Exploring e-Invoicing Malaysia: A Guide to Transaction Types

Ever since the Malaysian government announced the mandatory implementation of e-invoicing starting 1st August 2024, entrepreneurs have been busy familiarising themselves with this new system. While many understand the core concept of issuing electronic invoices (e-invoices) in Malaysia, a common question arises: how many transaction types does e-invoicing encompass?

What is e-Invoicing in Malaysia?

At its core, e-invoicing in Malaysia refers to the process of creating, transmitting, and storing invoices in an electronic format, as mandated by the Inland Revenue Board of Malaysia (IRBM). This digital transformation aims to streamline financial transactions, enhance compliance, and foster transparency across various business sectors.

The implementation of e-invoicing in Malaysia is a strategic move by the government to modernise the country’s tax administration system. By digitising the invoicing process, the IRBM can access real-time data on business activities, enabling more effective monitoring and mitigation of potential tax evasion or fraud.

Types of Transactions Covered by e-Invoicing in Malaysia

The e-invoicing framework in Malaysia encompasses a diverse range of commercial transactions, each with its own unique characteristics and compliance requirements. Let’s explore the primary transaction types that fall under the e-invoicing mandate:

Proof of Income

Whenever a supplier provides goods or services to a recipient, the issuance of an e-invoice becomes mandatory to recognize the sales income. This includes not only traditional sales transactions but also “other transactions” in which the taxpayer is earning income, although the specific guidelines for these “other transactions” are still to be issued by the IRBM. The validation process for e-invoices in Malaysia is done in real time by the IRBM, providing a more efficient and accurate way to track and verify income.

Proof of Expenses

On the flip side, whenever a taxpayer incurs any purchases of goods or services or any other expenses, the recipient is required to obtain an e-invoice from the supplier to ensure tax compliance. This requirement also extends to situations involving the return of goods or the provision of discounts, ensuring that all expenditures are accurately documented in financial statements.

In cases where the transaction involves a Malaysian recipient and a foreign seller, the recipient is responsible for issuing a self-invoice to record the expenses.

Key Transaction Types in the e-Invoicing Malaysia

The e-invoicing framework in Malaysia caters to three primary types of commercial transactions, each with its own unique characteristics and compliance requirements:

Business-to-Business (B2B) Transactions

B2B transactions involve the exchange of goods or services between two businesses, such as a manufacturer selling raw materials to a production company or a software company providing services to a marketing agency.

Business-to-Consumer (B2C) Transactions

B2C transactions encompass the sale of goods or services from a business directly to individual consumers, commonly seen in retail environments, online shopping platforms, and service industries.

Business-to-Government (B2G) Transactions

B2G transactions involve business entities providing goods or services to governmental organisations or agencies, such as a construction company contracted by a government agency to build roads or an IT firm supplying software solutions to a government department.

Types of e-Invoice in Malaysia

The e-invoicing framework in Malaysia introduces a variety of electronic document types to replace their physical counterparts, ensuring comprehensive coverage of all financial transactions. These include:

Invoices

Invoices are the foundational commercial documents that record sales transactions between the supplier and the recipient of goods or services. This category also encompasses self-invoicing, where the recipient generates the invoice themselves.

Credit Notes

Credit notes, also known as credit memos, are issued by the supplier to the recipient when there is a decrease in the value of a transaction, such as due to errors in the original e-invoice or the provision of discounts. However, credit notes are not used in situations involving the return of money to the recipient. Credit notes are important for documentation purposes and help to keep track of any changes in the value of a transaction.

Debit Notes

Debit notes are the opposite of credit notes, issued when there is an increase in the value of a transaction, such as due to an adjustment in production costs.

Refund e-Invoices

Refund e-invoices are issued by the supplier to the recipient to confirm the refund of payment, typically in cases of product returns or cancellations.

Self-Billed e-Invoices

Self-billed e-invoices are a unique type of document where the buyer, rather than the supplier, issues the invoice. This is required under specific circumstances outlined in the e-Invoicing guidelines, such as when acquiring goods or services from individual taxpayers who are not conducting a formal business.

Each e-invoice generated within the Malaysian e-invoicing ecosystem must adhere to a set of unique identifier numbers and undergo a comprehensive validation process, with 51 validations in total, 35 of which are compulsory.

Entities Required to Comply with e-Invoicing in Malaysia

The e-invoicing mandate in Malaysia applies to a wide range of entities, including but not limited to:

Corporations
Partnerships
Associations
Property trust funds
Bodies of persons
Property trusts
Branches
Real estate investment trusts
Business trusts
Representative and regional offices
Co-operative societies
Trust bodies
Limited liability partnerships
Unit trusts

This extensive list underscores the comprehensive nature of the e-invoicing initiative, ensuring that all businesses and organisations engaged in commercial activities in Malaysia are subject to the same digital invoicing requirements.

Receiving and Issuing e-Invoices in Malaysia

The process of receiving and issuing e-invoices in Malaysia is streamlined through the IRBM’s MyInvois portal or an Application Programming Interface (API) integration.

For recipients, once an e-invoice is validated by the MyInvois system, the supplier or their technology provider will transmit the validated e-invoice directly to the recipient.

On the issuer’s side, businesses can generate e-invoices either through the MyInvois portal or by integrating their systems with the API, ensuring seamless compliance with the IRBM’s e-invoicing guidelines.

How Can Grof Assist You in Transitioning to E-Invoicing?

Grof in Malaysia offers an all-in-one solution for accounting, bookkeeping, payroll, and tax compliance, freeing your business from the complexities of financial management. Our comprehensive services ensure that your business stays compliant with regulations, while you focus on what matters most—growing your business. With Grof handling the intricacies of your financial operations, you can operate with confidence and efficiency.

Conclusion

The implementation of e-invoicing in Malaysia represents a significant milestone in the country’s journey towards a more digitalised and transparent tax administration system. By encompassing a diverse range of transaction types, from B2B and B2C to B2G, the e-invoicing framework ensures comprehensive coverage of commercial activities across all sectors.

Get in touch with Grof Malaysia, your reliable financial sidekick, for all your accounting and e-invoicing needs. Grof ensures seamless management of your financial processes, from corporate secretary to accounting requirements. Partner with Grof Malaysia to enhance your financial efficiency and focus on what you do best—growing your business.