Table of Contents
1. Understanding the Mandatory E-Invoicing
Invoicing is essential to any business, but traditional paper-based invoicing methods are often time-consuming and error-prone. Amid advancing digital technology and new government mandates, electronic invoicing has gained prominence. Malaysia Government intends to implement e-invoices in stages in line with the Twelfth Malaysia Plan to support the growth of the digital economy and enhance the efficiency of Malaysia’s tax administration management. In this article, we will delve into the world of e-invoicing in Malaysia through questions about the implementation of E-Invoicing in Malaysia.
2. What is E-Invoicing Malaysia?
E-invoicing, or electronic invoicing, is a system where invoices are issued, received, and processed digitally and involves the electronic exchange of invoices between suppliers and buyers. E-invoicing revolutionizes traditional invoicing processes by transitioning from paper-based to fully digital formats. As Malaysia moves towards mandatory e-invoicing compliance aims to create a more efficient and accurate invoicing ecosystem, benefitting businesses of all sizes in the digital age.
3. When is the updated implementation timeline of E-Invoicing?
IRBM plans to implement e-invoice gradually in phases to ensure a smooth transition. Based on the new implementation plan, e-invoicing will be mandatory for taxpayers with annual income or sales exceeding RM100 million, starting from August 1, 2024, instead of June 1, 2024. E-invoicing for taxpayers in other income categories will be enforced in phases, with a comprehensive implementation target of July 1, 2025. The implementation details are as follows.
4. E-Invoicing in Malaysia: A Step-by-Step Guide
Currently, Malaysia's e-invoicing framework is in its nascent stages, lacking specific regulations, standardized infrastructure, or mandated formats and e-signatures. The present system operates voluntarily, with the adoption of e-invoices contingent upon the agreement of both the buyer and the seller. However, with the impending mandate for e-invoicing, these practices are set to transform.
Invoice Issuance: Every invoice issued must contain critical details such as the officially registered names of the involved parties, unique invoice identifiers, and the applicable sales and service taxes.
Invoice Conversion to XML: It's a requirement from the Inland Revenue Board (IRB) that invoices undergo verification in XML format. While issuers have the capability to generate invoices directly in XML, conversion to PDF or Word may be necessary when the recipient's system is not equipped to handle XML documents.
Verification and Clearance: Invoices are submitted to the IRB’s API for official clearance, ensuring that they meet the requisite criteria for validity.
QR Code Implementation: A mandatory step for all e-invoices is the inclusion of a QR code, which provides a direct link to the invoice's details on the IRB's platform, thereby facilitating the buyer's verification process under the impending regulations.
Sending the Invoice to the Buyer: The delivery of the invoice to the buyer can be executed through the Peppol network. Additionally, the myTax portal will offer alternatives for both issuing and receiving e-invoices electronically.
Retention and Archiving: E-invoices must be preserved for a period of seven years, with the possibility of storing them overseas, subject to approval by the Director General of the Royal Malaysian Customs.
5. How e-invoicing works?
The e-invoicing system is a digital solution that allows for the seamless transfer of invoice information between a sender (typically a supplier) and a receiver (usually a customer). Here's a step-by-step guide to understanding the e-invoicing mechanism illustrated in the image:
Step 1: Invoice Creation by Sender: The process begins with the sender creating an invoice using their accounting software or Enterprise Resource Planning (ERP) system. This digital invoice includes all the necessary transaction details, such as the description of goods or services, prices, taxes, and payment information.
Step 2: Sender’s Access Point: Once the invoice is created, it's securely transmitted to the sender's access point. The sender’s access point acts as an intermediary, ensuring the invoice is in the correct format and is ready to be sent through the e-invoicing network. This access point is typically a service provider connected to the national or international e-invoicing network.
Step 3: E-Invoicing Network: The invoice is then sent across the e-invoicing network. This network is a digital platform that provides a secure and standardized way for invoices to be exchanged between different accounting systems, ensuring interoperability and data integrity.
Step 4: Receiver’s Access Point: Upon reaching the receiver's access point, the invoice undergoes verification to ensure it matches the receiver's requirements and standards. Like the sender's access point, this is also a service that connects the receiver to the e-invoicing network.
Step 5: Invoice Reception by Receiver: Finally, the invoice arrives in the receiver's accounting software or ERP system in a system-to-system manner, meaning no manual input is required. The receiver can then review the e-invoice which is pre-populated with all the necessary details and approve it for payment.
6. Varieties of E-invoices in Malaysia
With the advent of e-invoicing in Malaysia, various traditional financial documents will transition to digital formats. Below are the anticipated types of electronic documents:
I. Invoices: The foundational element of e-invoicing, an invoice, documents a sale transaction and associated details between buyers and suppliers. This category also encompasses the practice of self-billing.
II. Credit Notes: Reserved for issuance by suppliers, credit notes adjust transactions downward. They're typically used to rectify discrepancies in the original e-invoice, not for actual monetary returns.
III. Debit Notes: The flip side of credit notes is, debit notes are issued when there's an increase in the transaction value, reflecting additional charges or adjustments.
IV. Refund Notes: Issued by suppliers to confirm the reimbursement of payment, refund e-invoices serve as a formal record of the refund provided to a client or customer, ensuring transparency and aiding in financial audits.
7. Scope of E-Invoicing in Malaysia
The e-Invoicing framework in Malaysia is designed to encapsulate a variety of transactions, including:
Business-to-Business (B2B),
Business-to-Consumer (B2C), and
Business-to-Government (B2G), with B2G e-invoice flows mirroring those of B2B transactions.
Applicable across the spectrum of commercial transactions, e-Invoicing is pertinent to both the sale of goods and services and certain non-commercial dealings among individuals.
For B2C engagements, while it's not mandatory for sellers to issue e-invoices to end consumers, standard invoices or receipts are expected. Subsequently, sellers are tasked with consolidating these documents into a singular e-invoice after a specified duration.
8. Submitting E-invoices Options in Malaysia
Businesses operating in Malaysia have several methods at their disposal for submitting e-invoices:
MyInvois Portal Provided by IRBM: This user-friendly portal is open to all businesses and is particularly well-suited for companies that deal with a modest number of transactions, making it an excellent choice for Micro, Small, and Medium-sized Enterprises (MSMEs).
Application Programming Interface (API): For those preferring a more integrated approach, APIs are available in XML or JSON formats. Implementing an API solution involves a technological investment and adjustments to existing systems, but for larger corporations managing a high volume of invoices, it represents the most efficient method of e-invoice submission.
9. Validation of Invoice
Digital Certificates will be issued to taxpayers to enable them to attach digital signatures to e-invoices. Once validated by the MyInvois System, the Supplier will receive a validated e-invoice with the following information:
IRBM Unique Identifier Number
Date and time of validation and
Validation link via API.
Upon validation, the Supplier is obliged to share the validated e-invoice with the Buyer after embedding the validated link in the form of a QR code on the e-invoice.
10. XML Fields (53 Data Fields in 9 Categories)
In the realm of digital transactions, Malaysia's XML e-invoice format is meticulously structured into nine fundamental categories, encompassing 53 specific data fields. Key components such as 'Address', 'Business Details', and 'Contact Number' provide essential contact and identification information. 'Party Details' and 'Parties' offer a comprehensive look at the transaction participants, while 'Invoice Details' and 'Payment Info' outline the financial aspects of the deal. The list of 'Products/Services' details the transactional elements, and each e-invoice is uniquely identified for traceability and verification purposes, thanks to the 'Unique ID Number'. These categories collectively ensure that all e-invoices are detailed, precise, and compliant with Malaysian e-invoicing standards.
11. Essential Components of E-Invoicing SDK
In the realm of digital transactions, Malaysia's XML e-invoice format is structured into nine fundamental categories, encompassing 53 specific data fields. Key components such as 'Address', 'Business Details', and 'Contact Number' provide essential contact and identification information. 'Party Details' and 'Parties' offer a comprehensive look at the transaction participants, while 'Invoice Details' and 'Payment Info' outline the financial aspects of the deal. The list of 'Products/Services' details the transactional elements, and each e-invoice is uniquely identified for traceability and verification purposes, thanks to the 'Unique ID Number'. These categories collectively ensure that all e-invoices are detailed, precise, and compliant with Malaysian e-invoicing standards.
12. What Are the Key Steps in the Workflow for Malaysia's E-Invoicing?
The Malaysian e-invoicing system is a streamlined digital process designed to facilitate efficient and secure transactions between suppliers and buyers. Here's how it operates:
1. Issuance of E-invoice: Suppliers create an e-invoice following a sale or transaction and submit it to the IRBM (Inland Revenue Board of Malaysia) for validation via the MyInvois Portal or through an API.
2. Validation of E-invoice: The IRBM conducts real-time validation to ensure the e-invoice meets established standards and criteria. Successful validation results in the issuance of a Unique Identifier Number to the supplier, which enhances traceability and reduces the risk of tampering.
3. Notification of Validated E-invoice: Both the supplier and buyer are notified through the MyInvois Portal or APIs once the e-invoice has been validated, ensuring both parties are informed.
4. Sharing of E-invoice: The supplier must then share the validated e-invoice, which includes a QR code, with the buyer. This QR code allows the buyer to verify the e-invoice's existence and status through the MyInvois Portal.
5. Rejection or Cancellation of E-invoice: Buyers are given a specific time frame to request rejection of the e-invoice, while suppliers may cancel the e-invoice if necessary. Any such actions must be justified and communicated appropriately.
6. MyInvois Portal: Both the supplier and buyer can access a summary of e-invoice transactions through the MyInvois Portal, providing a comprehensive overview of invoicing activities.
13. What are the benefits of adopting E-Invoicing in Malaysia?
Enhanced Efficiency: E-invoicing eliminates the need for manual data entry and reduces the chances of errors. This leads to quicker processing times, allowing businesses to allocate resources more effectively.
Cost Savings: By eliminating paper, printing, and postage costs associated with traditional invoicing, businesses can significantly reduce their operating expenses.
Faster Payments: E-invoicing expedites the payment cycle. With invoices delivered electronically and accurately, the time between sending an invoice and receiving payment is shortened.
Reduced Environmental Impact: Going paperless with e-invoicing contributes to a greener environment by reducing paper waste and energy consumption.
Compliance and Accuracy: E-invoicing systems often have built-in validation checks, ensuring that invoices comply with regulatory requirements and reducing the likelihood of errors.
E-invoice Guideline by the Inland Revenue Board of Malaysia (IRBM)
To modernize and enhance financial practices, the Inland Revenue Board of Malaysia (IRBM) has implemented comprehensive e-invoice Guidelines.
These are designed as a systematic approach for entities transitioning from conventional paper invoices to a digitized e-invoicing methodology.
14. What Details Are Recorded in the IRBM E-invoice Database?
Each e-invoice must capture a set of essential details for storage in the IRBM (Inland Revenue Board of Malaysia) Database. These particulars are critical for confirming the e-invoice's authenticity, maintaining its integrity, and enabling its traceability. Moreover, these details are instrumental for tax authorities to cross-check tax declarations for accuracy.
Core Invoice Data: This encompasses the invoice's unique identifier, type, purpose, and the date of issuance.
Vendor and Client Details: Vital information such as Tax Identification Numbers (TINs), names, addresses, email addresses, MSIC codes and descriptions, websites, contact personnel, phone numbers, company or individual identification numbers, SST registration numbers, transaction currencies, and exchange rates are included.
Product or Service Specifics: Itemized descriptions, quantities, Units of Measurement (UOM), per-unit pricing, discounts, tax classifications, codes, rates, amounts, tariff codes, as well as the subtotal, total before tax, and total after tax for each listed item are meticulously detailed.
Verification Data: Data points like the IRBM's Unique Identifier Number, the timestamp of validation, and the invoice's verification status are recorded.
Digital Authentication: Taxpayers are provided with Digital Certificates, enabling them to append a verifiable digital signature to each e-invoice, affirming the origin of the data.
Supplementary Information (Optional): Additional but optional details may be noted, such as the method of payment, supplier's banking details, terms of payment, the amount paid, date of payment, and reference numbers for payments and bills, along with any other pertinent information.
15. What is the Peppol Framework in Malaysia?
Malaysia's choice to implement the Peppol e-Invoicing standard is largely due to its established track record, capability for seamless integration, and compliance with international standards. Recognized for its robust structure and operational efficiency, the Peppol framework is the preferred global standard, having been adopted by more than 20 nations for its reliable and streamlined e-invoicing processes.
Under the envisioned setup, Malaysia will utilize a hybrid model that merges Continuous Transaction Control (CTC) with the Peppol network. In essence, this means the IRBM will review and authenticate invoices prior to their dispatch to purchasers. Approved invoices will be furnished with a Unique Identifier Number, along with the validation timestamp and a link for verification, all disseminated via an API. Following this, the IRBM will issue notifications to both the issuer and recipient via email. Taxpayers will have the flexibility to choose Peppol among other available channels for invoice exchange. In cases where Peppol is not utilized, an integrated, automated electronic exchange system will still be in operation.
The API integration facilitates a direct connection for taxpayers to submit e-invoices to the IRBM. There are multiple pathways for e-invoice transmission through the API, which include:
The direct linking of the taxpayer's ERP system with the MyInvois System.
Utilization of Peppol-accredited service providers.
Employment of alternative, non-Peppol technology services.
16. How can MELASOFT help you?
With Melasoft E-invoice Solution for Malaysia, you can prepare invoice documents following the infrastructure requirements of the Inland Revenue Board (IRB) system and Malaysia legislation, which is required for companies that do or will trade in Malaysia. You can manage your B2G and B2B invoice processes entirely within the E-invoice system, create invoice documents, automatically archive them, and complete the legal signature process.
Melasoft E-invoice Solution for Malaysia includes a review of accounting processes for companies trading with Malaysia and preparation and analysis for integration with the IRB E-invoice System. In addition, the Melasoft solution provides the identification of areas requiring changes, mandatory data entry, policies and procedures for responsible persons, internal controls, integration of the Malaysia electronic invoicing standard with the SAP system, electronic invoicing for XML and JSON and UBL standards.
Conclusion
The e-invoicing process is automated and secure, reducing the risk of errors and speeding up the payment cycle. Both sender and receiver must have access points that connect to the e-invoicing network to send and receive e-invoices. The system streamlines the invoicing process, allowing for a more efficient accounts payable and receivable workflow. As we approach the new frontier of digital finance, Melasoft's e-invoicing solution offers a seamless blend of compliance and innovation. We see Malaysia's e-invoicing mandate not just as a regulatory must-do but as a catalyst for business transformation.
References: https://www.hasil.gov.my/en/e-invoice/
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