Malaysia E-Invoicing: New Changes and How They Impact SMEs

Malaysia is set to implement mandatory e-invoicing starting from August 2024, starting with large businesses. This move is part of the government's ongoing effort to digitize tax administration, reduce tax leakage, and improve compliance. For small and medium enterprises (SMEs), this represents both a challenge and an opportunity to modernize financial operations.

What is E-Invoicing?

E-invoicing (electronic invoicing) is the exchange of invoice documents between suppliers and buyers in a structured electronic format. Unlike PDF invoices sent via email, true e-invoicing involves the transmission of structured data that can be automatically imported into the receiver's accounting system.

The Malaysian e-invoicing system, known as MyInvois, follows the Continuous Transaction Control (CTC) model, where invoices are validated in real-time by the tax authority (Lembaga Hasil Dalam Negeri or LHDN) before or during the exchange between trading partners.

Implementation Timeline

The implementation of mandatory e-invoicing in Malaysia will follow a phased approach based on annual business turnover:

• Phase 1 (August 1, 2024): Companies with annual revenue exceeding RM100 million
• Phase 2 (January 1, 2025): Companies with annual revenue between RM25 million and RM100 million
• Phase 3 (July 1, 2025): Companies with annual revenue between RM5 million and RM25 million
• Phase 4 (January 1, 2026): All remaining businesses registered for Sales and Service Tax (SST)

While many SMEs will only be required to comply in 2025 or 2026, early preparation is advisable to ensure a smooth transition and take advantage of the benefits of e-invoicing.

How Does It Work?

Under the MyInvois system, the e-invoicing process works as follows:

1. The seller creates an invoice using e-invoicing compatible software
2. The invoice is transmitted to LHDN's MyInvois system for validation
3. LHDN validates the invoice and returns a unique Certification Serial Number and QR code
4. The validated invoice is sent to the buyer
5. Both parties must keep the e-invoice records for at least 7 years

Key Requirements for Compliance

To comply with Malaysia's e-invoicing requirements, businesses must ensure:

• Use of e-invoicing compatible software that can generate invoices in the required format (likely based on the PEPPOL standard)
• Each invoice includes mandatory information such as:
  • Seller and buyer details (including tax identification numbers)
  • Invoice date and number
  • Description, quantity, and price of goods/services
  • Tax amount and total amount
  • Payment terms
  • The Certification Serial Number and QR code (added after LHDN validation)
• Secure transmission of invoice data to LHDN
• Proper storage of e-invoice records for at least 7 years

Impact on SMEs

For SMEs in Malaysia, the transition to e-invoicing will have several significant impacts:

Challenges

• Initial setup costs: Investment in compatible software or updating existing systems
• Process changes: Adaptation of billing workflows and staff training
• Technical requirements: Ensuring reliable internet connectivity and digital security measures
• Integration: Potential need to integrate e-invoicing with existing accounting and ERP systems

Benefits

• Cost savings: Reduced expenses on paper, printing, postage, and storage
• Efficiency gains: Automated processing reduces manual data entry and errors
• Faster payments: Quicker invoice delivery and approval often leads to improved cash flow
• Better record-keeping: Digital storage makes retrieval and auditing easier
• Environmental impact: Reduction in paper usage and carbon footprint
• Simplified tax compliance: Easier preparation for SST returns with structured digital records

Preparing Your Business

SMEs should take these steps to prepare for e-invoicing implementation:

1. Assess Your Current Invoicing Process

Evaluate your existing invoicing system and identify gaps that need to be addressed. Consider the volume of invoices you issue, your current software capabilities, and your staff's technical expertise.

2. Choose the Right Solution

Several options will be available for SMEs:

• E-invoicing service providers: Third-party platforms that handle the entire e-invoicing process
• Accounting software with e-invoicing capabilities: Many accounting packages will update to include Malaysia-compliant e-invoicing
• ERP system upgrades: Businesses using ERP systems may need updates or additional modules
• Free government portal: LHDN is likely to provide a basic portal for small businesses with low invoice volumes

3. Plan for Implementation

Develop a timeline for implementation well before your mandated deadline:

• Allocate budget for software acquisition or upgrades
• Schedule staff training
• Consider running parallel systems temporarily during the transition
• Communicate changes to customers and suppliers

4. Stay Informed

Keep up to date with announcements from LHDN regarding any changes or updates to the e-invoicing requirements. Join industry forums or chambers of commerce where these topics are discussed.

Conclusion

Malaysia's e-invoicing initiative represents a significant shift in how businesses manage their invoicing and tax compliance. While the transition may present initial challenges for SMEs, the long-term benefits in terms of efficiency, cost savings, and improved cash flow management are substantial.

By preparing early and choosing the right technology solutions, businesses can not only ensure compliance but also gain a competitive advantage through more streamlined financial operations.

Ready to prepare your business for Malaysia's e-invoicing requirements? Invo is developing comprehensive e-invoicing capabilities designed specifically for Malaysian SMEs. Contact us today to learn how we can help you stay compliant while streamlining your financial processes.