E-Invoice Phase 2 in Malaysia: Key Changes, Requirements, and Implementation

E-invoicing in Malaysia is transitioning through phases, and Phase 2 (started on January 2025) extended the mandate to businesses with annual revenues between RM25 million and RM100 million, introducing real-time validation, schema compliance, and digital record-keeping for tax reporting.

Key Takeaways:

• Phase 2 targets businesses with RM25 million to RM100 million annual revenue.
• E-invoices must meet 55 mandatory fields and comply with the UBL 2.1 format.
• E-invoices undergo real-time validation via the MyInvois System and are assigned a unique ID and QR code.
• A relaxation period (1 Jan – 30 June 2025) allows flexibility in compliance, such as consolidated invoices and no penalties for non-compliance.
  

E-Invoicing in Phase 2

While the e-Invoice implementation date is different for different businesses turnover the basic principles remain same in all five phases

E-Invoicing

E-invoicing is a digital method of invoicing in which transactions between businesses (B2B), businesses and consumers (B2C), or businesses and government (B2G) are recorded electronically. Tax authorities validate and store these invoices in real time through the MyInvois System, a centralized platform introduced by the Inland Revenue Board of Malaysia (IRBM).

Compliance Requirements Under Phase 2

The compliance requirements for Phase 2 are similar to those in Phase 1, with some additional considerations for mid-sized businesses:

• Mandatory E-Invoice Generation: Businesses must generate e-invoices for all B2B, B2C, and B2G transactions. E-invoices must include 55 mandatory fields, such as seller and buyer details, item description, quantity, price, tax details, and payment information.
• Schema Compliance : E-invoices must comply with the UBL 2.1 format (XML or JSON) as specified by the IRBM. Businesses must ensure that their systems are compatible with the MyInvois System if they need integration with existing ERP/POS.
• Real-Time Validation:  E-invoices must be submitted to the MyInvois System for real-time validation.A Unique Identification Number (UIN) and QR code are issued for each validated invoice.
• Recordkeeping: Businesses must maintain digital records of all e-invoices for at least 7 years. E-invoices must be stored in a secure and accessible format for audit purposes.

Suggested Read: E-Invoice Phase 3 in Malaysia

Consolidated E-Invoicing During Relaxation Period

During the six-month relaxation period (1 January 2025 to 30 June 2025), businesses in Phase 2 can take advantage of the following concessions:

Consolidated E-Invoices: Businesses can issue consolidated e-invoices for multiple transactions, including B2B and B2C.

Flexible Product/Service Descriptions: During the relaxation period, businesses can use more flexible product/service descriptions in the e-invoices.

No Penalties for Non-Compliance: During the relaxation period, businesses will not face penalties for non-compliance under Section 120 of the Income Tax Act 1967.

Preparation for Full Compliance: Businesses should use the relaxation period to prepare for full compliance by:

• Integrating their systems with the MyInvois System.
• Conducting pilot testing for high-volume transactions.
• Training staff on e-invoicing processes.

Benefits of Phase 2 E-Invoicing

Phase 2 of e-invoicing in Malaysia introduces significant improvements in tax compliance, operational efficiency, and financial management for businesses.

• Improved Tax Compliance: Digital invoicing reduces errors and enhances tax reporting accuracy.
• Faster Invoice Processing: Automation speeds up invoice validation and approval.
• Reduced Tax Evasion: IRBM’s real-time validation helps minimize fraudulent transactions.
• Operational Efficiency: Businesses can streamline their invoicing process, reducing paperwork and manual errors.
• Enhanced Cash Flow Management: Faster invoice validation means quicker payments and improved liquidity.
• Paperless Transactions: Reduces environmental impact and saves costs on physical invoices.

How to Prepare for Phase 2 e-Invoicing?

ERP System Gap Analysis: Businesses should conduct a gap analysis of their existing ERP systems to ensure compatibility with e-invoicing requirements. This includes:

• Identifying necessary system upgrades or middleware solutions.
• Ensuring data accuracy and integration with the MyInvois system.

Gradual Integration: To avoid disruptions, businesses should gradually integrate their ERP and accounting systems with the MyInvois Portal or API. This includes:

• Testing high-volume transactions in a sandbox environment.
• Training staff on e-invoice generation, validation, and rejection workflows.

Staff Training: Employees must be trained to handle e-invoicing processes, including:

• Creating and validating e-invoices.
• Managing rejections and cancellations.
• Ensuring compliance with IRBM guidelines.

Pilot Testing: Before full implementation, businesses should conduct pilot testing to identify and resolve any issues related to e-invoice generation, validation, and submission.

Challenges of E-Invoice Phase 2 Compliance

Phase 2 e-invoicing requires businesses to adopt new systems, align with regulatory requirements, and ensure real-time validation to avoid penalties.

Implementation Challenges

• System Integration: Businesses must integrate their systems with MyInvois via API.
• Real-Time Validation Errors: Instant validation by IRBM can lead to rejections due to mismatched data.
• Training and Adoption: Employees must be trained to handle new e-invoicing workflows.

Post-Implementation Compliance Issues

• Reconciliation Challenges: Ensuring alignment between ERP sales records, e-invoice data, and tax filings.
• Government Audits: Authorities will actively verify e-invoice data against tax returns.
• Correction and Amendments: Errors in e-invoices need to be corrected within the stipulated time frame

How ClearTax Helps Businesses with Phase 2 E-Invoicing?

ClearTax, an MDEC-accredited e-invoicing solution provider, offers a comprehensive and automated solution to help businesses comply with Malaysia’s e-invoicing regulations. Here’s how Clear Tax can assist:

1. Seamless API Integration: Connects with ERP, POS, and online sales channels for real-time invoice generation.
2. Automated Validation and Data Enrichment: AI-driven tools prevent errors before submission to IRBM.
3. Buyer and Vendor Data Management: Stores customer and supplier details for recurring transactions.
4. Multi-Channel Invoice Generation: Supports B2B, B2C, and self-billed invoices with real-time validation.
5. Error Alerts and Bulk Uploads: Instantly detects validation errors and allows bulk submissions for high-volume businesses.
6. Automated Tax Reconciliation: Matches e-invoice data with sales and tax records for audit readiness.
7. Regulatory Compliance Updates: Adapts to IRBM’s latest guidelines, ensuring businesses remain compliant.

Conclusion

Phase 2 of e-invoicing in Malaysia, which began on 1 January 2025, brings mid-sized businesses into the fold of mandatory e-invoicing compliance. With a six-month relaxation period until 30 June 2025, businesses can adapt their systems and processes before full enforcement.

To ensure a smooth transition, businesses should focus on ERP system integration, staff training, and pilot testing. Partnering with a reliable e-invoicing solution provider like ClearTax can help businesses achieve 100% compliance with LHDN guidelines, streamline operations, and avoid penalties.