guide to e invoicing for malaysia sme using peppol framework

7 Things SMEs Must Know About E-Invoicing In Malaysia

Announced last year, Malaysia’s upcoming e-invoicing system will unite the many tax reporting workflows across the country under one streamlined platform as part of the government’s efforts to improve transparency and efficiency in tax reporting,

In other words, it’s going to be much harder to evade or underdeclare taxes.

shell companies will be harder to hide after malaysias e invoicing system is implemented
Good luck to all the shell companies!

As MISHU serves many SMEs, we often get approached by business owners asking how they will be impacted by e-invoicing in the short and long-term.

If you’d prefer primary sources, here are official documents we’ve used as references:

  1. LHDN e-invoice guidelines
  2. LHDN industry-specific FAQs
  3.  LHDN official e-invoice page

If government lingo gives you indigestion, we’ve distilled the documents into seven key things Malaysian SMEs need to know about our incoming e-invoicing system.

Let’s begin.

1. It uses a reporting framework called PEPPOL

You’ll hear and see this word a lot in discussions about e-invocing, and it’s not Europeans pronouncing ‘people’ funny.

PEPPOL stands for Pan-European Public Procurement On-Line and is an internationally recognised network for reporting and recording transactions.

different peppol member countries
We meanait.

Members of the PEPPOL network can send e-documents to each other in a standard format – and because the network is global, LHDN has a clear overview of company revenue whether it is from domestic or international buyers.

 1.1 MDEC is Malaysia’s PEPPOL Authority

PEPPOL Authorities are appointed with the approval of OpenPeppol (the NGO that oversees its global implementation) to facilitate the adoption of PEPPOL on a national level while staying fully compliant with international standards.  

For Malaysia, that responsibility falls on the Malaysia Digital Economy Corporation.

2. You need PEPPOL-compliant software

Eventually, whatever invoicing system your business uses must be accredited by MDEC as PEPPOL-compliant, which means it generates e-invoices that meet reporting standards.

Currently, service providers in Malaysia are in the process of updating their internal processes and submitting them for review and approval, and you may find official working documents here and here.

3. Tax reporting will get much easier

Here’s a screenshot from LHDN showing the workflow of an average e-invoice.

flow of e-invois under PEPPOL network for Malaysian SMEs

Because each e-invoice immediately gets sent to LHDN, businesses can report taxes in real time instead of compiling and submitting it seasonally. 

For SMEs, this can prevent missed opportunities for tax rebates or accidentally under declaring taxes due to missed invoices.

4. Not ALL transactions need e-invoices

For many B2C businesses dealing in multiple smaller transactions (think F&B outlets), unless the customer specifically requests for an e-invoice, you can issue them with a regular receipt or invoice.

A buyer who initially does not request an e-invoice has 30 days to request one, after which your business may decline their request.

declining a buyers request for e invoice after 30 days
They are, however, welcome to do this.

However, you must aggregate all such transactions on a monthly basis and submit a consolidated e-Invoice to LHDN within seven days after the month’s end.

4.1 Some transactions do require e-invoices

Certain businesses dealing in high-value transactions are required to issue e-invoices for each transaction. Here is the current list as of January 2024:

NoIndustry/ActivityTypes of Activities/Transactions Where Consolidated e-Invoice is Not Allowed
1AutomotiveSale of any motor vehicle. 
2Aviation1. Sale of flight ticket 2. Private charter
3Luxury Goods & JewelleryDetails yet to be confirmed.
4ConstructionConstruction contractor undertaking construction contract, as defined in the Income Tax (Construction Contracts) Regulations 2007.
5Wholesalers & Retailers of Construction MaterialsSale of construction materials as defined under the Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994, regardless of volume sold. 
7Payment to Agents/Dealers/DistributorsPayments made to agents, dealers, or distributors. 

Anyone planning on laundering money by buying Rolexes, best think of something else.

5. You need e-invoices for internal processes

Company expenses related to staff benefits, compensation, and anything that involves cashflow will require e-invoices to substantiate the expense before tax deductions can be made.

internal process like buying lunch for office staff needs e invoice to be deductible
Relax, can still claim deductions when the boss buys pizza for the office.

Whenever possible, invoices that will be used as tax deductions should contain the company’s information as the buyer rather than the employee.

6. SMEs don’t have to start until 2025

LHDN and MDEC plan to implement e-invoicing in three phases, starting with the largest income earners:

Annual turnover or revenue of more than RM100 million 1 August 2024
Annual turnover or revenue of between RM25 million and RM100 million1 January 2025
All taxpayers1 July 2025

However, just because you don’t have to do it now, doesn’t mean you shouldn’t at least look into it, considering our last point.

7. There’s a RM50,000 tax deduction for e-invoicing

We touched on this in our Ekonomi Madani business takeaways, but in summary, under Malaysia’s Ekonomi Madani, there is a proposed SME tax deduction up to RM50,000 per year for expenses incurred  e-invoicing implementation.

Not every business qualifies for this, and of those that do, there’s probably not enough to go to each, so here’s your little dose of FOMO to get moving!

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