Is your company ready for E-invoicing?

e-Invoicing: Who, When, What & How?

Most of you are probably aware of the upcoming implementation of e-Invoicing in Malaysia, set to roll-out in phases from August 2024 to July 2025. This innovative method of transaction recording, known as Continuous Transaction Control (CTC) e-Invoicing, forms a significant paradigm shift in the realm of taxation. To facilitate a seamless transition, let’s delve into some scenarios that mandate the issuance of e-Invoices.

Who Is Required to Issue E-Invoices?

First of all, who is required to issue e-Invoices? The e-Invoicing initiative covers all individual and legal entities that are providing goods or services, including any businesses that are tax-paying, which include but is not limited to the following:

1. Corporations,

2. Partnerships,

3. Limited Liability Partnerships (LLPs),

4. Branches, Representative Offices, Regional Office of businesses

5. Trusts,

6. Business Trusts,

7. Unit Trusts,

8. Real Estate Investment Trusts (REITs),

9. Co-operative Societies,

10. Association, or

11. Any other tax paying individuals

Seems like all kinds of business entities are covered, right? To be frank, while the implementation is introduced phase-by-phase based on the annual turnover of a business, ultimately the e-Invoicing exercise is going to cover all businesses and all transactions regardless of size, because it is part of the government’s plan to streamline the taxation system.

Who are Exempted from E-Invoicing?

Stay Efficient & Compliant Always

Well, who are the individuals or entities exempted from issuing e-Invoices, if any? According to the E-Invoice Guideline (version 2.1) published by LHDN, the following individuals/ entities are exempted from issuing e-Invoices while receiving payments:

1. Rulers and their consort,
a. the Yang di-Pertuan Agong and his Deputy,
b. the Sultans, the Yamtuan of Negeri Sembilan and the Raja of Perlis,
c.  the Governors of Malacca, Penang, Sabah and Sarawak,
d. the Undangs of Sungei Ujong, Jelebu, Johol and Rembau, and the Tunku Besar of Tampin

2. Former Rulers (except Governors) and their consort,

3. Federal, State & Local Governments,

4. Federal, State Agencies & Statutory Bodies,

5. Diplomatic Missions & Consular Officials.

To be sure, suppliers providing goods or services to the abovementioned exempted individuals/ entities are still required to issue e-Invoices for those transactions, but with a specific way of filling up the buyers’ details in the e-Invoices (as outlined in the Table 3.3 of the E-Invoicing Specific Guideline published by LHDN).

When Should You Issue E-Invoices?

In order to record all income throughout the year, whether it is for providing goods or services, the entities mentioned earlier are required to issue e-Invoices for every transactions conducted, be it Business-to-Business (B2B), Business-to-Consumer (B2C) and Business-to-Government (B2G).

What Kind of Transactions Are Exempted from E-Invoicing?

Are there any transactions that are not subjected to e-Invoicing? Yes, the Inland Revenue Board (LHDN) acknowledges that there are various challenges in issuing e-Invoices for certain types of payments. In order to ease the adoption of e-Invoice, an e-Invoice (or self-billed e-Invoice by the recipient) is not required for the following types of expense, including:

1. Employment income,

2. Pension,

3. Alimony,

4. Scholarship,

5. Zakat,

6. Distribution of dividend by companies listed in Bursa Malaysia (the Malaysia Exchange),

7. Distribution of dividend by companies entitled to not deduct any tax for dividends under Section 108 of the Income Tax Act 1967.

How Many Types of E-Invoices Are There?

Many of you are wondering how many types of documents are businesses required to issue under the e-Invoicing initiative. As outlined in the e-Invoicing Guideline v2.0 published by LHDN, 4 types of transaction documents shall be issued depending on the scenario, which are:

1. Invoice: Issued by suppliers to itemise and record a transaction. Alternatively it can also be self-billed to document expenses where the supplier is exempted from issuing e-Invoices.

2. Credit Note: Issued by suppliers to correct errors, change order, apply discounts to incentivise early settlement, or account for returns in a previous Invoice to reduce the value of the original Invoice, without involving any Refund of moneys.

Example: Supplier acknowledges the return of goods sold

The supplier, Ecofriendly Gadgets Sdn. Bhd. sold 10 laptops to Sustainable Software Sdn. Bhd., and had issued an e-Invoice of RM30,000 to document this transaction.

Before the payment was made, it was found that 1 of the laptops was faulty, and Sustainable Software Sdn. Bhd. decided to return it.

Therefore, Ecofriendly Gadgets Sdn. Bhd. issues a Credit Note of RM3,000 to Sustainable Software Sdn. Bhd., to inform the buyer that the outstanding account is now reduced by RM3,000.

3. Debit Note: Issued by suppliers to indicate additional charges on a previously issued Invoice.

4. Refund: Issued by suppliers to confirm the Refund of the Buyer’s payment, where there is money returned to the Buyer.

Example: Supplier refunds the buyer for the return of goods paid

The supplier, Ecofriendly Gadgets Sdn. Bhd. sold 10 tablet computers to Splendid Steakhouse Sdn. Bhd., and had issued an e-Invoice of RM4,000 to document this transaction.

After the payment was made, it was found that 1 of the tablets was faulty, and Splendid Steakhouse Sdn. Bhd. decided to return it.

Therefore, Ecofriendly Gadgets Sdn. Bhd. refunds RM400 to Splendid Steakhouse Sdn. Bhd., and issues a Refund e-Invoice of RM400, to highlight the fact that RM400 was refunded for the return of goods paid earlier.

Consolidated E-Invoices

E-Invoices

Since e-Invoice is meant to be a proof of expenditure for the recipient in tax reporting, there are bound to be certain specific Business-to-Consumer (B2C) transactions where the end consumers do not necessarily need an e-Invoice, but the seller still have to issue e-Invoices to document the sales.

Imagine if you go to have a meal at the neighbourhood coffee shop, or buy some stuff at the sundry shop or the night market. Most of the people would not need an e-Invoice for a cup of milk tea or a bowl of noodle, since they can’t claim the expenses from anyone, and these items do not qualify for any tax relief either. In fact, such transactions are usually high in quantity but low in amount, so should the traders issue individual e-Invoice for each of the sales?

In such cases, suppliers are granted the flexibility to issue standard receipts to the consumers as per current practices. However, they are still obligated to report all these transactions to LHDN periodically (for instance, every month), by compiling all the individual receipts into a Consolidated e-Invoice, which will represent all these transactions during such a period.

This consolidated e-Invoice serves as single documentation to record the income from all such transactions over the specified timeframe, and must be submitted within 7 days after the period concludes. With this, no transaction is left out in the reporting, while the suppliers can save time and effort too.

Can You Change Your Mind after Declining an E-Invoice?

However, what if a Buyer changes his mind after declining an e-Invoice initially? Yes, the buyer is entitled to do so, provided he informs the Seller within the same month of transaction, else the Seller would have aggregated his transaction into a Consolidated e-Invoice.

By only allowing such requests within the same calendar month, the Sellers will have a clear cut-off date to compile all the uninvoiced transactions into a Consolidated e-Invoice for that month.

As such, Buyers are encouraged to request for an individual e-Invoice as soon as he changes his mind, to ensure that the request will be processed by the Supplier in a timely manner.

Example: Seller submits Consolidated e-Invoice

Splendid Steakhouse Sdn. Bhd. has sold 3,000 meals, including steaks, chicken chops, fish & chips, as well as Hawaiian pizzas in the month of August 2024. Of these transactions, 400 customers have requested e-Invoices while the other 2,600 customers have declined e-Invoices.

However, before the end of August 2024, another 70 customers have changed their mind, and requested e-Invoices instead. The restaurant issues e-Invoices to them accordingly.

Before 7 September 2024, Splendid Steakhouse Sdn. Bhd. submits a Consolidated e-Invoice to record all the 2,530 transactions.

Look at the sample Consolidated e-Invoice below, take note that the receipt/ bill/ invoice reference number for each transaction aggregated into this Consolidated e-Invoice are required to be included.

Look at the sample Consolidated e-Invoice below, take note that the receipt/ bill/ invoice reference number for each transaction aggregated into this Consolidated e-Invoice are required to be included.

Where Consolidated e-Invoice is not allowed, and Individual e-Invoice is Compulsory

Consolidating multiple transactions into a single e-Invoice is certainly more convenient for the businessmen, isn’t it? However, please bear in mind that there are certain activities where the issuance of an individual e-Invoice for every single transaction is mandatory by the law, and Consolidated e-Invoices are forbidden regardless of the buyer’s preference. Activities that fall under this category at the moment are listed in the following table:

What is “Self-Billed E-Invoice”?

For most cases, e-Invoices are issued as a record of income. However, there are also scenarios where businesses may issue a “Self-Billed e-Invoice” as a record of expenditure, usually under one of the circumstances listed in the following table:

Example: A Malaysian buyer purchases products from a foreign supplier (Self-billed e-Invoice)

If a Malaysian buyer, Sustainable Software Sdn. Bhd. purchases equipment from a foreign supplier, Aberdeen Technology Ltd., which is not mandated by Malaysian law to issue an e-Invoice, Sustainable Software Sdn. Bhd. is required to issue a Self-billed e-Invoice to document the said expense as the buyer.

Example: A Malaysian supplier sells products to a foreign buyer (normal e-Invoice)

When a Malaysian supplier, Sustainable Software Sdn. Bhd. sells business software to a foreign user, Edinburgh Technology Ltd., Sustainable Software Sdn. Bhd. is required to issue an e-Invoice as usual. However, since Edinburgh Technology Ltd. is not part of the Malaysian e-Invoicing ecosystem and does not provide some of the essential information, Sustainable Software Sdn. Bhd. shall fill in “N/A” for certain fields during the e-Invoice submission.

Seamless E-Invoicing by IFCA Software

After going through all these scenarios, hopefully you have a better understanding of the basic operation of e-Invoicing. However, you still need a software that can generate the e-Invoices seamlessly for you, so you don’t have to submit them one by one manually.

As a market leader in Enterprise Resource Planning (ERP) solutions, IFCA Software is determined to simplify the e-Invoicing processes for all businesses regardless of the size and industry, for you to enjoy a hassle-free e-Invoicing journey.

Since the cloud-based mobile solutions developed by IFCA Software, such as PropertyX, ContractX, HotelX, AccountX and MenuX are linked to LHDN servers directly via Application Programming Interface (API), users may generate and transmit e-Invoices conveniently in real-time. To know more about these efficient systems, feel free to contact us and book your discovery call today.