data Privacy
- Challenge: Financial institutions must adhere to the Financial Services Act 2013 and the Islamic Financial Services Act 2013, which require maintaining customer confidentiality. The implementation of e-Invoicing necessitates obtaining customer consent for issuing individual e-Invoices.
- Solution: Financial institutions should proactively seek consent from customers to comply with legal obligations. They may include consent clauses in service agreements or directly request permission from customers to issue e-Invoices.
2. Handling Overseas Income
- Challenge: Financial institutions operating overseas branches need to issue e-Invoices for income derived from these activities, which complicates compliance due to multiple jurisdictions.
- Solution: Ensure that e-Invoices are issued for all banking activities, both domestic and international, in accordance with the e-Invoice guidelines. This approach helps maintain consistency and transparency in reporting income from various sources.
3. e-Invoice Requirements for Interest and Loan Payments
- Challenge: Differentiating between the need to issue e-Invoices for interest charged versus principal repayments on loans.
- Solution: Financial institutions are required to issue e-Invoices for interest charges but not for loan principal repayments. This distinction helps streamline invoicing processes and ensures clarity in financial records.
4. Issuing e-Invoices for Multiple Party Accounts
- Challenge: Managing accounts with multiple parties, such as joint accounts, custodial accounts, or trust accounts, can complicate e-Invoice issuance.
- Solution: Issue one e-Invoice per account, indicating the principal account holder. If requested by other account holders, separate e-Invoices must be issued to each party. This ensures transparency and proper documentation for all involved parties.
5. e-Invoice Treatment for Charges and Fees
- Challenge: Financial institutions must issue e-Invoices for various fees, including brokerage, handling, and transaction fees. This requirement extends to both foreign and local transactions.
- Solution: Self-billed e-Invoices should be issued for charges and fees paid to foreign entities. For local transactions, the responsibility to issue e-Invoices lies with the service provider (e.g financial institution) receiving the fees. This process ensures that all fees are accurately documented and compliant with local regulations.
For more details, refer to IRBM e-invoicing faqs for the financial sector.
e-invoicing for Construction Sector
1. e-invoicing for Charges to Sub-Contractors, Including Penalties
- Challenge: Contractors need to issue e-Invoices for charges to sub-contractors, including any penalties incurred. This requirement ensures that all financial transactions are documented and reported accurately.
- Solution: Contractors as defined in the Income Tax (Construction Contracts) Regulations 2007 should implement systems with software providers to issue e-Invoices promptly for all charges, including penalties to sub-contractor. This approach ensures transparency and adherence to tax regulations.
2. e-invoicing for Progress Claims on Construction Projects
- Challenge: For progress claims related to construction projects, e-Invoices must be issued. The timing of issuing these e-Invoices depends on whether certification of work done is required.
- Solution: If a certification is required, e-Invoices should be issued upon receiving the certificate. If not, e-Invoices should be issued in relation to the progress claim on the construction of property. This ensures that all income from the project is properly substantiated and documented.
3. Materials Purchased On Behalf of the Owner
- Challenge: Main contractors often purchase materials on behalf of the project owner and include these costs in their billing. The implementation of e-Invoicing raises questions about maintaining these billing practices.
- Solution: Main contractors can continue their current billing arrangements, but all invoices must be e-Invoices. This transition ensures compliance while allowing the continuation of established practices.
4. Materials Sold to Related Companies
- Challenge: When a company sells construction materials to related companies, it must issue e-Invoices, even within the same corporate group.
- Solution: Companies should issue e-Invoices for all sales of construction materials, including transactions with related companies. However, consolidated e-Invoices are not allowed for these transactions under the Construction Industry Development Act 1994. This rule ensures accurate reporting and compliance with industry regulations.
5. e-invoicing for Mixed Transactions
- Challenge: Handling e-Invoices for mixed transactions, such as providing construction services and selling materials, can be complex.
- Solution: Separate e-Invoices should be issued for each component of the transaction to clearly differentiate between service and material sales. This practice helps maintain clarity in invoicing and ensures accurate financial reporting.
For more details, refer to IRBM e-invoicing faqs for the construction sector.
e-invoicing for E-Commerce
1. Responsibility for Issuance of e-Invoices
- Challenge: Determining which party—either the e-commerce platform or the merchant—is responsible for issuing e-Invoices to consumers can be complex.
- Solution: The e-commerce platform provider is responsible for issuing e-Invoices or receipts to consumers for transactions concluded on the platform. If a buyer does not request an e-Invoice, the platform can issue a consolidated e-Invoice, simplifying the invoicing process.
2. Self-Billed e-Invoices for Merchants and Service Providers
- Challenge: Properly recording the income generated by merchants and service providers from transactions on the e-commerce platform.
- Solution: The e-commerce platform provider must issue self-billed e-Invoices to document the income earned by merchants and service providers. This approach ensures accurate reporting and compliance with tax regulations.
3. Handling Charges for Platform Use
- Challenge: Issuing e-Invoices for charges imposed by the e-commerce platform provider to merchants for using the platform.
- Solution: The e-commerce platform provider is required to issue an e-Invoice for these charges, following the current billing frequency. This ensures that all fees are transparently documented and reported.
4. Handling Returns and Refunds
- Challenge: Managing the issuance of e-Invoices when goods are returned and refunds are issued.
- Solution: The e-commerce platform provider must issue a refund note e-Invoice to record the returned goods and corresponding refunds. This ensures that all transactions, including reversals, are properly documented.
5. Distinction Between e-Commerce and Brick-and-Mortar Transactions
- Challenge: Whether to include e-commerce transactions in the same consolidated e-Invoice as in-store transactions.
- Solution: It is generally not advisable to combine e-commerce and brick-and-mortar transactions in the same e-Invoice due to differences in transaction flows, responsibilities, and classifications. This distinction helps avoid confusion during reconciliation and ensures clear, accurate financial records.
For more details, refer to IRBM e-invoicing faqs for the e-commerce sector.
e-invoicing for Insurance and Takaful
1. Issuing Consolidated e-Invoices
- Challenge: Determining when to issue consolidated e-Invoices for policyholders who do not require individual e-Invoices.
- Solution: Insurance companies are allowed to issue consolidated e-Invoices for transactions where individual e-Invoices are not requested. They may use annual premium statements to aggregate data and submit consolidated e-Invoices within seven days after the end of the month.
2. Handling Joint Insurance Policies
- Challenge: Managing e-Invoices for joint insurance policies, such as fire insurance covering multiple policyholders.
- Solution: The current practice of issuing one e-Invoice per policy can continue. The principal policyholder’s details should be used, but if other policyholders request separate e-Invoices, the insurance company must issue them accordingly.
3. Refund Note e-Invoices for Policy Terminations
- Challenge: Issuing refund note e-Invoices for policy terminations involving premium refunds.
- Solution: Insurance companies must issue a refund note e-Invoice whenever a policy is terminated, involving in the return of premiums monies. However, this doesn’t apply in cases of wrong payments, overpayments, or return of security deposits.
4. e-invoicing for Interest on Policy Loans and Automatic Premium Loans (APL)
- Challenge: Determining whether to issue e-Invoices for interest on policy loans, APL, and late payment interest.
- Solution: Insurance companies are required to issue e-Invoices for these interest charges. They can include these charges in periodic statements issued to policyholders.
5. Issuing e-Invoices for Bonus Payments and Surplus Distributions
- Challenge: Clarifying whether e-Invoices are needed for bonuses and distributions of surplus or investment profits to policyholders.
- Solution: Insurance companies must issue self-billed e-Invoices for these transactions, following the guidelines outlined in the e-Invoice Specific Guideline. This ensures transparency and compliance with regulatory requirements.
For more details, refer to IRBM e-invoicing faqs for Insurance and Takaful sector.
e-invoicing for Healthcare
1. Issuance of e-Invoices for Various Payment Scenarios
- Challenge: The invoicing process can vary based on the payer, such as self-paying patients, third-party administrators, insurance companies, corporate bodies, or guardians.
- Solution: The term “Buyer” should refer to the patient, regardless of who makes the payment. If the patient is a minor, the Buyer’s details should include the parent or guardian. Hospitals should continue their current invoicing arrangements, ensuring that all necessary parties are appropriately billed under the new e-Invoicing requirements.
2. Consolidated e-Invoices for Self-Paying Patients
- Challenge: Managing e-Invoices for self-paying patients who do not require individual e-Invoices.
- Solution: Hospitals can issue consolidated e-Invoices for these transactions. If the patient does not request an individual e-Invoice, the hospital can aggregate invoices and issue a consolidated e-Invoice to the Inland Revenue Board of Malaysia (IRBM) within seven days after the end of the month.
3. Handling Proforma Bills and Final Guarantee Letters (FGL)
- Challenge: Issuing e-Invoices when proforma bills are used to request FGLs from insurance companies.
- Solution: Hospitals can continue issuing draft or proforma invoices for FGL requests. Once the medical services are finalized, they must issue e-Invoices, especially if requested by the Buyer. If not requested, a normal invoice can be issued, followed by a consolidated e-Invoice at the month’s end.
4. e-invoicing for Independent Consultants and Outsourcing Arrangements
- Challenge: Handling e-Invoices for services provided by independent consultants, whether through co-provision or outsourcing arrangements.
- Solution: For co-provision arrangements, both the hospital and the consultant should issue separate e-Invoices to the patient. In outsourcing arrangements, the hospital issues an e-Invoice covering all services, and consultants (or their representing company) issue an e-Invoice to the hospital for their services.
5. e-invoicing for Deposits and Staff Medical Expenses
- Challenge: Deciding when to issue e-Invoices for deposits collected upon admission and medical expenses paid by hospitals for staff.
- Solution: For refundable deposits, no e-Invoice is required upon receipt. However, non-refundable deposits require an e-Invoice. Regarding staff medical expenses, hospitals can continue issuing invoices as per current practices, using a nil amount if necessary, or follow existing procedures if invoices are not currently issued.
For More Information
To explore the specific e-Invoicing challenges and solutions across various industries, continue reading to discover detailed insights into sectors such as petroleum operations, aviation, telecommunication, and tourism. The FAQs on the IRBM website offer comprehensive guidance tailored to the unique aspects of these industries, helping businesses navigate the new regulatory landscape. For more information, visit the official IRBM e-invoicing FAQs page.
How YYC taxPOD Can Help Businesses in Malaysia
Key Features of YYC taxPOD
- Masterclass Videos: Cover essential tax knowledge with downloadable course materials and case studies.
- Monthly Live Update Classes: Keep you informed on the latest tax updates, including income tax, SST, e-invoicing and more.
- Live Webinars: Provide in-depth knowledge on various tax topics, allowing business owners and finance teams to learn at their own pace.
Benefits of Using YYC taxPOD
- Affordable Access to Expert Knowledge: Gain insights from seasoned tax professionals without the high cost of hiring full-time experts.
- Regular Updates: Stay current with the latest tax laws and regulations to ensure compliance and maximize tax savings.
- Convenient Learning: Access tax planning resources anytime, anywhere, making it easier to integrate tax education into your business routine.
Explore Our Knowledge Hub!
Discover a wealth of tax-related knowledge at our comprehensive Knowledge Hub. Whether you’re looking for in-depth articles, answers to frequently asked questions, or informative videos, we’ve got you covered. Visit the links below to explore each section:
Enhance your tax knowledge and stay up-to-date with the latest information by visiting our Knowledge Hub today.
