Best Practices for Handling Currency Exchange in Malaysia e-Invoicing

A key aspect of e-invoicing in Malaysia is managing currency exchange rates for cross-border transactions and any dealings involving currencies other than Malaysian Ringgit (RM). This article explains how businesses in Malaysia can handle currency exchange rates when issuing e-invoices, following the guidelines set by the Inland Revenue Board of Malaysia (IRBM).

Overview of Currency Exchange Rates in Malaysian e-Invoicing

E-invoicing in Malaysia requires the submission of over 55 data fields for every transaction. For cross-border transactions—where at least one party is located outside Malaysia—or any transaction involving a currency other than Malaysian Ringgit (RM), it becomes necessary to convert foreign currencies into RM.

The e-invoicing system has specific fields designed to capture the currency details and, when applicable, the exchange rate needed to convert the transaction amount into RM.

The two key fields related to currency in e-invoicing are:

1. Invoice Currency Code – The currency used for the transaction.
2. Currency Exchange Rate – The rate at which the foreign currency is converted into RM (mandatory for transactions in non-Malaysian currencies).

When is the currency exchange rate required for e-invoicing?

Currency exchange rates come into play in several scenarios involving cross-border transactions. According to the Malaysian e-invoicing guidelines, a currency exchange rate is mandatory in the following situations:

• Foreign Currency Transactions: If the e-invoice reflects amounts in a currency other than Malaysian Ringgit, the supplier must provide the applicable exchange rate to convert the foreign currency into RM.
• Cross-Border Transactions: For transactions where goods or services are sold by foreign sellers to Malaysian buyers or vice versa, currency exchange is often necessary, especially when the buyer or seller deals in non-Malaysian currencies.

Handling Currency Exchange Rates

Foreign Sellers to Malaysian Buyers

1. Invoice Issuance by Foreign Sellers: The foreign seller typically issues an invoice or receipt in their local currency. However, the Malaysian buyer is responsible for issuing a self-billed e-invoice to document the transaction for Malaysian tax compliance.
2. Currency Conversion: If the invoice is in a foreign currency, the Malaysian buyer must include the appropriate currency exchange rate in the self-billed e-invoice. 

Malaysian Sellers to Foreign Buyers

1. Currency Selection: The e-invoice can be issued either in RM or in the foreign buyer's local currency, depending on the terms of the transaction.
2. Exchange Rate Inclusion: If the e-invoice is issued in a foreign currency, the seller must provide the exchange rate used for converting that currency into RM, as mandated by Malaysian tax and invoicing laws.

Determining Currency Exchange Rates in e-Invoicing

The e-invoicing guidelines provide clear instructions on how to determine the currency exchange rate in cases where foreign currencies are involved:

1. Legal and Tax Requirements: The supplier or Malaysian taxpayer must first comply with any legal or tax requirements set by relevant authorities, such as the Royal Malaysian Customs Department (RMCD) or the IRBM. For example, when customs clearance is required for the importation of goods, the exchange rate may be dictated by customs regulations.
2. Internal Policies: If no specific legal or tax requirement applies, businesses may follow their own internal policies for determining the currency exchange rate. This flexibility allows businesses to use rates based on daily exchange rate updates from trusted sources, such as banks or financial platforms.
3. Self-Billed e-Invoices: In cases where a self-billed e-invoice is issued for imported goods, the Malaysian taxpayer can use their internal exchange rate policies to determine the RM equivalent of the transaction.
4. Service Tax on Imported Services: If the self-billed e-invoice is for imported taxable services under the Sales and Services Tax (SST) framework, the taxpayer must also include the applicable service tax in RM. This requires the use of an accurate exchange rate at the time of the transaction or invoice issuance.

Conclusion

Businesses must ensure accurate conversion of foreign currencies into Malaysian Ringgit (RM) by providing the correct exchange rates in their e-invoices. This is especially important for foreign sellers selling to Malaysian buyers, where the buyer issues a self-billed e-invoice, and Malaysian sellers transacting with foreign buyers. Compliance with legal requirements, internal policies, and proper tax treatment ensures smooth e-invoicing operations and avoids penalties.