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 Malaysian government, like many others around the globe, is moving towards mandatory electronic reporting (e-reporting) to enhance tax administration and to improve the country’s invoicing efficiency. As many businesses and governments are already aware, the move towards digitalised, electronic processes streamlines operations, cuts costs and therefore improves the efficiency in which invoices are created, distributed, received and treated.
Let’s take a look at the proposed plans in Malaysia.
When will mandatory e-reporting begin and which businesses will be in scope?
As part of the Budget 2023 presented by the Malaysian Finance Minister on the 7th of October 2022, the implementation of e-reporting should commence in stages from 2024, led by LHDN (Inland Revenue Board Of Malaysia).
Although the country’s plans are still subject to change, the LHDN has already put forward an obligation roll-out proposal, detailing which businesses would be in scope and when. A pilot phase is expected to begin in May 2024 and the mandatory phases are envisaged as follows:
- 1 August 2024 - mandatory for businesses that reach a sales threshold of RM100 million or more per year.
- 1 January 2025 - mandatory for businesses with an annual turnover or revenue of more than RM25 million and up to RM100 million
- 1 July 2025 - for the rest of businesses
The electronic invoice (e-invoice) will enable real-time or near real-time validation and storage of transactions, catering to business-to-business (B2B), business-to-consumer (B2C) and business-to-government (B2G) transactions. Many governments around the world have begun, or will begin, their e-reporting or e-invoicing journey but many have not detailed a plan that covers B2G, B2B and B2C invoices. Malaysia's proposal shows that the Southeast Asian country may be already ahead of the curve.
The national electronic invoicing initiative
In parallel to the e-reporting obligation in the country, the Malaysian Digital Economy Corporation (MDEC), an agency under the Ministry of Communications and Digital, is running the National e-Invoicing Initiative, seeking to establish an interoperable e-invoicing framework, facilitating the exchange of e-invoices between businesses.
The Peppol network has been selected as the best solution for the country’s framework. MDEC was appointed as Peppol Authority, responsible for the governance of the network within Malaysia and promoting the adoption of e-invoicing within the country.
Contrary to the e-reporting obligation described above, e-invoicing via Peppol remains optional for businesses.
Getting into the details: Which model can we expect to see?
While there are still quite a few open questions and a lot of decisions to be taken, it is clear that the country focused on a clearance model, where LHDN (Inland Revenue Board Of Malaysia) must validate the invoice in real-time, prior to it being sent to the end-recipient.
The clearance model is very popular around the world, used in countries such as Italy and Turkey. The model 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. The tax authority validates, or “clears”, the invoice before allowing the buyer to receive it.
Such a model allows the tax authority to monitor the invoice in real-time and ensure both the buyer and seller will have the same invoice in hand. The process therefore provides the tax authority with complete visibility of economic activity.
The next steps: Ensuring you stay up to date
Staying up to date with the latest e-invoicing and tax compliance mandates around the world can be challenging, especially when no country, model or e-invoicing format is the same.
Which is why we are here to help!
Unifiedpost Group is actively involved in Malaysia's e-reporting and e-invoicing discussions with LHDNM/MDEC, in order to help shape the country’s final plans. Therefore, we’re in the right place to keep you the most informed.
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Stanislava has a vast background in accounting and finance, which transitioned her to a role in e-invoicing and tax compliance with Unifiedpost Group in 2020. She studied Industrial Management, which provided her with a comprehensive understanding of financial, managerial, and engineering sciences and processes. Stanislava is fluent in four languages and has experience working with many international companies all over the globe.
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