E-Invoicing Malaysia: Navigating LHDN’s New Regulations

In the ever-evolving landscape of business transactions, the Malaysian government has taken a significant stride towards modernisation by introducing e-invoicing.

Under the auspices of the LHDN, this new regulatory framework promises to revolutionise how businesses conduct financial transactions, ushering in an era of efficiency, transparency, and compliance.

This article delves into the intricacies of LHDN’s e-invoicing regulations, offering insights into its importance, implementation, and potential challenges. 

What is e-Invoicing in Malaysia?

Traditional paper-based invoicing methods have long been the norm in business transactions. However, with technological advancements, e-invoicing emerges as a game-changer, offering a digital alternative that streamlines processes and increases data accuracy while reducing fraud and errors.

At its core, e-invoicing entails the electronic generation, submission, and validation of invoices, marking a departure from manual paperwork to seamless digital transactions.

Who Needs to Comply with The New e-Invoicing Malaysia Requirements?

The new e-invoicing requirements mandated by LHDN apply to a wide spectrum of entities engaged in commercial activities within Malaysia. E-invoicing applies to all taxpayers undertaking commercial activities in Malaysia, including business-to-business(B2B), business-to-government (B2G), and, notably, business-to-consumer (B2C) transactions.

By July 2025, these regulations will be universally applicable, underscoring their significance for businesses of all sizes.

Every individual and legal entity conducting commercial activities in Malaysia is obliged to adhere to the e-invoicing requirements. This includes a diverse array of entities such as:

• associations
• bodies of persons
• branches
• business trusts
• cooperative societies
• corporations
• limited liability partnerships
• partnerships
• property trust funds
• property trusts
• real estate investment trusts
• representative offices
• regional offices
• trust bodies, and
• unit trusts.

The comprehensive scope of entities underscores the inclusivity of the regulations, leaving no room for exemption based on organisational structure or size.

e-Invoicing Implementation Timeline in Malaysia 

To support Malaysia’s digital economy growth and enhance tax administration efficiency, the government is keen to implement e-invoices in stages. To facilitate a smooth transition into mandatory e-invoicing, the Malaysian tax authority has established a phased e-invoicing launch timeline:

Consequences of Non-Compliance

For Malaysian business owners, understanding and promptly complying with LHDN’s e-invoicing regulations is paramount.

Non-compliance with e-invoicing regulations carries legal ramifications under Section 120(1)(d) of the Income Tax Act 1967. For each instance of non-compliance, offenders may face fines ranging from RM200 to RM20,000, imprisonment for up to six months, or both.

Beyond mere regulatory adherence, embracing e-invoicing presents many benefits, including cost savings, enhanced accuracy, and improved cash flow management. By embracing this digital transformation, businesses can position themselves for long-term success in an increasingly competitive marketplace.

How are e-invoices Processed by the Inland Revenue Board?

The e-invoicing framework encompasses the entire process from e-invoice issuance, validation by the Inland Revenue Board (IRB), and sharing of these documents with the customer, ensuring a seamless integration of data for transactions.

Step 1: Issuance of e-Invoice

When a sale or transaction is made (including e-invoice adjustments), the supplier creates an e-invoice and shares it with IRBM via the MyInvois Portal or API (Application Programming Interface) for validation.

Step 2: Validation of e-Invoice

IRBM validation is performed in near real-time, ensuring that the e-invoice meets the necessary standards and criteria. Once validated, the supplier will receive a Unique Identifier Number from IRBM via the MyInvois Portal or API (Application Programming Interface). The Unique Identifier Number will allow IRBM to trace the invoice and reduce instances of tampering with it.

Step 3: Notification of Validated e-Invoice

IRBM will inform the supplier and customer once the e-invoice has been validated via the MyInvois Portal or APIs.

Step 4: Sharing of e-Invoice

Upon validation, the supplier is obliged to share the validated e-invoice (embedded with a QR code) with the customer. The QR code can be used to validate the existence and status of the e-invoice via the MyInvois Portal.

Step 5: Rejection or Cancellation of e-Invoice

Upon issuance of e-Invoice, a stipulated period is given to:

1. Customer to request for rejection of the e-Invoice
2. Supplier to perform cancellation of e-invoice

Rejection requests or cancellations must be accompanied by justifications.

Step 6: MyInvois Portal

Supplier and customer will be able to obtain a summary of the e-Invoice transactions via MyInvois Portal.

How to Report e-Invoice in Malaysia?

Submitting e-invoicing in Malaysia can be accomplished through various channels, each tailored to accommodate different business setups and preferences.

1. Direct API Integration for ERP Systems

Businesses with custom enterprise resource planning (ERP) systems can benefit from direct API integration for e-invoicing. This ensures a smooth flow of data between the accounting software and LHDN’s systems. APIs enable real-time data exchange and validation, minimising manual intervention and errors.

2. MyInvois Portal for All Taxpayers

Alternatively, businesses without dedicated accounting software or POS systems can utilise MyInvois Portal, a free platform hosted by IRBM. Accessible to all taxpayers at no cost, this portal provides a user-friendly interface for submitting and managing e-invoices. It serves as a convenient solution for businesses seeking a straightforward method of compliance without the need for sophisticated software infrastructure.

3. Middleware Solutions for Companies with Existing Accounting Systems

For businesses already equipped with established ERP systems such as SAP, Microsoft Dynamics (such as Dynamics F&O and Dynamics Business Central), INFOR, and Sage (including Sage X3 and Sage 300), implementing e-invoicing can seem daunting due to potential disruptions and the technical complexities of integration. 

HernanCres middleware seamlessly bridges these ERP systems with LHDN’s e-invoicing framework, facilitating data capture, validation, and submission processes. It supports diverse data formats, including JSON, CSV, XML, and PDF, ensuring broad compatibility and flexibility across different ERP platforms.

One of the key features of the HernanCres solution is its ability to verify captured data and automatically complete missing mandatory data fields required by LHDN, thereby reducing the likelihood of rejections during the validation process.

Drawing from extensive experience in implementing e-invoicing solutions across multiple countries, including Saudi Arabia, Germany, and Belgium – HernanCres offers expertise in integrating accounting systems and navigating regulatory compliance requirements.

HernanCres is a reliable partner for businesses seeking to implement e-invoicing solutions in Malaysia and beyond.

Let’s See How Would You Benefit from using API (Application Programming Interface) Integration, MyInvoisPortal, or HernanCres.

Even though API Integration caters to businesses equipped with the expertise and infrastructure to handle intricate integrations and ongoing updates seamlessly, while the MyInvois Portal serves as an accessible, no-cost solution ideal for smaller businesses or those lacking advanced systems, utilising middleware solutions like HernanCres presents a well-rounded, efficient, and scalable alternative.

HernanCres strikes a balance by enabling businesses to meet regulatory requirements without extensive system overhauls, offering robust support and customization options. Moreover, HernanCres excels in handling diverse data formats, a crucial capability for businesses with varied transaction systems. As such, Middleware emerges as a strategic choice for businesses aiming to implement e-invoicing with minimal disruption and maximal long-term benefits.

What are The Common Challenges of Implementing e-invoicing for Businesses in Malaysia?

Implementing e-invoicing in Malaysia poses several common challenges businesses must navigate to ensure a smooth transition to digital invoicing systems. Here’s a closer look at these hurdles:

1. System Integration and Updates: One significant hurdle is system updates to integrate e-invoicing functionalities into existing infrastructure. This may require investment in software upgrades or modifications to ensure compatibility with regulatory standards.
2. Employee Training: Another challenge lies in addressing training needs, as employees must be equipped with the necessary knowledge and skills to operate the new e-invoicing systems effectively, such as collating mandatory e-invoice data fields like customers’ and suppliers’ tax identification numbers (TINs). To overcome this obstacle, businesses are advised to assemble a dedicated team with expertise in e-invoicing implementation and provide comprehensive training programs.
3. Review of Current Processes: Furthermore, businesses must thoroughly review their current processes and procedures for issuing invoice transaction documents. This entails assessing the efficiency and compatibility of existing workflows with e-invoicing requirements and making necessary adjustments.
4. Technological Resources: Moreover, ensuring the availability of the necessary technological resources and IT capabilities is crucial for seamless e-invoicing implementation. This involves confirming the adequacy of data structures and systems to comply with LHDN’s e-invoicing standards.

To overcome these challenges, businesses can seek professional assistance from experts in e-invoicing implementation. Professional service providers offer guidance and support in navigating the complexities of e-invoicing adoption, addressing specific challenges tailored to the business’s unique needs and circumstances. By leveraging professional assistance, businesses can streamline the implementation process and maximise the benefits of e-invoicing adoption in Malaysia.

How Would You Benefit Using HernanCres?

In digital transformation, HernanCres stands as a beacon of innovation and efficiency, offering tailored solutions to navigate the complexities of electronic invoices easily. As businesses in Malaysia gear up to comply with LHDN’s evolving regulations, HernanCres emerges as a trusted partner, providing comprehensive assistance from assessment to implementation and beyond.

Let’s explore how HernanCres can customise solutions for businesses of all sizes and needs, ensuring seamless integration and compliance in the ever-changing e-invoicing landscape.

1. Regular Assessment and Updates

HernanCres recognizes the dynamic nature of LHDN’s regulations and provides regular assessments of current transactions. This ensures that businesses remain compliant amidst evolving requirements.

2. Comprehensive Training

HernanCres offers tailored training sessions on the various treatments of transactions for e-invoicing purposes. This equips businesses with the necessary knowledge and skills to navigate the intricacies of e-invoicing seamlessly.

3. Implementation Support

As part of the implementation team, HernanCres assists clients in gathering information and understanding the current requirements of LHDN regarding e-invoicing. This collaborative approach ensures a smooth transition to digital invoicing systems.

4. Post-Implementation Assistance

HernanCres remains in close communication with clients to address any post-implementation issues, especially changes introduced by LHDN. This proactive approach ensures ongoing compliance and operational efficiency.

5. Customised Solutions for Different Business Sizes and Needs

HernanCres specialises in data transformation and automation, allowing for customised e-invoicing solutions tailored to different business sizes and needs. 

Our HernanCres solution facilitates robust integrations with various ERP systems, including SAP, Microsoft Dynamics (such as Dynamics F&O and Dynamics Business Central), INFOR, and Sage (including Sage X3 and Sage 300). 

This capability ensures seamless information extraction and integration into their e-invoicing platform, minimizing disruptions to existing ERP systems. The solution’s connectivity and adaptability make it especially efficient in meeting LHDN’s evolving e-invoicing requirements, providing a streamlined approach to managing business processes effectively across various industries.

Whether a mid-sized company or a large organisation, HernanCres’ e-invoicing solution requires minimal interference with preexisting accounting software systems. Retailers, for instance, can effortlessly generate consolidated e-invoices on a daily, weekly, or monthly basis with HernanCres’ solutions. HernanCres’ e-invoicing system is also SOC II and VAPT compliant, ensuring data security and integrity. Integration options with Microsoft Active Directory and multi-factor authentication further enhance security measures.

For businesses seeking to streamline their e-invoicing processes and ensure compliance with upcoming regulatory deadlines, HernanCres offers a comprehensive suite of solutions and expertise. Contact HernanCres for a consultation and demo of their e-invoicing solutions today. Act now to adapt and thrive in the evolving landscape of digital invoicing regulations.

FAQ

1. What happens if I do not comply with the e-invoicing requirements?

Answer: In the event of non-compliance with e-invoicing requirements, penalties may be imposed, including fines and legal repercussions. Ensuring that your business systems are kept current and equipped to manage e-invoicing processes effectively to align with LHDN regulations is imperative.

2. How do I integrate e-invoicing into my existing accounting or ERP system?

Answer: e-invoicing integration can be achieved via direct API connections or middleware solutions that facilitate communication between your systems and the government’s e-invoicing platform. Many businesses work with providers like Hernancres, which offers middleware solutions for seamless integration.

3. Is e-invoice applicable to transactions in Malaysia only?

Answer: No, the issuance of an e-invoice is not limited to transactions within Malaysia. It is also applicable to foreign and international transactions.

4. Can I still issue paper invoices?

Answer: Although the shift to e-invoicing is obligatory within the specified deadlines, paper invoices may still be issued as supplementary documents if necessary. Nevertheless, the official and compliant transaction records must be the e-invoices submitted through the MyInvois system.

5. Are there any incentives provided to taxpayers for implementing e-invoices?

Answer: The Malaysian government introduced tax incentives and grants for implementing e-invoicing in Budget 2024. One such incentive is a tax deduction of up to RM50,000 for each assessment year, applicable to expenditures related to environmental, social, and governance initiatives, including consultation fees for e-invoice implementation incurred by MSMEs. This incentive is effective from the year of assessment 2024 to the year of assessment 2027.

6. Are all industries included in the e-Invoice implementation? Are there any industries exempted?

Answer: Currently, no industries are exempt from e-invoice implementation. However, it’s important to note that certain individuals, types of income, and expenses may be exempted from e-invoice implementation.