Malaysia adopts new centralised e-invoicing system

Update July 29, 2024

MyInvois system ready for use since June 28, 2024

E-invoicing is revolutionising the way businesses handle financial transactions worldwide, simultaneously becoming an essential tool for tax compliance. In Malaysia, the adoption of e-invoicing is a key component of the national digitalisation agenda. This shift is rapidly transforming business operations, providing significant benefits in efficiency and cost savings, and enhancing tax compliance.

Similar to other digital transformation initiatives in Malaysian public administration, the adoption of e-invoicing is driven by the Inland Revenue Board of Malaysia (IRBM), also known as Lembaga Hasil Dalam Negeri (LHDN). This public body is responsible for tax administration and collection under the Ministry of Finance. The IRBM is implementing a centralised e-invoicing system under the Continuous Transaction Control (CTC) model, where all e-invoices will be validated in real time before being provided to the recipient.

The obligation to use e-invoices in business operations covers transactions such as:

• Business to business (B2B)
• Business to customer (B2C)
• Business to government (B2G).

The e-invoice flow for B2G transactions is similar to B2B.

The issuance of e-invoices is required for all transactions within Malaysia but also applicable for cross-border transactions.

E-invoices must be submitted to the MyInvois system as structured invoice data in XML or JSON format. Up to 55 data fields need to be completed to issue an e-invoice. The fields are grouped the following categories: address, business details, contact number, invoice details, parties and party details, sold products or services, and information about payment. Businesses planning to implement e-invoicing in Malaysia should make sure all the required data fields are available in their business systems.

The technical term ‘e-invoice’ covers a broader set of documents exchanged between the trading parties in the billing process. When speaking about issuing e-invoices in Malaysia, the term means one of the following document types:

• Invoice: The invoice records the transactional data arising from business operations between the supplier and the buyer, and contains information such as supplier’s and buyer’s details, item descriptions, quantities, prices, taxes, and total amounts. The term ‘invoice’ also includes the self-billed e-invoice for purchase of goods and services from foreign suppliers (import) or other business transactions where self-billing is required.

• Credit note: If the buyer returns a damaged item or the supplier intends to make adjustments due to various reasons (e.g., discount provided, incorrect amount delivered), the supplier will issue a credit note to adjust the amount owed. Corresponding references to the associated invoices should be clearly specified in the credit note for reconciliation.

• Debit note: When the buyer requests additional services or the supplier incurs additional costs such as expedited shipping, resulting in an increase in the overall invoice amount, the supplier will issue a debit note to add the additional amount to the originally stipulated total. Corresponding references to the associated invoice should be clearly specified in the debit note for reconciliation.

• Refund note: When the buyer has paid for a product or service and subsequently returns the product to the supplier or cancels the service, they become eligible for a refund. The refund note acknowledges the return and specifies the refunded amount.

As mentioned, the Malaysian tax administration agency, the IRBM, is using a centralised e-invoicing system under the CTC model. This requires taxpayers to use a specific central system provided by the agency. The system, called MyInvois, was opened for use on June 28, 2024.

Taxpayers can use the MyInvois system in two ways:

• API integration: Connecting their ERP or other business applications to the MyInvois system via an API.

This method is ideal for large businesses with a high volume of transactions. The integration can be done directly to the MyInvois system or through an e-invoicing provider already connected to the MyInvois system.

• Manual entry: Manually logging onto the MyInvois portal to issue and download invoices directly.

This option is recommended for smaller businesses that do not use an ERP, have a small number of invoices, or lack the means for IT integration.

E-invoicing in Malaysia will be implemented in phases, based on a business’s annual turnover in 2022:

• August 1, 2024: Taxpayers with an annual revenue of more than MYR 100 million in the financial year 2022
• January 1, 2025: Taxpayers with an annual revenue between MYR 25 million and MYR 100 million in the financial year 2022
• July 1, 2025: All other taxpayers

In the event of a change in the accounting year-end for the financial year 2022, the taxpayer’s turnover will be pro-rated to a 12-month period. For new businesses or operations commencing from 2023 (and therefore without financial data for 2022), the implementation date is set for July 1, 2025. However, taxpayers can voluntarily start creating e-invoices earlier, regardless of their annual turnover or revenue.

• The supplier will send the invoice (as a JSON or XML e-invoice) to the MyInvois system. They can use an automated process via the API connection – or a manual process by entering invoice data directly into the portal.
• Upon receipt, the MyInvois system will automatically validate the structure and syntax of the e-invoice and provide confirmation (or rejection) to the supplier. At the same time, the system will send the information to the buyer.
  • The MyInvois system will assign a unique identifier number to each approved e-invoice. This will be the number under which the invoice is registered by the tax authority. However, the original supplier’s invoice number will remain as a separate field in the e-invoice document for the purpose of the supplier’s internal reference and tracking.
  • The MyInvois system will provide the buyer with a QR code carrying the invoice information. In case of using a visual invoice (such as a PDF or other visual representation when billing consumers), this QR code must be added to the visual representation of the e-invoice.

• The buyer has the option to reject the invoice within 72 hours from the time of validation by the MyInvois system. They should state the reason for the rejection.
• Upon the buyer initiating the rejection request, a notification will be sent to the supplier by the MyInvois system.
  • If the supplier agrees and accepts the request for rejection, they may cancel the disputed e-invoice within 72 hours from the time of validation.
  • If the supplier did not accept the request for rejection (or did not cancel the disputed e-invoice) and the 72 hours have passed, cancellation of the original e-invoice is not possible. Any amendment thereof would require the seller to issue a new e-invoice (in this case a credit note, debit note, or refund note).

Export: The domestic supplier must issue an e-invoice via the MyInvois system where the invoice gets validated (similarly to intra-country trade). The domestic Malaysian supplier will need to enter all data of the foreign buyer – and use EI00000000020 as a foreign buyer’s Tax Identification Number (TIN) when the foreign buyer’s TIN is not available or not provided.

Once the e-invoice has been validated, the MyInvois system will send notification to the domestic Malaysian seller only (as the foreign buyer is not using the MyInvois system). 

The validated e-invoice will serve as proof of income for the domestic Malaysian supplier who would share a copy of the validated e-invoice with the foreign buyer in their usual business manner (e.g., as a PDF with the QR code or as a structured e-invoice via Peppol). 

Since the foreign buyer is not part of the MyInvois system, they cannot reject the invoice through it. If there is an error on the already validated e-invoice, the rejection must be communicated outside of MyInvois. However, the Malaysian supplier should make adjustments by issuing a credit note, debit note, or refund note through the MyInvois system.

Import: The foreign supplier can use their standard invoice and is not required to use MyInvois. To report the invoice and substantiate the expense for tax purposes, the Malaysian buyer must issue a self-billed e-invoice through the MyInvois system using the data from the invoice they received from the foreign supplier. This ensures the invoice for imported goods or services is validated and reported to the IRBM. The self-billing Malaysian buyer can use the generic TIN EI00000000030 as the foreign supplier’s TIN when the foreign supplier’s TIN is not available or not provided.

The Malaysian buyer should issue a self-billed e-invoice no later than the end of the month following customs clearance of imported goods and in relation to imported services, a self-billed e-invoice should be issued at latest by the end of the month following the payment made by the buyer, or following the receipt of the invoice from the foreign supplier (whichever is earlier). 

The validated self-billed e-invoice will serve as proof of expense for the Malaysian buyer (it doesn’t need to be shared with the foreign seller).

* The Tax Identification Number (TIN) is referred to as the “Income Tax Number”, which is issued by the IRBM to individuals and entities to uniquely identify taxpayers.

A digital signature verifies the identity of the issuer of the e-invoice and confirms that the e-invoice originates from a specific taxpayer. The issuer must add a digital signature to the e-invoice to ensure its integrity and authenticity. This signature is applied using the issuer’s digital certificate. If taxpayers use the services of an e-invoicing provider, the e-invoice will be signed with the provider’s digital certificate.

A list of certified providers of digital certificates in Malaysia is available here.

Taxpayers are allowed to select any transmission method suited to their business nature and preference, including using Peppol or providing invoices in a visual, human-readable format (e.g., PDF delivered via email). When using visual representation, the QR code provided by the MyInvois system must be included in the PDF or other visual format to assure compliance.

According to the latest information from the IRBM, failure to issue an e-invoice is an offence that might result in a fine from MYR 200 up to MYR 20,000 or even imprisonment up to six months (or both).

All e-invoices validated by the MyInvois system will be stored in the IRBM’s database. However, taxpayers must retain sufficient records and documentation related to the transaction for at least seven years from the date of issuance, in compliance with Malaysian tax documentation requirements.

E-invoices must be archived in a format that ensures readability and accessibility throughout the retention period. This includes maintaining them in their original electronic format, preserving their integrity and authenticity to protect against unauthorised alterations or tampering. Appropriate security measures must be implemented to safeguard archived e-invoices from loss, damage, or unauthorised access.

With the introduction of CTC supported by the new MyInvois system, the IRBM receives the option to continuously monitor the business operations of businesses in the country and collect tax information in real time. This means higher efficiency for the tax collection process on the side of the IRBM organisation. At the same time, the importance of the taxpayer stating accurate sales tax or service tax information on the generated invoice increases significantly. Taxpayers will need to ensure that their e-invoices are generated according to the new requirements and that the information on those invoices is correct – as any attempt to correct an already registered invoice increases the complexity of the process.

Avalara can help businesses prepare for the latest changes to Malaysia’s e-invoicing system. We can also help answer your questions about e-invoicing, sales and service tax calculations, tax returns in Malaysia and other countries, or cross-border goods classification. Contact us to learn more.

In a press release, the Malaysian government confirmed that it will provide a grace period of six months. During this time, the government will allow businesses to issue consolidated e-invoices (for a number of transactions) instead of issuing individual e-invoices accompanying each business transaction (where a QR code must be requested by the MyInvois system for each business transaction).

This grace period should allow Malaysian businesses time to transition to the new system. Starting August 1, 2024, business transactions must still be reported to the MyInvois system by large companies — the only difference to the original mandate is the allowance for consolidated reporting of business transactions instead of individual reporting of each business transaction. This announcement must not be taken as postponement of the mandate.

To reward companies that are ready for e-invoicing and do not need to utilize the grace period, the government will allow them to claim capital expenditure for investments into their e-invoicing infrastructure such as hardware and software over two years instead of three (in the tax years 2024 and 2025).