E-Invoicing in Malaysia: What Are the Compliance Standards and Tax Implications?

As Malaysia gears up for the mandatory adoption of electronic invoicing starting June 2024, businesses must understand the system.

The Inland Revenue Board of Malaysia (IRBM) aims to enhance tax collection by curbing fraud and evasion, making it essential for businesses to comply.

The e-invoice guideline, a comprehensive document published by the IRB in July 2023, is a reliable resource for businesses. It covers the implementation process, including the scope, coverage, and data required fields, among other crucial details.

It also helps businesses understand the MyInvois portal, how to use it, and the alternative options available.

Businesses must understand how the system will work, how they will transmit and receive invoices, and the software and hardware requirements.

By July 2025, all Malaysian taxpayers must comply with the upcoming electronic invoicing standards. This will be the last phase of the implementation process targeting small businesses.

This post will discuss e-invoicing in Malaysia, the compliance standards, and the tax implications businesses will face. We’ll look at the invoicing process, requirements, and the best practices for companies to implement e-invoicing in Malaysia.

Understanding Malaysia's new e-Invoicing system and compliance standards

Malaysia's new electronic invoicing system will apply to all commercial activities, including sales of goods and services and specific non-business transactions.

The system will cover domestic and cross-border transactions and rely on a digital certificate to validate invoices. This approach will help the Malaysian government transition to a CTC system connected to the PEPPOL network.

The new system will lead to technological developments among taxpayers to help them meet the set standards. For example, their systems must be able to generate invoices in specific formats and archive them for a set period.

Scope of e-invoicing in Malaysia

E-invoicing is currently optional for B2B and B2G transactions in Malaysia. This began in 2015 when buyers had to issue a consent form to the supplier to receive the invoice.

The current e-invoicing system does not require approval from the tax administration for an invoice to be issued. However, this is about to change with the new system.

The Inland Revenue Board of Malaysia (IRBM), the country’s tax office, has decided to mandate a system that enhances tax compliance.

This body must approve all invoices before issuing them and send a certified serial number to the buyer and seller.

Malaysian taxpayers will send and receive invoices using the new MyInvois portal or the IRBM’s API. The government also allows the Malaysian Digital Economy Corporation (MDEC) to approve PEPPOL service providers in the country to help businesses with e-invoicing processes.

Mandatory requirements for e-invoicing in Malaysia

According to the guidelines released by the IRBM in 2023, taxpayers will have to meet multiple requirements, including:

Format

The new e-invoicing system will require all taxpayers to transmit invoices in XML or JSON format. The MyInvois portal will allow users to request documents in XML/JSON, metadata, CSV reports, grids, and PDF files.

Entry details

Every invoice transmitted in Malaysia must explain the goods or services in question, the cost, the date and time, and other critical information. A valid electronic invoice has 53 mandatory fields, including the seller and buyer details.

Digital signature

The IRBM validates an invoice before the seller issues it to the buyer. After verifying that the details in the invoice are correct, the IRBM sends a digital signature to both parties, which is embedded in the invoice before transmission.

Archiving

After transmission and processing, the invoice must be archived for at least 7 years.

Types of e-invoices in Malaysia

The Inland Revenue Board of Malaysia categorizes the following as types of electronic invoices:

Invoice

This is the fundamental invoice that itemizes records of transactions between a seller and buyer. An invoice is proof of a transaction that business owners can also self-bill in various instances, such as foreign transactions to document expenses.

Credit note

Credit notes help sellers rectify errors, account for errors in invoices that have already been processed, or apply discounts. They reduce the value of the initial invoice in cases that do not involve returning money to the buyer.

Debit note

A debit note works contrary to a credit note; it indicates additional charges on an invoice that has already been issued. It helps document additional costs that may arise during or after the transaction.

Refund

Suppliers issue refunds to confirm the return of money to the buyer. Refunds are often issued when goods or services are defective or not received.

Updated implementation timeline for e-invoicing in Malaysia

Malaysia’s e-invoicing implementation timeline has undergone several changes, reducing the period length significantly. It was initially set to end in 2027, later reduced to 2026, and recently set for July 2025.

The implementation timeline is based on the business’s annual turnover or revenue and will begin with the highest earners.

August 1, 2024: The first phase will commence, mandating businesses with an annual income or sales greater than or equal to MYR 100 million to adhere to Malaysia’s electronic invoicing regulations.
January 1, 2025: It will be mandatory for taxpayers with an annual turnover of MYR 25 million up to MYR 100 million to issue electronic invoices that comply with Malaysia’s guidelines.
July 1, 2025: The last phase will begin, mandating all taxpayers, regardless of their business size, to issue e-invoices complying with Malaysian regulations.

The e-invoicing process in Malaysia

There are no regulations, formats, digital signature requirements, or infrastructure for e-invoicing in Malaysia. Mandatory e-invoicing by the Inland Revenue Board of Malaysia will introduce a new process for transmitting invoices.

Users will have the option of using IRBM’s API or the MyInvois portal to transmit an electronic invoice in the following steps:

1. Generate the invoice

The first step is to generate an invoice, including all the required data. The invoice should be in XML or JSON format to make it easy to transmit.

If you are using MyInvois, you need to enter the invoice data manually, unlike when using the API, whose processes are automated.

2. Send the invoice to the IRBM for validation

Send the invoice to Malaysia’s tax authorities for verification and clearance. They check the invoice in real time and issue a QR code to both buyer and supplier.

3. Digital signature attachment

The supplier must embed the QR code onto the invoice before issuing it to the buyer. Attaching the digital signature using a link on the invoice lets the receiver verify that it complies with the new invoicing laws.

4. Issue the invoice

Send the invoice directly using the MyInvois portal or through the PEPPOL network. An accredited PEPPOL service provider like Storecove can help ensure your documents adhere to the regulations.

5. Archive the invoice

After a transaction, the buyer and seller must archive the invoice for at least 7 years.

Tax implications of e-invoicing in Malaysia

Countries that have implemented mandatory electronic invoicing have improved tax compliance. Tax bodies have more control over taxpayers as they receive and validate transaction documents:

Here, we’ll discuss a few impacts of electronic invoicing on tax processes in Malaysia.

Generation of a more accurate digital paper trail

The IRBM will access and validate invoices in real time, increasing the chances of detecting evasion. The new system will also generate a digital certificate for every invoice before issuing it to make it easy to trace.

Through MyInvois or the IBRM application programming interface, the tax authority will cross-check invoice details to help curb evasive behaviors.

Increased voluntary compliance

Some business owners do not evade taxes voluntarily, but due to the challenges they may face. For example, if a company is still using paper invoicing, maintaining and tracking clear records of transactions can become cumbersome.

However, with an e-invoicing system that facilitates pre-filled tax returns, business owners will likely comply, as filing taxes will be easier.

Transparency between businesses and the tax body

Under the new system, the IRBM will openly share information between buyers and sellers. This will help solidify the relationship between tax authorities and businesses, strengthening the country’s economy.

It will also lead to technological developments as businesses and public authorities adopt equipment that is compliant with the guidelines.

Best practices for implementing e-invoicing in Malaysia

Embracing electronic invoicing is guaranteed to change your business operations significantly. So, how do you prepare your business for this massive transition?

Let us look at some of the best practices for adopting electronic invoicing in Malaysia:

Anticipate e-invoicing launch

E-invoicing is here, and it's inevitable. It is obvious that commencing the first steps will help ensure a seamless interpretation process.

Regardless of your business size, gradually integrating the new system into your business can make adoption easier. You can also help your staff better understand how the system works without last-minute panics.

Understand the set e-invoicing guidelines

Read and understand the e-invoicing requirements and other guidelines. Then, find effective ways to familiarize your organization with the information through training sessions.

You can hire e-invoicing experts to introduce and explain how to transition to the new system and how it will affect business operations.

Assess your business’s e-invoicing readiness

How ready is your team for the e-invoicing rollout? Can your current software and hardware generate invoices that meet the required Malaysian guidelines?

There are multiple technical and non-technical factors to consider for your business. You need to get tech-ready by adopting reliable software and equipment.

Also, regular reviews should be conducted to assess progress and prevent errors.

Choosing the right access point provider

If you choose to use a PEPPOL access point provider, verify that it is accredited by the Malaysian Digital Economy Corporation (MDEC).

A reliable access point provider such as Storecove can help ensure seamless e-invoicing processes. We help businesses by ensuring invoices comply with Malaysia’s e-invoicing guidelines.

Takeaway: Comply with Malaysia’s e-invoicing standards for effective tax processes

The upcoming e-invoicing mandate in Malaysia aims to boost the country’s economy by curbing tax evasion and fraud. It will help the Inland Revenue Board of Malaysia monitor domestic and international transactions.

Businesses are recommended to begin the implementation process early for seamless integration. This may include finding technological solutions and training your staff.

Familiarizing your organization with the new laws will help you better adopt the new system to ensure compliance. Your partners in this transition will play a significant role in your success.

You can find a reliable PEPPOL access point provider like Storecove to help maintain compliance. We will work with you and help you avoid invoice rejection by the IRBM by ensuring correct detail entry, format, and other requirements.

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