Compliance and Regulations
Malaysia: National e-invoicing initiative and mandatory e-reporting explained
The Malaysian government, like many others around the globe, is moving towards mandatory electronic reporting to enhance tax administration and to improve the country’s invoicing efficiency.
The shift towards digital reporting and electronic invoicing (e-invoicing) is about more than just meeting regulatory demands. It is also about improving operational efficiency, reducing manual work, and maintaining competitiveness in an increasingly digital world. Therefore, it is now more important than ever for Malaysian businesses to familiarise themselves with the upcoming changes and prepare for the transition.
Let’s take a look at Malaysia’s roll-out plans.
Who is affected and when? E-reporting rollout timelines
As part of the Budget 2023 presented by the Malaysian Finance Minister on 7 October 2022, the implementation of e-reporting, led by LHDN (Inland Revenue Board of Malaysia), began in stages starting from 2024 onwards.
LHDN put forward a proposal for the rollout of this obligation, detailing which businesses would be affected and when. The pilot phase began in May 2024, followed by the mandatory phases outlined below:
1 August 2024 - mandatory, with a 6-month grace period, for taxpayers with an annual sales threshold of RM 100 million or more.
1 January 2025 - mandatory for taxpayers with an annual turnover or revenue of more than RM 25 million and up to RM 100 million.
1 July 2025 - mandatory for taxpayers with an annual turnover or revenue of more than RM 5 million and up to RM 25 million.
1 January 2026 - mandatory for taxpayers with an annual turnover or revenue of more than RM 1 million and up to RM 5 million.
1 July 2026 - mandatory for taxpayers with an annual turnover or revenue of up to RM 1 million.
It is important to note that certain exemptions apply. These include individuals not conducting business, taxpayers with annual sales or income totalling less than RM 500k, and certain types of self-billed invoices.
The e-invoice will enable the real-time or near-real-time validation and storage of transactions for business-to-business (B2B), business-to-consumer (B2C) and business-to-government (B2G) transactions. While many governments around the world have begun, or will begin, their e-reporting or e-invoicing journey, few have detailed a plan that covers B2G, B2B and B2C invoices. Malaysia's proposal suggests that the Southeast Asian country may already be ahead of the curve.
The national electronic invoicing initiative
Alongside the e-reporting obligation, the Malaysian Digital Economy Corporation (MDEC), a Ministry of Communications and Digital agency, is running the National e-Invoicing Initiative, which aims to establish an interoperable e-invoicing framework to facilitate the exchange of e-invoices between businesses.
The Peppol network has been selected as the optimal solution for the country’s framework. MDEC has been appointed as the Peppol Authority, responsible for governing the network within Malaysia and promoting e-invoicing adoption within the country.
Unlike the e-reporting obligation described above, e-invoicing via Peppol remains optional for businesses.
Getting into the details: Understanding Malaysia's clearance model
Although there were many open questions and decisions to be made during the implementation phase, the country finally adopted a clearance model inspired by some Latin American countries. As is typical of a clearance model, the LHDN (Inland Revenue Board of Malaysia) must validate the invoice in real time before it is sent to the end recipient.
This model is very popular worldwide and is used in countries such as Italy and Turkey. It typically involves three parties: the seller, the government/tax authority, and the buyer.
Before the buyer receives their invoice, the seller must first send it to the tax authority for clearance. This is usually carried out through a government portal designed by the tax authority or via approved service providers. In Malaysia specifically, e-invoices can be submitted via the MyInvois Portal or through the Tax Agency's API. For our customers, Banqup has a compliant solution in place that fully supports these submission requirements. The tax authority then validates, or “clears”, the invoice before allowing the buyer to receive it.
This model enables the tax authority to monitor invoices in real time and ensure that both the buyer and seller have the same invoice. This, therefore, provides the tax authority with complete visibility of economic activity.
Staying informed: Next steps and updates
Keeping up to date with the latest e-invoicing and tax compliance mandates around the world can be challenging, especially given that no two countries, models or e-invoicing formats are the same.
That’s where we come in! To help businesses navigate these changes seamlessly, we offer a compliant solution for our customers.
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