Tax Reporting Compliance: A Roadmap for Success
In June 2024, Malaysia will commence the enforcement of mandatory electronic invoicing regulations for specific businesses, determined by their annual revenue. The goal is to extend these regulations to all companies by 2027. These regulations pertain to both domestic and cross-border transactions, making them applicable to a broad spectrum of businesses.
Malaysia is following a phased approach, similar to several other countries, in implementing mandatory electronic invoicing. This transition presents a significant change that businesses operating in Malaysia should prepare for adequately to prevent potential penalties from tax authorities.
In this article, we will explore the e-invoicing rules in Malaysia, identify which businesses need to comply with these regulations, and outline the steps businesses should take to ensure compliance with e-invoice regulations in Malaysia.
E-Invoicing Rules in Malaysia:
Currently, electronic invoicing in Malaysia remains voluntary, with the requirement of obtaining written consent from the buyer before issuing an electronic invoice. The existing system follows a post-audit model, meaning businesses can issue e-invoices without prior clearance or approval.
However, this model is set to evolve with the introduction of a new National e-Invoicing system in 2024, designed to capture additional 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 National e-Invoicing Initiative. The primary objective behind this initiative is to reduce tax costs and enhance operational efficiency.
The new e-invoicing system will be mandatory, combining elements of the centralised continuous transaction control (CTC) model and the PEPPOL network. In this system, suppliers will need to submit invoices to the LHDNM for validation before sending them to buyers. Both parties will receive a certified serial number upon validation, with the preferred transmission channel being PEPPOL.
Who Needs to Comply with E-Invoicing Regulations in Malaysia:
These regulations will apply to all tax-registered businesses and government entities in Malaysia, irrespective of whether they engage in domestic or cross-border transactions. This inclusivity extends to business-to-business (B2B), business-to-government (B2G), and business-to-consumer (B2C) transactions.
Timeline for Mandatory Electronic Invoicing in Malaysia:
The implementation of the new system will occur in phases, as follows:
- June 2024: Mandatory for businesses with an annual turnover exceeding MYR 100 million.
- January 2025: Compulsory for companies with annual earnings surpassing MYR 50 million.
- January 2026: Obligatory for businesses with an annual turnover above MYR 25 million.
- January 2027: Statutory for all businesses, including B2C transactions, necessitating e-receipts for all B2C transactions.
How to Send Compliant E-Invoices in Malaysia:
As of now, Malaysia lacks specific e-invoicing regulations mandating particular requirements such as format, infrastructure, or e-signatures. The sole requirement is that both parties must agree to employ electronic invoices. The process will change in 2024 when the LHDNM introduces the National e-Invoicing system. To comply with this new system:
- Create the invoice with the necessary details, including registered names, contact information, invoice number, date, unit cost, total amount, quantity, sales and services tax, and more.
- Convert the invoice into XML format, as mandated by the LHDNM.
- Send the XML invoice to the LHDNM's e-invoicing API and await clearance.
- Attach a QR code to the invoice to facilitate buyer verification.
- Send the e-invoice to the buyer using standard electronic data interchange (EDI) methods.
Characteristics of the Electronic Invoice in Malaysia:
While comprehensive details about the new e-invoicing regulation in Malaysia are pending, some key features include:
- Submission through the LHDNM platform API.
- Format: XML.
- Archiving regulations: Currently, businesses are required to store invoices for at least seven years, but this may change.
- Network: PEPPOL is supported and preferred but not mandatory.
Steps for Businesses to Comply with E-Invoice Regulations in Malaysia:
Businesses should:
- Identify their applicable implementation date based on annual revenue.
- Raise awareness among employees, particularly those in sales, finance, and audit departments.
- Assess their compliance readiness and infrastructure.
- Stay updated with e-invoicing regulations through reliable sources.
In conclusion, businesses operating in Malaysia should prepare for the forthcoming mandatory e-invoicing regulations, as they represent a significant shift in the country's invoicing landscape. Compliance will require a strategic approach and potentially technological solutions to meet the new requirements effectively.
