Self-Billed e-Invoices Demystified: What Every Business Needs to Know!
Self-Billed e-Invoices are an integral part of Malaysia’s Mandatory e-Invoicing policy. It is required for selected specific scenarios where the suppliers typically do not issue invoices. To ensure that these transactions are still reported properly to the Inland Revenue Board of Malaysia (LHDN), the duty of invoice creation is taken over by the buyers.
Scenarios That Require Self-Billed e-Invoices
Under the e-Invoicing rules and regulations of Malaysia, Self-Billed e-Invoices are only applicable for 8 types of clearly defined transactions outlined in the e-Invoice Specific Guideline published by LHDN. Such a digital invoice is not meant for any other transactions and should not be issued simply because suppliers have failed to issue an e-Invoice for any reason. The following are the scenarios where Self-Billed e-Invoices are legally required:
(a) Payment to Agents, Sealers and Distributors
(b) Goods sold or services rendered by Foreign Suppliers
(c) Profit (Dividend) Distribution
(d) e-Commerce (“e-commerce”) transactions
(e) Pay-out to all betting and gaming winners
(f) Interest payment, except:
i. Businesses (e.g., financial institutions, etc.) that charge interest to public at large (regardless of whether they are businesses or individuals);
ii. Interest payment made by employee to employer; and
iii. Interest payment made by foreign payor to Malaysian taxpayers.
(g) Claim, compensation or benefit payments from the insurance business of an insurer.
(h) Transactions with individuals (who are not conducting a business) (only if the other Self-Billed circumstances are not applicable)
Understanding the Roles and Responsibilities
In self-billing scenarios, conventional roles are reversed:
– The Buyer assumes the role of e-Invoice issuer, responsible for submitting the e-Invoice to LHDN.
– The Buyer must share the validated Self-Billed e-Invoice with the Supplier.
– The Supplier is not required to issue any separate e-Invoice.
In this article, we will focus on the first 4 scenarios which involve a large group of businesses, and examine the process of how such e-Invoices should be issued, as well as the party responsible for it.
Payment to Agents, Dealers, and Distributors
Agents, Dealers and Distributors offer the vital service of selling a product on behalf of merchants (property developers, car dealers, electrical appliances or furniture sellers etc). Once a sale is closed, the Agents, Dealers and Distributors are eligible to receive their commission from the merchants for their effort.
Since these intermediaries typically do not generate invoices to claim the outstanding commission, the merchant is required to issue Self-Billed e-Invoices when the commission is paid to Agents, Dealers and Distributors, in order to document this payment.
One should take note that Payment to Agents, Dealers and Distributors is among those types of transactions where Consolidated e-Invoice is not allowed. Hence every single transaction must be e-Invoiced individually, even when the recipient has closed multiple sales in the same month and thus is entitled to several commissions.
Goods sold or services rendered by Foreign Suppliers
Cross border transactions can primarily be divided into 2 categories:
(i) Goods sold or services rendered by Malaysian Suppliers to Foreign Buyers; and
(ii) Goods sold or services rendered by Foreign Suppliers to Malaysian Buyers.
Since e-Invoices are by default issued by the Sellers, the normal e-Invoicing process is not affected under the first scenario, where the Seller is based in Malaysia.
Whereas in the second scenario, since the Seller is a foreign party in a foreign country who is not subjected to the Malaysian laws, the Malaysian Buyer is required to issue Self-Billed e-Invoices to report the transaction to LHDN.
Profit (Dividend) Distribution
Profit (Dividend) Distribution can also primarily be divided into 2 categories, namely Domestic and Foreign.
1) Domestic Profit (Dividend) Distribution:
Under the current practice, since shareholders (recipients of dividend income) do not typically issue invoices to document the income, companies distributing profits to its shareholders are required to issue Dividend Vouchers or Dividend Warrants to its shareholders instead. This practice is also adopted by other legal entities such as Unit Trusts.
With the implementation of e-Invoicing in Malaysia, companies distributing dividends are required to issue Self-Billed e-Invoices to document the expenses, except two types of companies:
a. Public listed companies listed on Bursa Malaysia (the Malaysia Exchange),
b. Companies that are not entitled to deduct tax under Section 108 of the Income Tax Act 1967.
This essentially means that these 2 types of companies can carry on with their existing practice of issuing Dividend Vouchers or Dividend Warrants.
Whereas for shareholders of other companies, the validated Self-Billed e-Invoice issued by the companies distributing dividend will serve as a proof of income when it comes to tax filing.
2) Foreign Profit (Dividend) Distribution:
Unlike in the previous scenario of Domestic Profit (Dividend) Distribution, the companies that distribute the dividends in this case are not based in Malaysia, thus not subjected to Malaysian e-Invoicing regulations.
In such cases, the Malaysia-based recipients are required to issue an e-Invoice to document that dividend as a proof of income for tax purposes.
e-Commerce
E-Commerce is defined as a transaction, be it sales of product or rendering of service, that is ordered and paid for in online platforms designed specifically for such purposes. The delivery of the goods or services of course can still be conducted offline. As a matter of fact, many of the physical retailers including major brands do maintain their online presence in various e-Commerce platforms as a way to drive their sales.
A unique feature of e-Commerce transactions is that unlike physical retail where the buyer can get the product immediately, e-Commerce customers will only receive the product days or weeks by courier after the online purchase. Hence as a safety measure, the payment is usually made to the platform instead of the actual merchants (sellers), and will only be released by the platform to the merchant after the buyer confirms that the products have been received in good condition.
This essentially requires a new mechanism of e-Invoicing issuance that is different from the conventional retail practices, which involves 3 separate e-Invoices, with 1 of them being a Self-Billed e-Invoice.
1. e-Invoice for Purchase Payment:
Since payment is made to the platform instead of the merchant, the platform provider is responsible to issue the e-Invoice or conventional receipt (if e-Invoice is not requested by the buyer in B2C transactions).
Similar to other cases where e-Invoice is not requested by the consumer, all such conventional receipts must be compiled into a Consolidated e-Invoice, and submitted to LHDN latest by the 7th day of the following month.
2. e-Invoice for Merchant Income:
As the platform provider releases the payment to the merchant after the successful delivery of products to the buyer, another e-Invoice is required to document this transaction. In this case, the platform will issue Self-Billed e-Invoices to record the income earned by the merchants through the sales. The frequency of issuing such Self-Billed e-Invoice may follow the current practice of the e-Commerce platform.
3. e-Invoice for Platform Fees:
Just like paying rental to shopping malls for the retail space, merchants also have to pay the platform for the opportunity to list their products there. For the collection of such Platform Fees, the e-Commerce platform provider shall issue an e-Invoice to the merchant to record their payment.
Common Challenges
As Self-Billed e-Invoices stand out as the exception rather than the norm in the e-Invoicing process, Businesses are bound to face several challenges in issuing these e-Invoices, such as:
1. Compliance: Whenever such transactions are carried out, the business making the payment should be aware that they are duty-bound to issue a Self-Billed e-Invoice, instead of waiting for the Supplier or the recipient of payment to issue a regular e-Invoice.
2. Data Accuracy: As the roles are reversed, one has to fill in the various fields carefully, in order to minimise errors and present the accurate facts regarding the transactions.
3. Efficiency and Timeliness: Since businesses may be engaged in multiple types of transactions within the same period of time, it might be confusing to issue regular e-Invoices for certain transactions, and Self-Billed e-Invoices for other transactions, especially for those relying on manual submission.
Automating e-Invoicing with EIX by IFCA
Technology and automation play a crucial role in streamlining the self-billing process, reducing errors, and ensuring compliance. To overcome the common challenges, automated e-Invoicing systems such as EIX by IFCA comes in handy, as it is capable of capturing data from your existing ERP (enterprise resource planning) software to create the e-Invoices, and submit them to LHDN seamlessly via API (Application Programming Interface) integration, saving you time and cost.
The adoption of EIX by IFCA offers several advantages:
1. Seamless Data Integration: Automatically syncs data across the sales cycle, reducing manual data entry and errors.
2. Real-Time Submission: Facilitates real-time submission and simplifies the transaction between buyers and suppliers.
3. Improved Efficiency: Streamlines the e-Invoicing process, reducing delays and improving overall efficiency.
4. Enhanced Financial Accuracy: Ensures accurate financial reporting and compliance with latest regulatory requirements.
E-Invoicing is gradually becoming a daily routine for every business regardless of industry. To stay ahead in the competitive market, leverage the latest technology to streamline your operations today. By addressing these common challenges, EIX by IFCA enhances the e-Invoicing process (including the creation of Self-Billed e-Invoices) and boosts your business efficiency.
If you are looking for an automated e-Invoicing software that can streamline your e-Invoicing process, contact IFCA Software.
