Transaction Types of e-Invoicing in Malaysia: A Comprehensive Guide

The Malaysian Government has announced the implementation of e-invoicing in a phased manner starting from 1^st August 2024 to boost the economy and move towards tax digitisation. One of an essential medium of digitisation is introduction of e-invoices. Through implementation of e-invoicing, the tax authorities would have the data on business activities in real time. Amongst other benefits, it would aid in mitigation of potential tax frauds. 

In this article we would cover the transaction types of e-invoices and the types of e-invoices.

What is e-invoice?

An invoice is a document which represents the transactions between a supplier and a recipient. In a digitised manner, an invoice would be termed as an e-invoice. In Malaysia, an e-invoice is a file created in the format specified by the Inland Revenue Board of Malaysia (IRBM). 

Through implementation of e-invoicing, the tax authorities would have the data on business activities in real time. Amongst other benefits, it would aid in mitigation of potential tax frauds. Initially at the start the businesses would take time to incorporate the e-invoicing process in their regular business operations but from a future perspective, the benefits outweigh the difficulties.

Types of transactions covered in the e-invoicing requirement

The IRBM guidelines mandates issuing e-invoices for the below type of transactions:

Proof of income

Whenever the goods or services are supplied by the supplier to the recipient, issuance of an e-invoice becomes mandatory to recognise the sales income. Further, it is also required to be issued in ‘other transactions’ in which the taxpayer is earning. Guidelines with respect to ‘other transactions’ are still to be issued.

Proof of expenses

Whenever there is any purchase of goods or services or any other expenses are incurred by the taxpayer, the recipient needs to make sure that they receive the e-invoice from the supplier. It also includes in the case of returns of goods or discounts given. Further, if the transactions are between the recipient who is an Malaysian with a foreign seller, then the recipient would have to issue a self-invoice to document the expenses.

Transactions that requires e-Invoice generation

As per the e-Invoicing guidelines issued by LHDN (Lembaga Hasil Dalam Negeri), Malaysia these three are the major transactions types under the scope of invoicing as of now.

B2B (Business-to-Business) Transactions

B2B transactions involve the exchange of goods or services between two businesses. These transactions occur between manufacturers, wholesalers, retailers, or service providers. 

For example, when a manufacturer sells raw materials to a production company, or when a software company provides services to a marketing agency, these transactions would be classified as B2B.

B2C (Business-to-Consumer) Transactions

B2C transactions involve the sale of goods or services from a business directly to consumers. These transactions are commonly seen in retail environments, online shopping platforms, and service industries.

B2G (Business-to-Government) Transactions

B2G transactions involve business entities providing goods or services to governmental organizations or agencies. 

For example, when a construction company is contracted by a government agency to build roads or when an IT firm provides software solutions to a government department, these transactions would fall under the B2G category.

Types of e-invoices

The documents which would be replaced in an electronic format in Malaysia would be: 

Invoices

Invoices are a commercial document recording the sales transaction between the supplier and the recipient of the goods or services. It also includes self-invoicing.

Example

When Tech Solutions Sdn Bhd purchases software licenses from the foreign company, TechSoft Inc., they create the invoice themselves. The self generated invoice should also be validated to MyInvois Portal as e-invoice compliance rules in Malaysia.
 

Credit notes

Credit notes are issued by the supplier to the recipient in the case where there is a decrease in the value of transaction on account of some errors which were there in the e-invoices or some discounts which were provided later. However, it is not used in the situations where there is an involvement of return of money to the recipient.

Example

XYZ Hardware Store mistakenly overcharges ABC Construction Company for a bulk order of construction materials. Upon discovering the error, XYZ Hardware Store issues a credit note to ABC Construction Company to rectify the overcharge. The credit note reflects the corrected amount and should be validated through MyInvois portal for e-invoicing.
 

Debit notes

Debit notes are opposite of the Credit notes. These are issued when there is an increase in the value of the transaction.

Example

Company ABC, a manufacturer of automotive parts, supplies particular components to Company XYZ, an assembly plant. . However, due to an increase in production costs, Company ABC needs to adjust the invoice amount to reflect the updated price. Therefore Company ABC would issue a debit not along with the details and change in prices.
 

Refund e-invoices

Refund e-invoices are issued by the supplier to the recipient. The prima facie reason to issue the same is to confirm the refund of payment by the recipient. Whenever there is a refund of money, this document has to be issued.

Example

TechGadgets sells a laptop to Sarah that turns out to be defective. TechGadgets acknowledges the return and refunds Sarah's. Now TechGadgets have to issue a refund invoice.

Self Billed e-Invoice

A self-billed e-Invoice is a type of e-invoice where the buyer issues the invoice on behalf of the actual supplier. This process is required under specific circumstances outlined by e-Invoicing guidelines. It serves as a proof of expense for the buyer and as a record of income for the supplier. S
Self-billed e-Invoices are required in various transactions in which suppliers are not liable or unable to generate e-invoice, including payments to agents, dealers, and distributors, acquisitions from individual taxpayers, profit distributions, e-commerce transactions, and payouts to betting and gaming winners.

Example

When acquiring goods or services from individual taxpayers who are not conducting a business, the buyer can issue a self-billed e-Invoice to document the transaction. 

Each invoice would have a unique identifier number and there would be 51 validations with 35 of them being compulsory validations.

Conclusion

The types of transactions covered under e-invoicing requirements include proof of income and proof of expenses, encompassing various business interactions. These transactions range from Business-to-Business (B2B) and Business-to-Consumer (B2C) to Business-to-Government (B2G) transactions.

Moreover, e-invoicing in Malaysia involves several types of e-invoices, including invoices, credit notes, debit notes, refund e-invoices, and self-billed e-invoices. Each type serves specific purposes in documenting transactions electronically, with unique examples illustrating their usage scenarios. 
 

FAQ’s

Who is required to comply with e-invoicing requirements in Malaysia?

There are 14 categories of taxpayers. They are:

How do I receive an e-invoice in Malaysia?

Once the MyInvois system validates the e-invoice, the supplier or technology provider (if supplier utilises a technology provider) will receive a validated e-invoice from IRBM.

How do I issue an e-invoice in Malaysia?

e-Invoices can be issued through MyInvois portal or an application programming interface (API).