B2B and B2G E-Invoicing in Malaysia – A Complete Guide for Businesses

B2B and B2G E-Invoicing in Malaysia – A Complete Guide for Businesses

E-invoicing signifies a major change in how companies record every transaction with other businesses and government entities in Malaysia. The Malaysian Inland Revenue Board (LHDN) has established a clearance model whereby any B2B or B2G invoice must be submitted to and cleared by the central MyInvois portal to be deemed legally compliant. The introduction of e-invoicing will create a system that requires businesses to report transactions in real-time alongside increased tax transparency and more streamlined business processes. This comprehensive guide will address the content requirements, compliance requirements, and technical specifications for B2B and B2G e-invoicing, allowing businesses to become informed of the new digital environment.

Recent Updates

The LHDN continues to refine the e-invoicing framework. There have been a few key updates:   

1. Staggered Rollout Schedule: Specific criteria that will allow for a phased rollout plan, based on annual turnover, with initial rollout starting with large taxpayers in August 2024  
2. Reviewed API Expectations: The technical documentation has increased in specificity, providing a greater clarity of expectations for businesses and their systems  
3. Clarifications on Exemptions: Providing guidance around transactions exempt from the requirement, therefore not needing to be submitted to the LHDN portal for processing   
4. Updated validation expectations: A more robust data check has been developed to validate transactions, along with many other updates.

Companies need to periodically update themselves by referencing the LHDN e-invoicing portal for guidelines, compliance criteria, and technical requirements.

Understanding B2B and B2G E-Invoicing

B2B e-invoicing refers to electronic invoicing among registered businesses, and B2G e-invoicing refers to transactions between businesses and government bodies. The Malaysian e-invoicing model requires suppliers to submit invoice data to LHDN's MyInvois system for validation before issuing invoices to their customers. Upon successful validation, LHDN generates a Unique Identifier (UID) and QR code that must appear on the final invoice.

Scope and Applicability

LHDN introduced this  mandate that applies to all businesses registered, depending on the business’s annual turnover, in phases under the Income Tax Act 1967, including:  

• B2B Transactions: All transactions between registered businesses  
• B2G Transactions: All supplies to government ministries, departments, and agencies  
• Document Types: Standard invoices, credit notes, debit notes, and refund notes  
• Transaction Values: All values, with no minimum threshold exemptions

Key Differences from Traditional Invoicing

The e-invoicing system introduces several significant changes from traditional paper or PDF invoicing:  

• Pre-clearance Requirement: Invoices must be certified by LHDN before being issued  
• Standardized Data Format: JSON or XML format data submission  
• Real-time Reporting: Real-time transmission of transaction information to tax authorities  
• Digital Verification: QR code-based authentication mechanism

Implementation Timeline

As a means of assisting towards a smooth transition phase, LHDN created a mode in phases with mandatory implementation under the provisions of a taxpayer's yearly turnover.

Phases	Details
August 1, 2024	All taxpayers with an annual revenue/turnover of RM100 million.
January 1, 2025	Taxpayers with an annual turnover or revenue of more than RM25 million and up to RM100 million
July 1, 2025	Taxpayers with an annual turnover or revenue of more than RM5 million and up to RM25 million
1 January 2026	Taxpayers with an annual turnover or revenue of more than RM1 million and up to RM5 million
1 July 2026	Taxpayers with an annual turnover or revenue of up to RM1 million

Complete Workflow Process

The e-invoicing cycle involves a series of crucial steps:

Step 1: Data Preparation

Companies have to put together all of the mandatory invoice details into the structured format prescribed. Required data includes:  

• Supplier and buyer details (complete TIN details)  
• Invoice date and number  
• Detailed line items with descriptions, quantities, and prices  
• Tax calculations and totals  
• Payment information

Step 2: Submission to MyInvois

The structured data is transmitted to LHDN through one of two methods:  

• MyInvois Portal: Web-based interface for manual entry  
• API Integration: Automated interface between systems for bulk processing

Step 3: Clearance and Validation

LHDN verifies the data for completeness and accuracy. Successful validation results in the generation of:  

• Unique Identifier (UID): Reference number specific to the transaction  
• QR Code: Machine-readable code containing validation information

Step 4: Issuance of Invoice

The supplier issues the invoice to the buyer, with the UID and QR code provided by LHDN. The invoice can be issued in various forms (PDF, paper), provided that it has the required validation items.  

Step 5: Record Keeping

Both the buyer and seller are required to retain the authenticated e-invoice details on record for a period of seven years from the end of the applicable assessment year. 

Technical Requirements

Effective deployment requires the following technical requirements to be met:

Data Format Requirements:  

• Data in structured XML or JSON format  
• Mandatory and optional fields as specified by LHDN  
• Specific data validation rules and formats  
• API Integration:  
• REST API architecture  
• OAuth 2.0 authentication protocol  
• Specific endpoint configurations for different operations

Data Security:

• Encryption requirements for data transmission  
• Secure storage protocols for sensitive information  
• Access control mechanisms

Compliance Requirements

Businesses must ensure strict adherence to several compliance aspects:  

Documentation Requirements:  

• Complete and accurate buyer/seller information  
• Proper transaction classification  
• Correct tax calculations and reporting

Timeline Compliance:  

• Submission of consolidated e-invoices within seven calendar days after month end.  
• Proper sequencing of related documents (credit/debit notes)  
• Timely response to validation errors

Record Maintenance:

• Digital preservation of original validated data  
• Proper indexing and retrieval capabilities  
• Secure backup and disaster recovery processes

Penalties for non-compliance

Late submission and/or incorrect information will bear heavy penalties:  

• Administrative Sanctions: Fine for submitting late or wrong information  
• Tax Penalty: Refusal of input tax recoveries and allowance of expenses  
• Legal Penalties: Imprisonment for severe crimes  
• Business Impact: Loss of trading privileges with government entities

Conclusion

B2B and B2G e-invoicing is yet another significant accomplishment in tax administration and process automation for Malaysian businesses. The system will facilitate greater transparency, minimizing compliance gaps and providing tax authorities with real-time visibility of business transactions. The reform would necessitate significant preparation and adjustment of system structures, but the long-term benefits in the form of efficiency, elimination of errors, and better compliance make the reforms worthwhile now. Those companies that accept this new reality proactively will be regulation-friendly while reaping the dividends of Malaysia's expanding digital economy. A phased-in introduction is giving companies enough time to acclimatize; however, what needs to be done is done in a hurry so that the transition to the new system of invoicing is smooth.

FAQs

1. What information needs to be provided with B2B and B2G invoices?

All the data, including seller TIN, buyer TIN, legal names and address, item descriptions, quantities, prices, and tax calculations. B2G invoices may also require government-specific information.  

2. How does the validation process work?

LHDN's system validates completeness, correct format, and logic of the data. If submitted properly, validation could take seconds.  

3. Can we use e-invoicing alongside our ERP? 

Yes, most leading ERP systems are developing ERP integration modules. Companies will have to contact their software supplier for the timeline of integration implementation.  

4. What will happen if the MyInvois system goes down?

LHDN has established contingency procedures for system downtime, including extended submission deadlines. Businesses should monitor official announcements during such events.  

5. Are there any exemptions for B2B transactions?

The mandate applies to all B2B transactions regardless of value. Certain specific transactions are exempted from issuing an e-invoice, as per LHDN's latest guidelines.

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