The Future of e-Invoicing in Malaysia: Benefits, Challenges, and Implementation Strategies

Electronic Invoicing, also known as e-Invoicing, is not a new phenomenon, not by a long shot. But until recently, companies, businesses and governments across the globe did not have a standard for e-Invoice processing, which rendered companies’ electronic invoicing systems arbitrary and irregular.

With the passage of the European Union’s EU Directive 2014/55/EU, which took effect on 16 April 2019, all European public administrations are now mandated to receive and process business-to-government (B2G) invoices in electronic format from suppliers. The Directive also allows each EU member state to adopt the directive within each such country’s domestic legal framework.

This piece of legislation has set off a domino effect of change within the world of invoicing, triggering other nations like Malaysia to consider digitally transforming its paper-based invoicing processes to electronic invoicing systems.

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What is e-Invoicing?

According to the European Commission, electronic invoicing is the exchange of an electronic invoice document between a supplier and a buyer, and an e-Invoice is an invoice that has been issued, transmitted and received in a structured data format which allows for its automatic and electronic processing.

This means that invoices issued as a PDF, sent via email, or printed and sent via mail are not considered e-Invoices as they are unstructured and are not machine readable.

In order to qualify as an e-Invoice, the document must be sent in one of the following machine readable formats: XML file format, Json file format, or other structured data formats that are machine readable and do not require any manual data entry.

There are also what is referred to as hybrid electronic invoicing which are both machine and human readable. The Franco-German standard for hybrid electronic invoicing is called Factor-X, a PDF file with an embedded XML file.

In France, due to compulsory legislation concerning e-Invoicing, a national unique invoicing portal called Chorus Pro has been developed by the French national public agency for IT. Chorus Pro allows all suppliers of the public sector to submit their invoices, to check their invoice current status and the associated payments. The French government has gone a step further, offering users a greater ease of access to the Chorus Pro platform by making it free of charge for suppliers and contracting authorities alike. The French government made it mandatory for all companies in France to send e-Invoices to public contracting entities on the Chorus Pro portal from 1 January 2020 onward.

Similarly, the Inland Revenue Board of Malaysia (IRBM) announced last year that it would make adoption of e-Invoicing mandatory through a phased implementation plan. The first phase would see all businesses with a turnover exceeding RM 100 million engaged in B2B, B2C, and B2G transactions generating e-Invoices from 1 August 2024 onward. The rationale behind the regulatory move? To strengthen Malaysia’s digital services infrastructure and to digitalise the tax administration.

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What are the Benefits of e-Invoicing?

The following is an inexhaustive list of benefits of e-Invoicing:

• Reduced costs: Drive down overall cost of invoicing by saving on paper, postage, and storage.
• Fewer errors: Eliminate human errors with automated processes.
• Enhanced security: Encrypted digital invoices to protect confidential information, ensuring only intended recipients have access to sensitive information.
• Faster processing speeds: Accelerate invoice-to-payment cycle resulting in improved cash flow.
• Reduced manual efforts: Automated electronic invoicing freeing up human resources for managerial and creative tasks.
• Seamless system integration: Regulatory compliance for efficient and accurate tax reporting.
• Eco-friendly invoicing: Paperless invoicing that significantly reduces a company’s carbon footprint.
• Industry best practices: Aligns financial reporting and processes with digitalised industry standards.

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What are the Implementation Strategies of e-Invoicing in Malaysia?

Timeline for e-Invoicing Strategy Implementation:

According to IRBM, while businesses with an annual turnover of over RM 100 million will be required to implement e-Invoicing systems from 1 August 2024 onwards, businesses with an annual turnover of more than RM 25 million will be required to implement e-Invoicing from 1 January 2025 onwards, while all other businesses will be expected to implement e-Invoicing from 1 July 2025.

IRBM’s e-Invoice Model:

The issuance of e-Invoices is not limited to transactions within Malaysia but are also applicable to cross-border transactions.

Businesses of all sizes and across all industries will be required to adopt Malaysia’s e-Invoicing system according to the phased mandatory implementation timeline.

Businesses have the option of selecting either Malaysia’s MyInvois Portal or its Application Programming Interface (API) to transmit e-Invoices to IRBM.

• The MyInvois Portal is a portal hosted by IRBM. This portal is accessible to all businesses and taxpayers free of charge and is accessible to all taxpayers where its Application Programming Interface (API) connection is unavailable.
• On the other hand, the API would enable direct data transmission between the businesses’ system and MyInvois system.

The e-Invoicing Roadmap for Malaysian businesses:

1. When the buyer makes a sale or transaction, the supplier creates an e-Invoice and shares it with IRBM via the MyInvois Portal or the API for the purpose of validating the payment.
2. A near real time validation of payment is then performed to ensure the e-Invoice meets the necessary standards.
3. Upon validation, IRBM will give the supplier a Unique Identifier Number via MyInvois Portal or API. This Unique Identifier Number ensures traceability and drastically reduces the possibility of e-Invoice tampering.
4. IRBM will then issue a notification to the supplier and the buyer informing them of the validation.
5. The supplier is then obliged to share the validated e-Invoice which is embedded with a QR code which is helpful in further validating the existence and status of the e-Invoice.
6. Upon the issuance of an e-Invoice, the buyer and supplier are given a stipulated period of time to request for rejection of the e-Invoice in the case of the former or cancel the invoice in the case of the latter. Such a rejection request or cancellation must be justified.
7. Supplier and buyer will be able to obtain a summary of the e-Invoice transactions via the MyInvois Portal.

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What are the Challenges of e-Invoicing Transactions?

IRBM advises businesses to pay heed to the following considerations before implementing the mandated e-Invoicing procedure:

• Human resources: Businesses are advised to hire a team equipped with the necessary expertise to prepare for the e-Invoice implementation.
• Business processes: Conduct a comprehensive review of the current process and procedures in issuing invoice transaction documents.
• Technology and systems: Confirm the availability of the necessary resources, data structures and existing IT capabilities to ensure the systems in place comply with the e-Invoicing requirements.

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Key Takeaways

Electronic Invoicing (e-Invoicing) is becoming a standardized practice globally, driven by regulatory mandates like the EU Directive 2014/55/EU and national initiatives.

In Malaysia, the Inland Revenue Board (IRBM) is phasing in mandatory e-Invoicing from August 2024 for large businesses, aiming to enhance digital infrastructure and tax administration. Benefits include cost reduction, error elimination, and improved cash flow, while challenges encompass technological readiness and process alignment. Get in touch to get ahead with your business’ e-Invoicing regulatory compliance.