With over 50 participating companies, Malaysia’s Inland Revenue Board (LHDN) kicks off its e-Invoice pilot project in May 2024.
The goal is to identify and resolve technical issues that prevent companies nationwide from smoothly adopting LHDN’s digital system in August during its first phase of public implementation.
As the countdown to e-Invoicing reaches its end, this post addresses the human hurdle with a full overview of e-Invoicing for business owners and companies in Malaysia.
By the end, readers will know:
- What an e-invoice is and what it means to be PEPPOL compliant
- The role of e-Invoicing in streamlining tax reporting in Malaysia
- Guidelines for e-Invoicing that businesses must follow
- Action items for buisness decision makers to comply with e-Invoicing
Let’s begin.
What’s an e-invoice?
Very simply, an electronic invoice or ‘e-invoice’ is an umbrella term for commercial documents sent electronically from your business system (such as an ERP or accounting SaaS) to your customer’s business system.
Despite the name, it includes any document that records the flow of cash in exchange for goods or services such as credit, debit, and refund notes. To be safe, if it helps establish a digital paper trail, assume it’s included under e-Invoicing.
What is PEPPOL and how does it fit in all this?
Malaysia’s love of diversity thankfully doesn’t extend to financial reporting!
Picture the thousands of businesses in Malaysia sending invoices in various formats and file types. For a tax collection agency like LHDN, ensuring the accuracy of data extracted from different formats is a logistical nightmare that has contributed to a RM665 million blind spot.
To combat this, the Malaysian government is enforcing PEPPOL compliance for all businesses regardless of size and industry.
For those interested, we’ve got a collection of industry-specific e-invoice samples from our partner Bukku.
PEPPOL stands for Pan European Public Procurement Online, and is a global standard for electronic documents. It’s the format of choice in over 60 countries and unites members through an international network that facilitiates fast, transparent, and standardised documentation.
In short, PEPPOL-compliant e-Invoicing makes it easy for LHDN to account for any cash movement, including to and from overseas sources.
How e-Invoicing streamlines tax reporting in Malaysia
Here’s a screenshot from LHDN showing the workflow of an average e-Invoice.
If successfully implemented and adhered to, this new workflow means several improvements over the current system with insufficient standardisation:
- Businesses can declare their income in real time.
- LHDN can obtain records of transactions in real time, and
- No more paper invoices!
This continuous stream of submissions means transaction records can be quickly cross-checked and in manageable batches instead of as a lump sum several months after the fact.
Note: A business can still issue traditional paper receipts and invoices, but they’d have to convert it to e-Invoice formatting before submitting to LHDN, which in our opinion means an unnecessary step. It would be best for a business to familiarise itself with the new format requirements as soon as possible.
How businesses will submit e-invoices
Businesses have two options to choose from.
1. The LHDN MyInvois Portal
The MyInvois Portal is the offical government app where a business can generate, submit, view, cancel or reject e-Invoices. It will also be the platform used by the public, and was specifically designed to allow all taxpayers to access their e-invoice details.
For smaller businesses it should work fine, though larger businesses with a high volume of transactions as uploading this way can become time intensive.
2. The LHDN API
LHDN has released an Application Programming Interface (API) that allows third party software solutions to connect to the MyInvois Portal, allowing users to submit e-invoices directly to LHDN. This is ideal for businesses that have high transaction volumes since they can submit from the comfort and familiarity of their own software.
Ideally, the third party software would be PEPPOL-compliant, which is why the the Malaysian Digital Economy Corporation is currently overseeing a PEPPOL accreditation program.
General e-Invoicing guidelines
Readers who would like the full details can consult the latest official e-Invoice guidelines from LHDN.
For our readers’ convenience, we’ve extracted key details relevant to businesses dealing in both B2B and B2C transactions.
1. Not compulsory for smaller transactions
For B2C businesses dealing in multiple smaller transactions (such as restaurants and retail outlets), a customer can be issued a regular receipt or invoice unless they specifically request for an e-invoice. The buyer then has 30 days from the date of transaction to request an e-invoice, and after this period the business may decline their request.
Meanwhile, the business itself can either submit each e-invoice individually or aggregate all transactions on a monthly basis and submit a consolidated e-invoice to LHDN within seven days after the month’s end.
2. Compulsory for large transactions
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:
| No | Industry/Activity | Types of Activities/Transactions Where Consolidated e-invoice is Not Allowed |
|---|---|---|
| 1 | Automotive | Sale of any motor vehicle. |
| 2 | Aviation | 1. Sale of flight ticket 2. Private charter |
| 3 | Luxury Goods & Jewellery | Details yet to be confirmed. |
| 4 | Construction | Construction contractor undertaking construction contract, as defined in the Income Tax (Construction Contracts) Regulations 2007. |
| 5 | Wholesalers & Retailers of Construction Materials | Sale of construction materials as defined under the Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994, regardless of volume sold. |
| 7 | Payment to Agents/Dealers/Distributors | Payments made to agents, dealers, or distributors. |
3. Needed to deduct internal expenses
Company expenses such as various staff benefits, salaries, and anything that involves cashflow will require e-invoices as proof of expense before tax deductions can be claimed. Whenever possible, these e-invoices should list the company’s tax information as the buyer rather than the employee.
4. Introduction is in phases based on revenue level
We’re sure this is known to many of our readers, but just in case you’ve not heard of this, LHDN plans to introduce e-Invoicing in three phases, starting with the largest income earners in Malaysia:
| Annual turnover or revenue of more than RM100 million | 1 August 2024 |
| Annual turnover or revenue of between RM25 million and RM100 million | 1 January 2025 |
| All taxpayers | 1 July 2025 |
As of publishing this article, that gives a majority of businesses at least a year to prepare for e-Invoicing implementation, which brings us to our three action items for businesses to prepare for e-Invoicing.
How businesses can prepare for e-Invoicing
Internally, business constraints fall into three broad categories:
- technology
- people, and
- processes
Any one of these factors could be the hurdle that stops a business from successfully implementing e-Invoicing.
Therefore, businesses should take steps to address each of these potential bottlenecks. Just remember resistance is normal – take a deep breath and try again!
1. Ensure accounting SaaS is e-Invoicing compliant
Evaluate existing accounting SaaS, eCommerce solutions, or ERP systems to ensure they support e-Invoicing standards, and if not, switch over to a service provider that does.
And sometimes, the ideal solution is staring you right in the face.
Plus points if the service provider is also PEPPOL-compliant, though this isn’t necessary
2. Educate staff on e-Invoicing guidelines
On a company level, provide general training to staff that demonstrates how their roles will be affected by e-Invoicing, followed by guidelines and best practices.
On a department level, there should be an individual designated as the e-Invoicing expert. Their responsibility is to stay updated on the latest in e-Invoicing, and support and troubleshoot their team members on e-Invoicing specific to the department’s functions.
3. Identify where processes must change
Analyse existing invoicing and billing processes to identify what must be adapted to accommodate e-Invoicing requirements, and standardise them if possible to ensure consistent standards across business units.
Ideally, each department conducts their own review (why we stressed having a designated e-invoice expert per department).
4. Verify vendors prepared for e-Invoicing
Get in touch with your vendors and service providers to gauge their commitment to e-Invoicing adoption.
To put the tact in tactical, send out an email with your business’ e-Invoicing information to all vendors and request vendor details in return. We’ll let you decide if any obstinate vendors are worth potential issues with LHDN!
Let MISHU assist your e-Invoicing transition
Be it people, processes, or technology, get in touch with our team of experts to see how we can assist your business with organisation-wide adoption of e-Invoicing.