A Complete Guide to E-Invoicing in Malaysia for Businesses

A Complete Guide to E-Invoicing in Malaysia for Businesses

The tax landscape of Malaysia is transforming towards a revolutionary digitalization with the mandatory implementation of electronic invoicing, or e-invoicing. Led by the Inland Revenue Board of Malaysia (LHDN), the transition extends beyond the traditional paper and PDF bills to a standardized, real-time reporting system. The core of this system requires taxpayers to prepare invoices in a specific, structured manner and submit them to LHDN's central portal for validation before presenting them to customers. This blog offers a comprehensive description of the e-invoicing system in Malaysia, outlining the scope, technical requirements, implementation timeline, and compliance procedures that firms must understand in order to effectively implement this new obligation.

Recent Amendments

LHDN has implemented the invoicing scheme following the recent issuance of several key documents. The most recent guidelines clarify the phased rollout timeline and technical specifications.

• The rollout timeline has been phased based on an annual turnover of businesses, with a clear timeline for businesses to adopt.  
• LHDN has improved the MyInvois portal with a consumer front end for individual users as well as an API for bulk upload.  
• Explanations are also provided for exceptions for certain types of transactions and parties, including individuals not in business.

As e-invoicing continues to be implemented, businesses are encouraged to keep looking to the LHDN official portal for explanatory guidance and technical information.

What is E-Invoicing?

E-invoicing in Malaysia is not simply a digital version of a paper invoice, such as a PDF or scanned invoice. It is a standardized, structured data format that must be submitted for validation and clearance into the LHDN's central system. The system will be within a Continuous Transaction Controls (CTC) mode, in particular a clearance mode where each invoice is validated by the tax authority prior to being a valid invoice. 

The procedure entails creating an invoice document in a specific format (JSON or XML), uploading it onto LHDN's MyInvois portal, and subsequently getting back a unique identifier (UID) and a QR code to produce the invoice to the purchaser. This guarantees that the data of the transactions is genuine and is protected from the moment of its creation, up to the moment an invoice is produced for the author.

Scope of Application

E invoicing is available for all persons liable to tax under the Income Tax Act 1967, including individuals(resident or non-resident), companies(resident or non-resident), partnerships, trusts, co-operative societies, and any other body of persons (corporate or unincorporate) while being exempted for individuals not deriving business income and specific entities like the municipal and city council.

Transactions subject to:

• Business to Business (B2B)  
• Business to Consumer (B2C)  
• Business to Government (B2G)

Relevant Documents: The requirement will cover a wide range of documents beyond normal invoices, including credit notes, debit notes, and refund notes.

Exemptions:

The following are exempted from using e-invoicing, as provided under the Act and regulations of the Royal Malaysian Customs Department (RMC):

1. Individuals not deriving Business Income: Individuals who are taxed on employment income, dividends, interest, or rentals but do not carry on business are exempt from issuing e-invoices for their non-business transactions.  
2. Specific Exempted Entities (according to the Act and RMC):

• The Government of Malaysia and State Governments (since they are not "person(s)" to be taxed under the Act in this instance).  
• Local Councils (i.e., municipal council, city council).  
• Statutory Bodies as established under the Income Tax Act in Schedule 1 (i.e., limited number of government-connected companies).  
• Approved Institutions, Trusts or Funds exempted under Section 44(6) of the Act (i.e., chosen sporting, charity, or recreational institutions).  
• Diplomatic Missions and International Organizations that enjoy tax exemption, arising from succession treaties or orders of the applicable Malaysian law.  
• Organizations under the Minister of Finance Incorporated that are expressly exempted by the RMC.

Implementation Timeframe

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

E-Invoicing Workflow

The typical process of issuance of an e-invoice entails a series of key steps.  

Step 1: Data Preparation

The seller puts together all the invoice data required into the given structured data format. This includes seller and buyer details, item descriptions, quantity, prices, and tax.  

Step 2: Submission to LHDN

The invoice data is transmitted to LHDN via one of two methods:  

• MyInvois Portal: Manual entry and upload for low-volume issuers.  
• API Integration: A system-to-system integration for high-volume issuers.

Step 3: Validation and clearance

Finally, the LHDN system will determine whether the details can be verified as being specifically correct and/or complete. If possible, the system will create a Unique Identifier (UID) of the invoice and a QR code.  

Step 4: Presenting the Invoice

After validation, the seller will present the invoice to the buyer. The invoice that is submitted should include the UID and QR code of the LHDN system. The invoice may be delivered in a printable PDF or any format mutually agreed upon by the parties to the transaction; the critical aspect is that it refers to LHDN clearance data.  

Step 5: Reporting

Validated, authentic invoice data is posted to the accounts of the buyer and the seller. A UID and QR-coded invoice is proof of authenticity for expense claiming and input tax deduction to the buyer.

Technical Requirements

The technical implementation shall be implemented in LHDN's established standards of data.

Data Format: The invoice data must be structured in either JSON or XML format according to LHDN's schema.

Mandatory Data Fields:  

1. Core Invoice Information

• invoiceNumber: Single identity for invoicing.  
• invoiceType: Document type (e.g., Invoice, Credit Note, Debit Note).  
• invoiceDate: Date of issue of invoice.  
• invoiceDueDate: Payment due date.  
• supplyType: Code of nature of supply (e.g., 1 for Goods, 2 for Services).

 2. Supplier & Customer Information (Seller & Buyer)  

• seller.id (TIN): Seller Tax Identification Number. Applicable for registered sellers.  
• seller.name: The legal name of the supplier.  
• seller.address: Full address details.  
• buyer.id (TIN/ID Number): The buyer's TIN (if registered). If the buyer is a consumer without a TIN, their identification card number, passport number, or army ID number must be provided. This is a critical and mandatory field for all transactions.  
• buyer.name: The legal name of the buyer/customer.

 3. Line Item Details  

• lineItem.itemName: A clear description of the good or service.  
• lineItem.quantity: The quantity supplied.  
• lineItem.unitPrice: The price per unit, excluding tax.  
• lineItem.discount (if applicable): If the line item is discounted, this reflects the discount applied to the line item.  
• lineItem.lineAmount: The total line amount which does not include tax.

 4. Tax Breakdown  

• lineItem.tax.category: This is the tax type (e.g., “SST” for Sales and Service Tax).  
• lineItem.tax.rate: The applicable tax rate (e.g., 0, 5, 6, 10).  
• lineItem.tax.amount: The calculated amount of tax for the line item.  
• summary.taxTotal: The total amount of tax for the entire invoice.

 5. Payment Information  

• paymentMechanism: The payment method (e.g., "1" for Cash, "2" for Credit Card).  
• paymentAmount: The amount paid, if a payment has been made at the time of invoicing.

 6. Totals & Summary  

• summary.totalAmountExcludingTax: The sum of all line amounts before tax.  
• summary.totalAmountIncludingTax: The grand total amount payable, including all taxes.  
• summary.totalDiscount (if applicable): The total discount amount for the invoice.

 7. Validation & Submission Data

• uuid: A unique identifier generated by the supplier's system for each invoice.  
• previousInvoiceHash (for Credit/Debit Notes): Reference to the original invoice.  
• QR Code: When it is verified by the LHDN, the system will generate a QR code with a one-time hash. The QR code is to be stamped on the human-readable version of the e-Invoice.  
• Transmission Methods:  
• MyInvois Portal: A free web-based platform provided by LHDN.  
• API Integration: For businesses with accounting or ERP systems, allowing for automated bulk submission.

Compliance Process and Deadlines

Compliance has to adhere to procedures and timelines as required.  

• Consolidated e-invoices have to be submitted to the Inland Revenue Board of Malaysia (IRBM) within seven calendar days after the month-end.  
• Authenticated e-invoices have to be retained in their original form for at least seven years pursuant to the Malaysian tax law record-keeping requirement.  
• Purchasers need to become responsible for verifying that the received e-invoices are valid by matching the UID and QR code against LHDN's system, particularly in relation to input tax claims.

Penalties for Non-Compliance

• Failure to comply with the e-invoicing requirements can result in penalties under the Income Tax Act 1967.  
• Failure to issue an E Invoice: May lead to penalties associated with incorrect tax reporting.  
• Issuing False E-Invoices: Can result in severe penalties, including fines and imprisonment.  
• Non-compliance with Technical Standards: May lead to administrative penalties and withholding of related tax allowances.

The amount of the respective penalties will be controlled by the provisions of the tax laws and be determined by LHDN based on the nature and scope of the non-compliance.

Conclusion

The implementation of e-invoicing signals a major revamp in tax administration in Malaysia with the rollout of a real-time system that provides transparency and digital compliance. The aim of the plan is to provide tax certainty, improved compliance, and better business processes through automation. For a business, the benefits of e-invoicing are beyond compliance; they include improved operational efficiency, reduced administrative costs, and improved audit trails. There is, of course, an initial effort to transition processes and systems, but a business must engage in new digital mandates to operate efficiently and remain compliant with the new expectations of the Malaysian economy. Adapting in a proactive manner is a legal obligation and also a smart means of future-proofing your business operations.

FAQs

1. Will e-invoicing apply to every company in Malaysia? 

Yes, the mandate will apply to the vast majority of businesses and taxpayers liable to pay tax under the Income Tax Act 1967 by July 2025.

Some individuals are also exempted from the mandate, such as:

• Non-business individuals
• Government agencies
• Local authorities
• Some statutory organizations and tax-exempt organizations are included in the Act.

2. Can I still use PDF invoices?

A PDF can be used as a human-readable copy of the invoice. However, the underlying transaction data must first be submitted to and validated by LHDN. The PDF must include the UID and QR code provided by LHDN.

3. What if my customer does not have a TIN?

For B2C transactions where the customer is an individual not registered for tax, the field can be populated accordingly. The rules dictate the course of action in such cases.

4. How will e-invoicing impact my existing accounting system?

Businesses must have their ERP or accounting system upgraded to suit the required data format and API connection with LHDN's MyInvois system. Most software providers are developing compliant solutions.

5. Are there any transaction value thresholds for e-invoicing?

No, the mandate applies to all applicable transactions regardless of value. There is no minimum threshold for issuing an e-invoice.

You can explore Flick's other global tax and compliance resources here.