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How to Issue e-Invoices for Profit Distribution & Foreign Income?

How to Issue e-Invoices for Profit Distribution & Foreign Income_Cover (2)

Navigating e-Invoicing can feel like a maze, more so when it comes to transactions that are not so straightforward, such as profit distribution and foreign income. Fret not, business owners! We’re here to demystify the process, ensuring you comply with the Inland Revenue Board of Malaysia (LHDN) regulations while keeping your business operations smooth and efficient.

The Continuous Transaction Controlled (CTC) e-Invoicing introduced under the National e-Invoicing Initiative of Malaysia is mainly meant to keep track of all the business transactions in the country for taxation purposes. Therefore businesses are required to keep every e-Invoices they issue as proof of expenses, in order to calculate net income and to reduce tax payable.

However, issues arise when recipients in certain transactions are exempted from issuing e-Invoices, for instance, dividend distribution, or when the payors are based overseas.

Profit Distribution Simplified

Dividends are essentially profit-sharing with shareholders. This crucial process involves all companies that have made profit in the financial year. Unlike sales revenue which are subjected to taxation, dividends are distributed from the profit after tax of companies, where a corporate tax has been paid.

If shareholders are taxed again for the dividend they receive, it will constitute a double taxation on the same  income (which is the case in some other jurisdictions). So what are the e-Invoicing manoeuvres for dividend distribution? Let’s break it down into domestic and foreign dividend distribution.

Categories
Distributor of Dividend
Recipient of Dividend
Dividend distributed in Malaysia by: Bursa-Listed Companies Companies not entitled to deduct tax under Section 180 of Income Tax Act
Dividend distributed in Malaysia by: Bursa-Listed Companies Companies not entitled to deduct tax under Section 180 of Income Tax Act
Exempted from issuing Self-Billed e-Invoice. The current practice of issuing Dividend Vouchers / Warrants as proof of expenses to stay.
Dividend distributed in Malaysia by: Other Companies
To issue Self-Billed e-Invoices as proof of expenses.

Roles in the Self-Billed e-Invoice:

Supplier: Recipient
Buyer: Distributor (issuer)
To receive a Self-Billed e-Invoice as proof of income.
Dividend distributed overseas
Exempted from e-Invoicing (since it is a foreign entity).
To issue an e-Invoice as proof of income.

Roles in the e-Invoice:

Supplier: Recipient (issuer)
Buyer: Distributor

1.1 Domestic Dividend Distribution

Domestic-Dividend-Distribution

Since Malaysia practises a single-tier tax regime, dividend incomes are exempt from taxes. As such, companies are not required to deduct tax from dividends paid to shareholders anymore. When shareholders file for their personal income tax, there is also no need to include the dividend incomes.

In view of this, companies distributing dividends would issue dividend vouchers or dividend warrants to their shareholders under the current practice. The same is also adopted by investment entities, such as Unit Trusts.

Upon the implementation of e-Invoices, two types of companies will be exempted from issuing self-billed e-Invoices on dividend distributions:

1. Companies listed on Bursa Malaysia (the Malaysia Exchange), including Real Estate Investment Trusts (REITs),
2. Companies not entitled to deduct tax under Section 180 of Income Tax Act.

Hence, these taxpayers can continue with their existing practice of issuing dividend vouchers or warrants to their shareholders while paying dividends. This exemption will be reviewed by the LHDN from time to time. Similarly, it remains unnecessary for the shareholders receiving the dividends to issue e-Invoices as proof of income.

However, companies apart from the 2 above mentioned types are required to issue Self-Billed e-Invoices for dividend distributions, to document the expense for themselves and income for their shareholders even though it is exempt from tax. The detail steps for such transactions are as follows:

1. Issue a dividend voucher or dividend warrant as usual.
2. Issue a Self-Billed e-Invoice via MyInvois Portal of LHDN, or via an ERP system with API integration.
3. Assume the role of “Buyer” while issuing the Self-Billed e-Invoice, whereas the “Supplier” will be the dividend recipient.
4. Submit the Self-Billed e-Invoice to LHDN for verification.

Details on information to be input into the fields are as follows:

No
Data field
Details to be included by Dividend Distributor in Self-Billed e-Invoice
Additional Remarks
1
Supplier’s Name
Name of Recipient
For business: Name of business.

For Malaysian individuals:
Full name as per MyKad/ MyTentera.

For non-Malaysian individuals: Full name as per passport/ MyPR/ MyKAS.
2
Supplier’s TIN
TIN of Recipient
For Malaysian Businesses: Dividend distributor to input Recipient’s TIN and business registration number. Note that it is mandatory for Malaysian Businesses to provide TIN and business registration number.

For Foreign Businesses: Dividend distributor to input recipient’s TIN and business registration number, where available.
3
Supplier’s Registration/ Identification Number/ Passport Number
Details of registration/ identification number/ passport number
Where TIN is not available or not provided, dividend distributor to input “EI00000000030” for foreign recipient.

Where business registration number is not available or not provided, dividend distributor to input “NA” for Foreign Recipient.

For Malaysian individuals:

i. Option 1: TIN only.

ii. Option 2: MyKad/ MyTentera identification number only.

iii. Option 3: Both TIN and MyKad/ MyTentera identification number.

For non-Malaysian individuals:

i. Option 1: TIN only

ii. Option 2: Both TIN and passport number/ MyPR/ MyKAS identification number.

For clarity, (i) refers to the TIN assigned by LHDN. In the event that the non-Malaysian individual does not have a TIN, Supplier may use the general TIN, along with the passport number/ MyPR/ MyKAS identification number of the said individual.
4
Supplier’s Address
Address of Recipient
Dividend distributor to input recipient’s business address (for business)/ residential address (for individual).
5
Supplier’s Contact Number
Telephone number of Recipient
Dividend distributor to input the contact number of the recipient.
6
Supplier’s e-mail
E-mail address of Recipient
Where available, dividend distributor to input the e-mail address of recipients.

Input “NA” if it is not available or not provided.
7
Supplier’s SST Registration Number
SST registration number of Recipient (where applicable)
Where applicable, dividend distributor to input recipient’s SST registration number.

Dividend distributor to input “NA” if such information is not available or not provided.
8
Classification
Classification of products or services
Dividend distributor to input a 3-digit integer (e.g., “000” to “999”), in accordance with the LHDN catalogue.
9
e-Invoice Code/ Number
Document reference number used by the taxpayer that makes the distribution for internal tracking purposes.
Reference number of the dividend voucher issued by the taxpayer that makes the distribution.

Example: Domestic Dividend Distribution

Parties involved:
Dividend Issuer: Premium Production Sdn. Bhd.
Shareholder: Nurjuliana binti Asyraf

A private limited company, Premium Production Sdn. Bhd. has made profit during the year, and decided to distribute a dividend of RM0.09 per share.

One of the shareholders, Nurjuliana binti Asyraf owns 1 million shares in the company. She is paid RM90,000 in this round of dividend distribution.

As it is unnecessary for the shareholder to issue e-Invoice for the income, yet the company needs a proof of expenses to record the expenditure, Premium Production Sdn. Bhd. will have to issue a Self-Billed e-Invoice to record this dividend payment.

Self-BIlled e-Invoice

1.2 Foreign Dividend Distribution

Brunei money in the black wallet

While income tax on Foreign-Sourced Income (FSI) is exempted until 31 December 2026, it is still necessary to be declared in tax filing.

For any foreign dividend received by someone residing in Malaysia, the recipient is required to issue an e-Invoice to document it as a proof of income for tax filing purposes:

1. Issue an e-Invoice via MyInvois Portal of LHDN, or via an ERP system with API integration.
2. Assume the role of “Supplier” while issuing the e-Invoice, whereas the “Buyer” will be the foreign dividend distributor.
3. Submit the e-Invoice to LHDN for verification.

2. Foreign Income

Foreign Income

Prior to 1 January 2022, taxpayers in Malaysia did not have to include Foreign-Sourced Income (FSI) in tax filing. However, since 1 January 2022, the government has abolished the blanket exemption on FSI, in line with the requirements of international best practices.

Consequently, FSI received in Malaysia by a tax resident is now taxable in Malaysia. However, an exemption was granted for Malaysian resident individuals for FSI remitted to Malaysia (other than partnership income) from 1 January 2022 to 31 December 2026, as long as specific conditions are met.

With the roll-out of e-Invoicing, an e-Invoice would be required for all foreign income received in Malaysia as a proof of income for tax purposes. It should be submitted by the end of the subsequent month after the month in which the foreign income was received.

The process is similar to the issuance of e-Invoice for cross border trade involving local suppliers and foreign buyers:

1. Issue an e-Invoice via MyInvois Portal of LHDN, or via an ERP system with API integration.
2. Assume the role of “Supplier” while issuing the e-Invoice, whereas the “Buyer” will be the foreign dividend distributor.
3. Submit the e-Invoice to LHDN for verification.

Overall Benefits of E-Invoicing to Businesses

Overall-Benefits-of-E-Invoicing-to-Businesses​.jpg

In today’s fast-paced business environment, efficiency and accuracy are paramount. E-Invoicing offers a transformative solution, revolutionising conventional invoicing processes. By digitising and automating invoicing tasks, businesses can streamline operations, reduce costs, and improve overall financial management. Embracing e-Invoicing not only enhances productivity but also ensures compliance with tax regulations, paving the way for sustainable growth and success.

1. Streamlining Business Operation: Unified invoicing process through the streamlining of transaction document creation, and online submission of data to LHDN.
2. Accurate Tax Filing: Facilitate tax filing through seamless system integration for efficient and accurate tax reporting.
3. Enhanced Accuracy: Automated data entry and validation reduce the likelihood of errors, ensuring accurate invoicing and financial records.
4. Improved Compliance: E-Invoicing helps businesses stay compliant with tax regulations by providing a transparent audit trail of transactions.

Innovative E-Invoicing Solution by IFCA

Unlock the full potential of e-invoicing with IFCA’s tailored solution designed for the property and construction industries. This innovative middleware connects your PropertyX, ContractX and HotelX ERP systems seamlessly with the LHDN servers via our unique API (Application Programming Interface), providing a hassle-free transition to e-Invoicing.

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1. Tailored Solutions: IFCA’s e-invoicing solution is specifically designed to meet the unique needs of businesses in adhering to LHDN requirements.
2. Seamless Integration: Integration with existing ERP systems ensures a smooth transition to e-Invoicing without disrupting operations.
3. Comprehensive Support: IFCA offers ongoing support and training to ensure businesses maximise the benefits of digital transformation for real-time compliance.
4. Enhanced Security: Robust cyber security measures safeguard sensitive financial data, providing peace of mind to businesses and their clients.
5. Future-Proofing: By embracing our scalable cloud-based e-invoicing solution, businesses position themselves for future growth and technological advancements in the industry.

Ready to simplify your invoicing processes and unlock new opportunities for your business? Don’t let non-compliance hold your business back, embrace the digital future with IFCA’s e-Invoicing solution to transform your business! Feel free to contact us and learn more today.