E-INVOICE

Understanding the Essentials of Self-Billed e-Invoices

When a sale or transaction is completed, the typical process involves the supplier issuing an e-invoice to acknowledge their income and provide the buyer with a record of their expenditure. 

This e-invoice serves as both proof of income for the supplier and a detailed expense record for the buyer. However, in specific circumstances, an alternative approach is permitted: a self-billed e-invoice. 

In such cases, a party other than the supplier can generate this invoice on the supplier’s behalf, a process known as self-billing. This method ensures that transactions are documented accurately and compliantly.  

In this article, we explore the fundamentals of self-billed e-invoices, applications, and how they integrate into the broader e-invoice system.

What is a Self-Billed e-Invoice?

In typical business e-invoice transactions, the supplier generates an invoice once a sale is finalized.

This invoice fulfills two primary functions: it confirms the supplier’s income and gives the buyer a record for tracking expenses. However, an exception applies when dealing with individual, unregistered sellers. 

In these cases, the buyer is allowed to create a self-billed e-invoice on behalf of the supplier to document the transaction. This self-billed e-invoice must then be validated by the Inland Revenue Board (LHDN) before it can be used as a valid expense record for the buyer’s tax purposes. 

When is Self-Billed e-Invoicing Allowed?

Self-billed e-invoices are permitted in several key scenarios:

1. Payments to Intermediaries

When dealing with agents, dealers, or distributors, buyers can issue a self-billed e-invoice to streamline the transaction and record expenses accurately.

2. International Transactions

For goods or services provided by foreign suppliers, self-billed e-invoicing allows buyers to handle invoicing, facilitating smoother international trade.

3. Profit Distribution

In cases of profit distribution, such as dividends, self-billed e-invoices simplify the documentation process.

4. e-Commerce Transactions

Online sales platforms and intermediaries can use self-billed e-invoices to enhance efficiency in processing transactions.

5. Betting and Gaming Winnings

Self-billed e-invoicing ensures accurate record-keeping for payouts to winners in betting and gaming activities.

6. Individual Taxpayers

When acquiring goods or services from individual taxpayers who are not conducting a business, self-billed e-invoicing simplifies the transaction and ensures proper record-keeping.

The Role of e-Invoice Systems and Invoice Software in Self-Billing

Implementing an effective e-invoice system is important for managing self-billed e-invoices efficiently. 

The system should support the creation, validation, and submission of e-invoices to ensure compliance with regulations. Invoice software in Malaysia plays a significant role in this process, offering features that streamline invoicing tasks and integrate with accounting systems.

1. Integration

Modern invoice software integrates seamlessly with other financial systems, ensuring that self-billed e-invoices are recorded accurately and efficiently.

2. Validation

Invoice software often includes validation features that ensure self-billed e-invoices meet regulatory requirements before submission to tax authorities.

3. Automation

Automated invoicing processes reduce manual effort and errors, enhancing the overall efficiency of financial operations.

4. Compliance

Invoice software designed for the Malaysian market incorporates local tax regulations, ensuring that self-billed e-invoices comply with national standards.

How to Issue a Self-Billed e-Invoice

Issuing a self-billed e-invoice involves several steps:

Step 1: Determine Eligibility

Ensure that the transaction qualifies for self-billing based on the scenarios outlined earlier.

Step 2: Gather Information

Collect necessary details about the transaction, including the supplier’s information, transaction amount, and any applicable tax rates.

Step 3: Create the Invoice

Use an e-invoice system or invoice software to generate the self-billed e-invoice. Ensure that all required details are accurately entered.

Step 4: Submit for Validation

Submit the self-billed e-invoice to the Inland Revenue Board of Malaysia (IRBM) for validation. The invoice must be validated before it can be used for tax purposes.

Step 5: Record Keeping

Maintain records of the self-billed e-invoice and any related documentation for future reference and compliance checks.

Examples of Self-Billed e-Invoice Usage

To illustrate the practical application of self-billed e-invoices, consider the following examples:

Scenario A

Payments to Agents

Suppose a company, XYZ Bhd, pays a commission to a sales agent, Danny Wong. XYZ Bhd generates a self-billed e-invoice reflecting the commission amount and submits it for validation. Danny Wong uses this invoice for tax reporting purposes.

Scenario B

International Trade

A Malaysian business, ABC Sdn Bhd, imports goods from a foreign supplier. To simplify invoicing, ABC Sdn Bhd issues a self-billed e-invoice for the imported goods and submits it to IRBM. This process facilitates smoother record-keeping and compliance with tax regulations.

Scenario C

e-Commerce Transactions

An online marketplace, BeliSekarang, uses self-billed e-invoices for transactions involving multiple merchants. This approach streamlines invoicing and ensures accurate expense tracking for both the platform and its users. 

Final Takeaways  

Self-billed e-invoices offer numerous advantages for both businesses and individuals. They streamline financial operations by allowing buyers to issue invoices, thus reducing administrative burdens. 

This method also enhances accuracy, as the invoices reflect the actual transaction details recorded by the buyer, which minimizes the risk of errors. Additionally, self-billed e-invoices support compliance with tax regulations, as validated invoices are accepted for tax purposes. 

They simplify record-keeping by providing a clear and organized record of transactions, making financial management and tax reporting more efficient. For international transactions, self-billed e-invoices facilitate smoother invoicing processes, easing the complexities of cross-border trade. 

Upon familiarizing yourself with the eligibility requirements and benefits of self-billing e-invoices, you can enhance your financial processes and simplify record-keeping.   

FAQ

Questions Regarding E-Invoicing