Regulatory updates - Malaysia

On 28 October 2023, the Inland Revenue Board of Malaysia (IRBM) updated the previously published guidelines addressing the scope of gradual implementation of e-invoicing for targeted taxpayers.

- The updated version 2.1 of the e-invoice Guideline.

- E-invoice Specific Guideline version 1.1.

- E-invoice Catalogue.

The new mandatory e-invoicing implementation considers the gradual roll-out plan for targeted taxpayers from:

- 1 August 2024: Taxpayers with an annual turnover or revenue of more than RM 100 million (ca. EUR 20 000 000).

- 1 January 2025: Taxpayers with an annual turnover or revenue of more than RM 25 million (ca. EUR 5 000 000) and up to RM 100 million (ca. EUR 20 000 000).

- 1 July 2025: All other taxpayers.

Other amendments made to the guidelines clarify the current provisions and does not explicitly consider significant changes.

Pagero follows the developments closely and will inform our customers once further guidance is announced.

On 13 October 2023, the Prime Minister of Malaysia announced the delay in the implementation of the country-wide e-invoice implementation within Malaysia’s national Budget 2024 proposals.

Starting from 1 August 2024, taxpayers with an annual income or sales exceeding RM 100 million (ca. EUR 20 770 000) will be mandated to issue an electronic invoice.

The next steps in the gradual roll-out plan are yet to be announced, whereas the mandate for targeted taxpayers under other income categories is expected to be implemented starting from 1 July 2025.

In addition, the usage of Tax Identification Number (TIN) in Malaysia will be extended to support the implementation of e-invoicing.

Pagero closely follows the developments in Malaysia and will publish further updated information in the upcoming weeks.

On 29 September 2023, the Inland Revenue Board of Malaysia (IRBM) published the following guidelines addressing the scope of gradual implementation of e-invoicing for targeted taxpayers.

1. The updated version 2.0 of the e-invoice Guideline, which it previously published on 21 July 2023.
2. E-invoice issuance Specific Guideline version 1.0.
3. E-invoice Catalogue.

Overview of the e-invoice Guideline Version 2.0

The e-invoice Guideline version 2.0 contains the following considerations:

• Exempting certain parties (government bodies) from implementing e-invoicing.
• Clarifying methods of transmission via API.
• Defining near real-time e-invoice validation.
• Defining validated invoice content including IRBM Unique Identifier Number, date and time of validation, and validation link.
• Clarifying the consequences of the buyer’s request to reject e-invoice.
• Clarifying the definition of the Software Development Kit.

Overview of the e-invoice Specific Guideline Version 1.0

This Specific Guideline contains a better understanding of the e-invoice issuance process, covering:

• Transactions:
  • With Buyers.
  • Involving payments in monetary form to agents, dealers, or distributors.
  • Cross-border.
• Financial/monetary related:
  • Statements/bills periodically.
  • Disbursement and reimbursement.
  • Profit distribution.
  • Foreign income Currency exchange rate.
• Self-billed e-Invoice.
• Employment benefits and certain expenses incurred by the employee.
• API overview.

Overview of the E-invoice Catalogue

The e-invoice catalogue provides further guidance on technical specifications and contains Malaysia Standard Industrial Classification (MSIC) codes, invoice currency codes, frequency of billing, e-invoice classification, tax type, payment mode, and country of origin.

Pagero participated in the Service Provider (SP) Pilot Focus Group meeting organized by the Malaysian Digital Economy Corporation (MDEC) regarding the National e-invoicing initiative.

The Peppol pilot implementation objectives, timeline, eligibility criteria, and the process development for Peppol SP onboarding were introduced and discussed during the meeting.

The implementation model considers that businesses sending invoices via Peppol will automatically comply with the LHDNM requirements. Businesses will submit e-invoices to LHDNM for tax reporting and compliance and exchange invoices separately.

Pagero is in the accreditation process as a Service Provider for Peppol in Malaysia.

OpenPeppol announced that Malaysia’s Digital Economy Corporation (MDEC) has obtained the status of authorized Peppol Authority.

MDEC is the agency under the Ministry of Communications and Digital of Malaysia and will be responsible for setting local requirements and managing participants of Peppol within the country.

As MDEC becomes the Peppol Authority, Peppol will be part of the National e-invoicing framework.

After the MDEC’s approval as a Peppol Authority, the total number of Peppol Authorities has reached 20.

On 21 July 2023, the Inland Revenue Board of Malaysia (IRBM) introduced the Guideline addressing the scope of gradual implementation of the e-Invoice for targeted taxpayers.

The guideline presents e-Invoice concepts in a clear and accessible manner for taxpayers, introduces the ways of implementation, compliance, recordkeeping, and addresses common questions and concerns that taxpayers may have regarding e-Invoice.

The e-Invoice implementation plan

The mandatory e-invoicing implementation considers the gradual roll-out plan for targeted taxpayers from:

• 1 June 2024: Taxpayers with an annual turnover or revenue of more than RM 100 million (ca. EUR 20 000 000).
• 1 January 2025: Taxpayers with an annual turnover or revenue of more than RM 50 million (ca. EUR 10 000 000) and up to RM 100 million (ca. EUR 20 000 000).
• 1 January 2026: Taxpayers with an annual turnover or revenue of more than RM 25 million (ca. EUR 5 000 000) and up to RM 50 million (ca. EUR 10 000 000).
• 1 January 2027: All taxpayers and certain non-business transactions.

Types of e-invoices to be issued

The following documents must be issued in electronic format:

• Invoice;
• Credit/Debit note;
• Refund

Transmission of e-invoices

Two distinct e-Invoice transmission mechanisms will be available for taxpayers:

• A portal (MyInvois Portal) hosted by IRBM

The MyInvois Portal will be accessible to all taxpayers, nevertheless not efficient for large volumes of data and suitable for Micro, Small and Medium-sized Enterprises.

• Application Programming Interface (API)

The API connection may require an upfront investment in technology and adjustments to existing systems, nevertheless ideal for large taxpayers or businesses with substantial transaction volume.

Version 1.0 of the Guideline can be accessed here for more information. 

Today, Pagero participated in the Service Provider engagement session organized by the Inland Revenue Board of Malaysia (LHDNM) and the Malaysian Digital Economy Corporation (MDEC) on implementing the National e-Invoicing system in Malaysia.

LHDNM introduced a hybrid centralized CTC model combined with the Peppol network. Suppliers are obliged to submit invoices to the LHDNM for prior validation and approval before sending them to the buyers. LHDNM will provide a Certification Serial Number once the invoice is approved and send an email notifying both the issuer and recipient. Taxpayers can then choose the exchange method for their cleared invoices, where Peppol will be the preferred but not exclusive channel.

Furthermore, a QR code will be required for an image-based invoice presentation, so that the buyer can verify the invoice by scanning the QR.

This e-invoicing system obligation includes B2G, B2B, and B2C transactions; domestic and cross-border; in all industries and sizes of companies. LHDNM will start pilot projects with selected taxpayers at the beginning of 2024 and introduce the mandatory implementation gradually, based on the business revenue:

• June 2024: Businesses sales > RM 100 million (ca. EUR 20 770 000) per year;
• January 2025: Businesses sales > RM 50 million (ca. EUR 10 400 000) per year;
• January 2026: Businesses sales > RM 25 million (ca. EUR 5 200 000) per year;
• January 2027: Mandatory for all businesses.

The obligation will be extended to B2C transactions starting from 2027, for which e-Receipt instead of e-Invoice will be utilized. It is as well likely that B2C transactions will follow the real-time reporting model instead of pre-clearance.

Taxpayers can start making use of electronic invoices voluntarily from January 2024. A free portal, called myTax, will be provided by LHDNM for taxpayers to issue and receive e-invoices manually.

On 25 October, the Malaysian Digital Economy Corporation (MDEC) signed the MoU with the Inland Revenue Board of Malaysia (LHDNM), witnessed by the Ministry of Finance and Ministry of Communications and Multimedia Malaysia, to establish collaboration on the National e-Invoicing Initiative.

As we mentioned previously, the Malaysian government intended to implement electronic invoicing in 2023. The framework is now getting clear with the MoU signed.

To help Malaysian businesses, including SMEs, reduce tax costs and increase efficiency, the National e-Invoicing Initiative plans to follow the Peppol framework as its preferred option. A CTC model is anticipated to be introduced following the e-invoicing adoption to establish real-time tax controls.

Pagero is delighted to be invited by the MDEC to the Focus Group of the e-invoicing initiative discussion. We believe the e-invoicing initiative will put a positive spin on accelerating digitalization in Malaysia and the entire region.

With the issuance of the 2023 Pre-Budget statement by the Ministry of Finance, Malaysia joins a growing list of countries that are digitalizing their tax administrations by switching to e-invoicing. According to the statement, e-invoices are viewed as the main strategy to improve the country’s tax revenue and its digital services infrastructure.

No timelines are provided for the implementation. The statement mainly outlines the direction Malaysia is taking from 2023 and onwards. The e-invoicing initiative will also support the usage of TIN (tax identification number) which will be introduced in Malaysia in 2022.

Pagero is closely monitoring the developments in Malaysia and will continue notifying our customers about the latest changes.

The main differences between the two tax regimes

The scope of GST was wider, meaning a greater range of goods/and services were taxed, whereas SST allows more items to be tax-free. The other main difference is the actual percentage of tax charged on sales.

SST also does not operate an input tax credit system for taxes encountered. Input tax credit means that at the time of paying tax on output, companies can deduct the tax already paid on inputs, thus essentially only being required to pay the difference of output tax and input tax.

This means that businesses will no longer be required to calculate their input taxes in order to get a discount, which is good news for small businesses that had experienced added costs when having to prepare these calculations.

A brief summary of the new SST regime

Sales

• Sales tax is charged on taxable goods that are manufactured in, or imported into, Malaysia. Manufactured goods exported would not be subject to sales tax.
• The rates of tax will be 5%, 10%, a specific rate, or exempt. Goods are taxable unless specifically listed as being exempt from sales tax.
• Sales tax is a single-stage tax, meaning that it is only imposed at one stage in the supply chain, i.e. at the import or manufacturers’ level.
• To maintain the single-stage principle, manufacturers of taxable goods would generally be entitled to an exemption on sales tax paid on their raw materials, components and packaging materials.

Services

• Service tax is imposed on specific prescribed services provided by a taxable person carrying on a business in Malaysia.
• The rate of service tax will be 6%.
• Service tax is also a single-stage tax charged once by the service provider. There are no input or exemption mechanisms in the context of such service tax.
• Services specifically prescribed to be subject to service tax include hotels, restaurants, telecommunication, gaming, professional and consultancy services, motor vehicle repair, credit cards, domestic flights, IT services and electricity.

Further details about the new tax regime

To find out more about the new tax regime in Malaysia, please refer to the below regulations, orders and guidelines released by the Royal Malaysian Customs Department (RMCD):

SST Regulations

SST Orders

Industry Guides

Want to find out more?

Please do not hesitate to get in touch to know more about how Pagero can help you achieve and maintain compliance with local VAT/tax regulations.