The landscape of tax compliance is undergoing a significant transformation, driven by widespread digitisation, e-reporting mandates, and continuous transaction controls (CTC). This global shift towards more transparent, efficient, and effective tax systems is now prominently visible in Malaysia, which is implementing a mandatory e-Invoicing system. This initiative marks a crucial step in modernising Malaysia’s tax system, aiming to enhance compliance, reduce fraud, and streamline processes for businesses.
The Shift to e-Invoicing and e-Reporting
e-Reporting refers to the electronic transmission of financial and tax-related data from businesses to government authorities for compliance and monitoring. Specifically, real-time reporting allows tax authorities to evaluate indirect tax information, track economic performance and trends, and detect inconsistencies, errors, and fraud at an earlier stage. Malaysia is adopting a Continuous Transaction Control (CTC) model within its new e-Invoicing mandate to achieve these objectives.
Mandatory Implementation and Phased Approach
The Malaysian government is rolling out a mandatory e-Invoicing system from 1 August 2024, affecting businesses of all sizes in a phased approach:
• Phase 1 (August 2024): Businesses with an annual turnover exceeding MYR 100 million.
• Phase 2 (January 2025): Businesses with an annual turnover between MYR 25 million and MYR 100 million.
• Phase 3 (July 2025): All other taxpayers.
To facilitate a smoother transition, a grace period has been granted until February 2025. During this time, businesses are permitted to generate consolidated e-invoices for all their transactions, allowing additional time to adjust systems and processes before the full enforcement of individual e-invoicing requirements.
Key Requirements for Businesses
Businesses operating in Malaysia must understand and prepare for several critical requirements:
• Electronic Generation and Submission: Invoices must be generated electronically and submitted to the Inland Revenue Board of Malaysia (IRBM) for validation. Submission can occur manually via the MyInvois portal or automatically via API in XML or JSON format.
• Digital Certificates: All businesses issuing e-invoices are required to obtain a digital certificate from a licensed Certificate Authority (CA). This certificate, linked to the Tax Identification Number (TIN), verifies the sender’s identity, ensures the e-invoice’s integrity, and is necessary for digital signing before submission.
• Compatibility with MyInvois System: Businesses must ensure their systems are compatible with the MyInvois system, whether through manual entry or API integration. The IRBM has released a Software Development Kit (SDK) to aid integration.
• Self-Billed e-Invoices: Businesses are required to issue self-billed e-invoices for purchases from foreign suppliers not registered in Malaysia and from non-registered local suppliers. This impacts Accounts Payable processes and necessitates new controls and reconciliation procedures.
• Invoice Structure and QR Code: A valid e-invoice must include up to 55 data fields and, after validation, must contain an embedded QR code, which serves as the official document. Businesses need to ensure data readiness and cleansing.
• International Standards Compliance: Malaysia is adopting Peppol PINT (Malaysia Peppol International Invoice) for cross-border interoperability. Peppol’s PINT rules facilitate the creation and transmission of e-invoices, credit notes, and negative invoices, all conforming to Peppol BIS Malaysia specifications.
• Archiving Requirements: All e-invoices must be archived for seven years, in line with the Income Tax Act 1967, which requires taxpayers to retain accounting records for the same period. All validated e-invoices will also be stored in the IRBM database.
The e-Invoice Workflow
The e-invoice workflow begins with the supplier issuing the e-invoice through either the MyInvois Portal or via API. The IRBM performs real-time validation against required standards. Upon successful validation, the supplier receives a unique identifier number from the IRBM.
The validated e-invoice, including a visual representation with a QR code for verification, is then shared with the buyer. Notifications are sent to both the supplier and buyer, confirming clearance or a buyer’s rejection request. The validated e-invoice is then stored in the IRBM database. The system also supports mechanisms for handling rejections or cancellations within a 72-hour window.
Business-to-Consumer (B2C) Sales
For B2C sales, where suppliers choose not to issue individual e-invoices to consumers, they have the option to consolidate these supplies into a single e-invoice. This consolidated invoice needs to be submitted to the Malaysian Tax Authorities within seven calendar days after month-end. Upon validation, the IRBM will notify only the supplier, as these e-invoices are issued to the general public, and there will be no rejection requests from consumers. Consolidation does not generally apply to self-billed e-invoices, except for acquisitions from individual taxpayers not conducting a business or interest payments to the public.
Penalties for Non-Compliance
Non-compliance with the new e-invoicing system can lead to severe penalties, including:
• Fines: Ranging from RM 200 to RM 20,000 per instance for failure to issue, incorrect, incomplete, or late submission of an e-invoice.
• Imprisonment: Up to six months, or both a fine and imprisonment.
Key Considerations for Businesses
Businesses must act promptly and strategically. While the grace period provides additional time, relying solely on it may lead to last-minute challenges. It is crucial to:
• Prioritise Preparation: IT and operational teams should not delay in preparing to meet the new requirements.
• Plan Transmission Methods: Decide between manual or automated submission, utilising manual submission as a temporary workaround if automation is not immediately feasible.
• Implement Robust Processes: Establish strong exception handling, reconciliation processes, and controls, especially for self-billed e-invoices.
• Ensure Data Quality: Capture all required data fields and perform data cleansing before submission.
• Engage Stakeholders: Involve all relevant departments – tax, IT, finance, and operations – to ensure a smooth transition and strict compliance.
How RTC Can Help
RTC, as a leading provider of tax technology solutions, is at the forefront of this digital transformation. They offer actionable insights for businesses to understand and navigate the complexities of Malaysia’s e-invoicing requirements, aiming to simplify compliance challenges. RTC provides solutions that enable organisations to meet their digital reporting obligations and bridge the gap between tax, IT, finance, and operations teams. Their core mission is to enable real-time clearance for customers, not only from a tax compliance perspective but also from an ERP, operations, and business partners’ perspective. RTC’s team is equipped to help businesses understand, implement, and manage Malaysia’s e-Invoicing requirements, supporting their digital tax transformation journey to achieve compliance effortlessly.
Malaysia’s move towards e-invoicing signifies a new era in global tax compliance. Businesses that embrace this digital shift confidently will be well-positioned for an efficient and compliant future.
