An e-invoice is a digital representation of a transaction between a supplier and a buyer. Many companies already issue electronic invoices, such as PDF invoices. However, having such electronic invoices does not necessarily mean being compliant with Malaysia’s e-invoicing requirements as set out by the Inland Revenue Board of Malaysia (IRBM). The Malaysia e-invoice requirements go beyond to include specific processes and reporting formats.

E-invoicing works by enabling seller’s accounts receivable to input invoices into their financial system, which then sends them in a structured electronic format directly to the buyer’s system. Upon receipt, the buyer’s e-invoicing system automatically processes and imports the data into their accounts payable system, which streamlines the payment process without the need for manual handling.

Only two formats of e-invoice are acceptable – XML and JSON. Both of these formats are easy for machines to read, which reduces the time it takes for a machine to translate and process the invoice.

There are a number of dates that you need to be aware of in the transition. It’s critical to be mindful of the timeline, as e-invoicing implementation can take up to three to four months to complete.

The following table provides a breakdown of the key dates for the e-invoicing implementation rollout based on business turnover.

The above timeline is subject to changes. Please refer to LDHN website for detailed guidelines and updates.

Certain types of income expenses do not require an e-invoice.

These include:

• Employment income
• Pensions
• Alimony
• Dividend distribution by companies listed in Bursa Malaysia, or companies that are not required to deduct tax under Section 108 of the Income Tax Act 1967
• Zakat

While government bodies, local authorities and statutory bodies are exempt from the e-invoicing requirements, they may voluntarily choose to participate. A complete list of exemptions is detailed in the IRBM’s official e-invoice guidelines.

E-invoicing implementation is quite complex. The process may include upgrading infrastructure, integrating systems and training staff to ensure a smooth transition.

Here is a step-by-step guide to help you understand the process and how you can best implement e-invoicing.

Your turnover will dictate when you must transition to e-invoicing. Refer to your 2022 audited financial statement or tax return to confirm your business turnover.

If you had a change of accounting year end for financial year 2022, your turnover or revenue will be pro-rated to 12 months. This will be used to determine your implementation date.

Cheong Woon Chee, Head of Tax Services, BoardRoom Malaysia, says that a gap assessment analysis is a critical next step in the process.

“A gap assessment will help you to determine what you need to do to meet the e-invoicing implementation requirements,” explains Woon Chee. “This should encompass current systems and processes but also the people and the training you’ll need to undertake in preparation for the transition.”

A comprehensive gap assessment should include the following components:

Once a gap assessment analysis has taken place, a tailored gap closure strategy should be developed that addresses the identified gaps. The strategy should provide detailed recommendations and action plans to ensure a seamless transition to e-invoicing. By understanding the requirements thoroughly, you can plan effectively, working backwards from the implementation date to ensure you are ready on time.

Having this lead time also gives you the opportunity to start talking to your clients, partners and service providers. They are critical in the transition, so it’s important to engage them early to understand their timelines and requirements.

You have a choice between two e-invoicing models, which will depend on your business needs and size.

The first model uses the MyInvois portal, hosted by the IRB. This portal is available to all taxpayers, and Woon Chee says that if you’re processing around 20 invoices or less a month, MyInvois is a cost-effective solution.

“The other option is an application programming interface (API),” explains Woon Chee. “APIs are more suitable for businesses or taxpayers that process a substantial number of transactions.

“It is likely that your current systems will need enhancements or upgrades to support an API configuration, which comes with an upfront investment.”

E-invoicing implementation involves training in the lead up to the transition as well as after the transition to ensure a seamless changeover.

“E-invoicing isn’t like the standard invoices staff are familiar with,” adds Woon Chee. “Initially, training should focus on awareness before moving to additional rounds of training that go into detail about the new process.”

Training is crucial and should cover the strategic approaches the organisation is taking to implement e-invoicing effectively across departments, the tax implications and the compliance requirements. Staff must understand the effects e-invoicing will have on existing accounting processes, especially as the new forms now feature over 50 mandatory fields, raising the chance of errors. Post-implementation training can help identify errors and ensure they are rectified moving forward.

The Malaysian e-invoicing requirement is powered by the Pan-European Public Procurement Online (PEPPOL) network. PEPPOL is not a provider. It is an enabler that allows any organisation to send and receive business documents – in this case, e-invoices – through PEPPOL-accredited service providers.

While businesses aren’t required to use a PEPPOL service provider for e-invoicing, there are benefits to doing so. Namely, a PEPPOL-enabled solution ensures effortless compliance and security, seamless integration and error-free automation with real-time insights into your e-invoice progress.

There are grants and tax incentives available to support you with the costs of investing in the infrastructure required to transition to e-invoicing.

These include:

Transfer pricing is the setting of prices for the transfer of goods, services and intellectual property between associated parties.

In Malaysia, associated parties include entities within a multinational enterprise group, such as subsidiary companies and branches.

“These are parties who control one another or are under the common control of another party, either directly or indirectly,” Woon Chee says. Transfers between these entities are referred to as related party transactions.

“Transfer pricing exists because every country has a different tax rate,” Woon Chee explains. “For example, in Malaysia, our corporate tax rate is 24%, but in Singapore it’s 17%. Considering this huge difference, companies can use transfer pricing to save on tax.”

In addition, transfer pricing can support transparent transactions between related parties. However, a potential drawback of this transparency is that it may cause conflict internally.

“If the price is higher or lower than the market price, one of the entities may feel their interests are being sacrificed and deem it unjustifiable,” Woon Chee says.

Transfer pricing is strictly regulated by the Inland Revenue Board of Malaysia (IRBM). Companies must abide by the Malaysian Transfer Pricing Guidelines, which provide detailed standards and rules on how businesses should handle transfer pricing in accordance with Section 140A of the Income Tax Act 1967 and the Transfer Pricing Rules 2023.

Central to these regulations is the arm’s length principle, which dictates that transactions between related entities should be priced as if they were conducted between independent parties.

“Ideally, the transfer price should not be very different from the market price,” Woon Chee says. “So companies must do benchmarking to understand whether the mark-up they apply as part of their transfer pricing is at the median range for their industry.

“If your pricing is too high or low, you will need to justify this when you make the transfer to your related party.”