e-Invoice: Latest updates from IRBM

On 6th April, the Inland Revenue Board of Malaysia (“IRBM”) released updates to the Software Development Kit (“SDK”) and simultaneously made updates to the guidelines. Also, last week the IRBM has also provided response to queries raised by the professional bodies.

With less than 4 months for the mandatory implementation date for the first cohort (business with turnover exceeding RM100 million) and less than 9 months for the second cohort (business with turnover exceeding RM25 million), it is important for finance personnel to act on the changes that has impact on their business processes or finance processes.

Hence in this e-Alert, we summarise the key changes from over 200 pages of newly released documentation.

(1) Self-billed e-Invoice for importation: One month plus of lead time granted
Malaysian businesses are required to raise a self-billed e-Invoice in respect of importation of goods and services from foreign vendors. Given that particulars such as Customs import declaration (e.g. K1 number) are required to be collected and processed, the latest Guidelines allows for over one month for the self-billed e-Invoices to be raised.

To be more specific, for importation of goods, the self-billed e-Invoice is required to be raised by the end of the month following the month in which Customs declaration (K1) is obtained. As an example, if K1 is obtained anytime during the month of August, the self-billed e-Invoice is required to be raised by 30th September.

As for importation of services, self-billed e-Invoice is required to be issued latest by the end of the month following the month in which the rule for timing of imported service tax is satisfied, i.e. earlier of payment and receipt of invoice. For avoidance of doubt, the requirement for self-billed e-Invoice applies regardless of whether imported service tax is required to be accounted on the invoice.

(2) Clarification on FOREX

The update clarifies that the foreign exchange (FOREX) rate must be provided for transactions denominated in a foreign currency.

The choice of FOREX rate is based on internal policy, except where regulatory requirements stipulate otherwise.

(3) Inclusion of non-monetary transactions

Section 82C of the Income Tax Act 1967 (as amended), mandates issuance of e-Invoice for each “transaction” in respect of any goods sold or services performed by the person. Previously, it was unclear whether the requirement applies only in respect of transactions settled via monetary payment. In the 6th April update, the IRBM has clarified that non-monetary transactions (e.g. incentive trips and gift vouchers to dealers) are in-scope for e-Invoice amid absence of monetary payment.

Hence, businesses that merely automate existing invoices to compliant with e-Invoice validation may not be fully compliant with the requirements of the law which extends to ‘barter trade’ type of transactions.

(4) Permissibility of Credit Note that relates to multiple e-Invoices

In the e-Invoice regime, the requirement for IRBM’s validation is not limited to invoices, but also applies to credit notes. The particulars required for validation of credit note includes reference to the e-Invoice to which credit note relates. The IRBM has confirmed that a credit note may be used to adjust transaction value of multiple e-Invoices as the relevant field for credit note would not be subject to any size limitation with regards to the number of characters.

(5) Permissibility of consolidated e-Invoice on payments to individuals

On payments to individuals, a self-billed e-Invoice requirement applies. The latest update reinstates the ability to perform consolidated e-Invoice on payments to individuals. This is a substantial simplification for many businesses as personal particulars would not have to collected.
However, payments to individuals in a capacity as an agent, a dealer or a distributor (“ADD”) does not qualify for consolidated e-Invoice – i.e. a transactional self-billed e-Invoice is required for such payments. Understandably, this is vital to close any tax compliance gap for the future years (while voluntary disclosure scheme is available up to 31st May 2024 as an opportunity for taxpayers close any past compliance gap without penalty).

(6) Clarification on interest payments

Requirement to issue e-Invoice or self-billed e-Invoice on interest payments has been well-designed to improve any tax compliance gap. As a general principle, for transactions with financial institutions, the onus is on financial institutions. Otherwise, the onus to issue self-billed e-Invoice is imposed on the payer of the interest – except where the payer is a foreign entity, in which case the local recipient of interest is required to issued e-Invoice upon receipt (i.e. not at the time of accrual of interest).

While these principles may be simple, careful attention is required in designing the processes to avoid compliance gap or double counting.

(7) Flexibility for statements used as e-Invoice

Where statements are adopted as an e-Invoice, the flexibilities has been expanded to include prior period adjustments as well as rebates within such document.

(8) Size limitation

The following size limitation has been introduced with regards to submission of data to IRBM:

  • maximum size of 5MB per submission;
  • maximum of 100 e-Invoices per submission; and
  • maximum size of 300KB per e-Invoice.

This impacts the consolidated e-Invoice submission and must be considered in the implementation of the chosen IT solution.

(9) Digital Signature

Where a business appoints a service provider to handle integration/submission with IRBM for e-Invoice validation, the digital signature of the service provider is allowed to be used.

While this summary highlights the key changes to facilitate prompt action, it is not meant to be exhaustive. Do speak to your respective contact point at TRATAX for the details. Alternatively, reach out to us at corp@tratax.my