Malaysia will start enforcing mandatory electronic invoicing regulations in June 2024 for some select businesses based on their annual revenue. By 2027, the plan is for all companies to implement the new system. The e-invoicing rules apply to all domestic and cross-border transactions.
Many countries have established mandatory regulations, while others plan to introduce mandatory electronic invoicing in phases. Malaysia ranks amongst the latter.
Businesses with current and future interests in Malaysia must prepare adequately for the impending changes to avoid penalties from tax authorities.
What are the e-invoicing rules in Malaysia? What businesses need to comply with these regulations in Malaysia? What should businesses do to comply with e-invoice regulations in Malaysia?
We answer these questions and more in the following sections.
What are the e-invoicing rules in Malaysia?
Currently, e-invoicing in Malaysia is voluntary, but a written agreement is required from the buyer before the supplier can issue an electronic invoice.
Malaysia currently operates a post-audit e-invoicing model, meaning businesses do not need to submit e-invoices for clearance or approval before forwarding the same to the receiving party.
This model is set to change, as the country has outlined a new National e-Invoicing system to come into effect in 2024 to capture more sales tax.
Proposed e-invoicing regulations in Malaysia
In late October 2022, the Inland Revenue Board of Malaysia (LHDNM) and the Malaysian Digital Economy Corporation (MDEC) announced their collaboration on the new National e-Invoicing Initiative. LHDNM handles tax administration in the country.
The underlying goal for launching the new system is to lower tax costs and improve efficiency. Six months later, both parties announced a phased mandatory implementation of the National e-Invoicing system.
The new e-invoicing system will be obligatory. It is a hybrid of the centralized continuous transaction control (CTC) model and is paired with the PEPPOL network.
In this hybrid system, businesses on the supply side must first submit an invoice to the LHDNM. The LHDNM then validates and approves the invoice before the supplier can send it to the buyer.
Upon validation and approval, the supplier and the buyer will receive a certified serial number via email. Taxpayers can choose which channel to use for sending the cleared invoice to the buyer, although the LHDNM’s preferred channel is PEPPOL.
Taxpayers using other channels must follow the traditional electronic data interchange (EDI) model to exchange invoices.
Additionally, businesses must attach a QR code to each invoice to enable buyers to verify the clearance.
Who needs to comply with the e-invoicing regulations in Malaysia?
The new e-invoicing will apply to all tax-registered businesses in Malaysia and government entities. The statutes will apply to all organizations, whether they’re engaged in domestic or cross-border transactions.
That means the regulations apply to business-to-business (B2B), business-to-government (B2G), and business-to-consumer (B2C).
Timeline for mandatory electronic invoicing in Malaysia
As we mentioned earlier, the new system would be implemented in phases. The currently stipulated timeline for implementation:
- June 2024: Mandatory for businesses with an annual turnover greater than MYR 100 million;
- January 2025: Becomes compulsory for companies earning more than MYR 50 million;
- January 2026: Becomes obligatory for businesses with an annual turnover above MYR 25 million;
- January 2027: Becomes statutory for all businesses, including B2C transactions.
For B2C transactions, business entities will be required to issue e-receipt for all transactions.
How to send compliant e-invoices in Malaysia?
Malaysia does not have e-invoicing regulations that stipulate mandatory requirements, although they are officially recognized in the country.
There’s no requirement for infrastructure, format, e-signature, or who may issue them. The only provision is for both parties to agree to use electronic invoices.
In essence, there’s currently no predefined way to send compliant e-invoices.
This process will change in 2024 when the LHDNM begins the staggered implementation of the new National e-Invoicing system. In this new mandatory e-invoicing environment, these are the steps to follow:
Step 1: Create the invoice
Create the invoice with the appropriate data, including the registered name of both parties and contact information (particularly email), invoice number, date, agreed unit cost, total amount, quantity, sales and services tax implemented, and other details.
Step 2: Convert invoice to XML
The LHDNM requires that all invoices be sent for verification in XML format.
You can create the invoice as an XML file directly in step 1, but you may need to convert the XML invoice back to PDF or Word after receiving clearance from the LHDNM.
This is because your buyer may not have the infrastructure to receive XML invoices.
Step 3: Send to the LHDNM’s e-invoicing API & receive clearance
Send the invoice in XML format to the LHDNM’s API. The registration process to access the API has not been made public yet.
Step 4: Attach QR code to invoice
All businesses must attach a QR code to all invoices before sending them to the buyer.
Embed the QR code with a link to the invoice on the LHDNM website to enable the buyer to verify that the invoice is regulatory-compliant.
Step 5: Send to buyer
Send the e-invoice to the buyer via any standard under the traditional EDI model. You may need to archive the e-invoice, but there's currently no clarity on this.
Characteristics of the electronic invoice in Malaysia
The tax authority in Malaysia is yet to provide a comprehensive overview of the new e-invoicing regulation.
The LHDNM and the MDEC provided all the details we shared above at the Service Provider engagement session in April 2023.
As such, we do not currently have a complete view of the new e-invoicing system. Here’s a summary of what we know:
- Platform: All sales invoices are submitted via the LHDNM platform API. Companies can also receive and send invoices via the myTax portal.
- Format: XML.
- Archiving regulations: Currently, businesses are required to store invoices for at least seven years. This requirement may or may not change with the new system.
- Network: PEPPOL supported and preferred but not compulsory.
What should businesses do to comply with e-invoice regulations in Malaysia?
At this moment, the first thing any business should do is to note which implementation date applies to them.
You can use this timeline to create an internal strategy. Your strategy should include the following:
- Create awareness for all employees, especially those in the sales, finance, and audit departments.
- Analyze the country requirements and your company infrastructure to see if you can deliver compliant e-invoices.
- Subscribe to our newsletter to keep abreast of e-invoicing regulations in Malaysia as the LHDNM provides additional updates.
Ultimately, companies with business operations in Malaysia and multiple countries need technological solutions to send and receive regulatory-compliant invoices.
That’s what Storecove offers, a centralized solution to help you implement electronic invoicing in multiple countries.
Get a head start on upcoming e-invoicing regulations in Malaysia
Malaysia is moving from a voluntary post-audit e-invoicing model to a mandatory CTC model, requiring sales invoices to be sent to the tax authority for clearance before they can be sent to the buyer.
The Malaysian Government seeks to block leakages in the collection of sales and services taxes through the new regulations.
There’ll be a gradual implementation of the new system. Businesses earning more than MYR 100 million per annum will be the first to comply. The country hopes all businesses will adopt the new e-invoicing rules by 2027.
In the new regime, companies must upload all invoices in XML format for clearance through the LHDNM platform API.
The new system will apply to B2B, B2G, and B2C transactions.
There’s about a year - and more, depending on your business’s financial status - before the rule change takes effect. It’s prudent to start building the right infrastructure and strategy to meet the requirements now!
Considering many other countries have passed e-invoicing regulations and more will, your strategy has to be holistic and cost-effective.
That’s why a solution like Storecove fits the bill. Our advanced e-invoicing API is a plug-and-play solution for becoming e-invoicing compliant in more than 50 countries.
Don’t know where to start? You can schedule a consultation with Dolf Kars, our e-invoicing expert, to discuss how we can help you create a custom solution to meet e-invoicing regulations in multiple countries.
More information about Electronic Invoicing in Malaysia?
Call us on +31 (0) 20 261 17 91 or send an e-mail to: email@example.com