Digital Invoicing: A Complete Guide for SMEs in Malaysia

The transition to digital invoicing in Malaysia is part of the broader push towards automation and digital transformation. For SMEs, understanding the nuances of digital invoicing is a must to remain compliant and competitive. 

In this article, we are pleased to provide a comprehensive guide that will walk you through the essentials, from compliance requirements to practical steps for adopting this new system.

What Is Digital Invoicing and How It Works?

Digital invoicing refers to the electronic generation, transmission, and storage of invoices, which replaces traditional paper-based methods. 

Unlike standard emails with attached PDFs, digital invoices adhere to a structured format that allows for automated data processing between businesses and government systems. 

This form of invoicing is not only more efficient but also improves compliance with tax regulations, particularly in countries like Malaysia where e-invoicing is becoming mandatory.

Digital invoicing works by automating the entire invoicing process electronically. A business generates an invoice using a digital platform, which formats it to meet compliance standards. 

The invoice is then transmitted electronically to the recipient, ensuring it reaches them in real time. This process includes automatic validation to ensure accuracy and adherence to tax laws. 

Once received, the buyer processes the invoice through their accounting system, facilitating quick payments. The invoice is archived digitally for future reference, streamlining the overall workflow and ensuring transparency.

The e-Invoicing Implementation Timeline in Malaysia

Malaysia’s e-Invoicing system will be introduced in phases:

1 August 2024

Applicable to taxpayers with an annual turnover exceeding RM100 million.

1 January 2025

Expanded to taxpayers with an annual turnover between RM25 million and RM100 million.

1 July 2025

Mandatory for all taxpayers, regardless of turnover.

This gradual rollout aims to make sure businesses of various sizes can adjust to the new system and comply with the requirements efficiently. SMEs should begin preparing early to ensure a smooth transition.

Who is Required to Comply with e-Invoicing in Malaysia?

Initially, large corporations and multinationals are required to adopt e-invoicing. However, SMEs will eventually be included in the rollout. It is advisable for all SMEs to prepare early to ensure compliance as the mandate extends. All in all, the e-Invoicing requirement applies to all individuals and legal entities in Malaysia, including:

• Corporations
• Limited liability partnerships
• Partnerships
• Co-operative societies
• Property trust funds
• Business trusts
• Real estate investment trusts
• Unit trusts
• Trust bodies
• Associations
• Body of persons
• Branches
• Representative offices and regional offices

These entities are required to adopt e-Invoicing as part of the country’s move towards digital tax compliance.

Scenarios Requiring e-Invoices to be Issued

e-Invoices are necessary for a variety of transactions, including:

• Business-to-business (B2B) sales, where invoices are shared between two businesses for products or services.
• Business-to-government (B2G) transactions, especially when selling to government entities.
• Cross-border transactions, where e-invoicing can streamline customs declarations and tax filings.

Proof of Income

Issued when a sale or transaction occurs to recognize taxable income for the seller or service provider.

Proof of Expense

Documents purchases, spending, or returns by taxpayers. It can also adjust or deduct from income records. In cases like foreign transactions, a self e-Invoice may be required to document the expense.

Determination of Annual Turnover or Revenue

• For audited financials: turnover as reported in FY 2022 statements.
• For non-audited financials: revenue as per YA 2022 tax returns.
• New businesses starting from 2023 have an e-Invoicing compliance date of 1 January 2027. Notifications will be issued in phases.

For SMEs, issuing e-invoices in these scenarios will not only improve compliance but also streamline invoicing processes, helping ensure faster payments and smoother business operations.

What Are the e-Invoicing Models in Malaysia?

Malaysia offers two main e-Invoicing models: the MyInvois Portal and the Application Programming Interface (API).

MyInvois Portal (hosted by IRBM)

The MyInvois Portal, hosted by the Inland Revenue Board of Malaysia (IRBM), is a free, accessible option ideal for micro, small, and medium enterprises (MSMEs) with lower transaction volumes. It is less suited for large businesses due to limited data handling capabilities. 

Application Programming Interface (API)

The API model, on the other hand, integrates directly into the taxpayer’s systems, facilitating seamless, high-volume invoicing. While it requires a higher upfront investment in technology, the API is better suited for larger businesses with significant transaction volumes.

e-Invoicing Workflow

A typical e-invoicing workflow includes several steps:

1. Invoice Creation

The seller generates an invoice using a digital platform. The invoice is automatically formatted to include all necessary tax and compliance data.

2. Submission

The invoice is submitted through a government-approved platform, either directly or via a clearinghouse.

3. Validation

The platform checks the invoice for compliance with Malaysian tax regulations, including ensuring the correct tax codes and amounts are listed.

4. Transmission

Once validated, the invoice is transmitted to the buyer, who can automatically process the payment.

5. Archiving

Both the buyer and seller are required to keep a digital copy of the invoice for record-keeping purposes, ensuring compliance with statutory requirements for audit purposes.

How SMEs Can Prepare for Digital Invoicing

Invest in Technology

SMEs should begin by upgrading their existing accounting systems to support digital invoicing. An accounting system in Malaysia that integrates with e-invoicing platforms will be key to ensuring a smooth transition. 

Stay Updated on Regulations

SMEs should regularly review changes in Malaysia’s e-invoicing regulations to remain compliant. Working with a qualified accountant or tax advisor will ensure that the business is meeting its obligations.

Train Employees

As the business transitions to digital invoicing, employees must be trained on how to use the new system efficiently. This will help avoid errors and streamline the invoicing process. 

Choose a Reliable e-Invoicing Platform

e-invoicing platforms are available in Malaysia, offering a range of features tailored to SMEs. Choosing a reliable platform, such as SQL Account, will make it easier for SMEs to comply with Malaysia’s e-invoicing requirements.  

All in All 

Digital invoicing represents a significant step forward for SMEs in Malaysia, helping businesses streamline their processes and comply with evolving tax regulations. 

With the right tools and preparation, SMEs can not only ensure compliance with Malaysia’s e-invoicing requirements but also enjoy the operational benefits that come with digitized invoicing.

Staying ahead of the digital invoicing curve will allow SMEs to focus on growing their business while reducing administrative burdens. Implementing an appropriate accounting system in Malaysia is the first step toward unlocking the full potential of this digital transformation.

FAQ

Questions Regarding E-Invoicing