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LATEST : Adapting ERP and Accounting Software to Malaysia's E-Invoicing Framework

E-Invoicing, or electronic invoicing, is a method of generating, sending, and managing invoices in a digital format. This innovation replaces paper-based invoicing, reducing the reliance on manual processes. E-Invoicing is not merely about digitizing paper invoices; it’s about integrating a system that facilitates the entire process of invoice management electronically, from creation to payment.

E-invoicing in Malaysia, as directed by the Inland Revenue Board of Malaysia (IRBM), is a significant change in the way businesses handle transactions and financial documentation. This digital transformation impacts Malaysian business practices and necessitates adjustments in ERP and accounting software to comply with the new framework.

Key Areas of e-Invoicing Implementation

The e-Invoice Guideline focuses on several critical areas to ensure clarity and ease of adoption for taxpayers and businesses:

  • Transactions with Buyers

  • Periodic Statements/Bills

  • Disbursement and Reimbursement

  • Employment Perquisites and Benefits

  • Expenses Incurred by Employees for Employers

  • Self-Billed e-Invoices

  • Transactions with Agents, Dealers, or Distributors

  • Cross-Border Transactions

  • Profit Distribution and Foreign Income

  • Currency Exchange Rates

  • API Integration

  • Cybersecurity Considerations​​

Impact on Malaysian Business Practices

Transactions with Buyers:

Overview of e-invoicing process (ref. Figure 3.1, E-INVOICE SPECIFIC GUIDELINE (VERSION 1.1))

Traditional Approach: Previously, businesses issued hardcopy or softcopy receipts, bills, or invoices to record transactions like sales or services.

  • e-Invoicing Initiative: Now, suppliers must issue e-Invoices for all transactions. For instance, a retail store selling electronics must issue an e-Invoice for every sale, whether it's in-store or online.

  • Consolidation: For buyers who do not require an e-Invoice (like end consumers), suppliers can consolidate transactions into a monthly e-Invoice. This could apply to a utility company billing residential customers​​.

Example of e-Invoice in PDF format (where summary of all receipts is presented as a single line item in the consolidated e-Invoice) (ref Figure 3.3 – E-INVOICE SPECIFIC GUIDELINE (VERSION 1.1))
Example of e-Invoice in PDF format (where summary of all receipts issued by each branch/ location is presented as separate line items in the consolidated e-Invoice) (ref. Figure 3.4 – E-INVOICE SPECIFIC GUIDELINE (VERSION 1.1))

Ease of Providing Information:

  • Malaysian individuals can provide TIN, MyKad identification number, or both.

  • Non-Malaysians can provide TIN or both TIN and passport number.

  • Example: An individual purchasing a service might provide their MyKad number to the supplier for e-Invoice generation​​.

Scenario When Buyer Requires an e-Invoice:

  • Confirmation: The supplier must confirm if an e-Invoice is needed.

  • Information Gathering: If required, the buyer provides necessary details to the supplier.

  • Issuance: The supplier issues the e-Invoice with all required fields.

Example of e-Invoice in PDF format (Buyer’s TIN not provided) ( ref Figure 3.2 – E-INVOICE SPECIFIC GUIDELINE (VERSION 1.1))

Example: A business buying office supplies from a vendor may request an e-Invoice for their purchase, which the vendor then provides​​.




Scenario When Buyer Does Not Require an e-Invoice:

  • Continuation of Current Practice: The supplier continues with the usual receipt/bill/invoice issuance.

  • Monthly Consolidation: They then consolidate these documents into a monthly e-Invoice.

Example: A local café might issue regular bills to customers and consolidate these at month's end for tax purposes​​.


Statements or Bills on a Periodic Basis:

  • Sectors like financial services, healthcare, and telecommunications that traditionally issue periodic statements must now issue e-Invoices.

  • These are to be issued in XML or JSON for validation and can be presented visually as statements or bills.

  • Example: A bank issuing monthly statements to its customers would now issue an e-Invoice in a digital format, validated by IRBM​​.


Consolidated e-Invoices for Buyers Who Do Not Require e-Invoice:

  • Normal practice continues for issuing statements or bills.

  • These are aggregated for creating a consolidated e-Invoice for validation.

Example of visual presentation of validated e-Invoice in statement form (in PDF format) ( ref. Figure 4.1 – E-INVOICE SPECIFIC GUIDELINE (VERSION 1.1))

Example: A telecommunications company might issue regular monthly bills and then aggregate these into a consolidated e-Invoice for validation by the IRBM​​.


Reimbursements and Disbursements:

  • Refers to out-of-pocket expenses incurred by the payee (like travel costs) reimbursed by the payer, or expenses paid to a third party by the payee on behalf of the payer.

  • Example: A company reimbursing an employee for travel expenses would need to include this in their e-Invoicing process​​.

Adaptation by ERP and Accounting Software

  1. Integration with e-Invoicing API: ERP and accounting software must integrate with the e-Invoicing system (like MyInvois Portal and API) for seamless generation and validation of e-Invoices.


Softwares like Zoho Books support e-invoicing as implemented in other countries like India and Mexico with localisation in development for Malaysia.

  1. Data Management: They must handle and process data fields required for e-Invoicing, including buyer's details, transaction specifics, and consolidated invoicing requirements.

  2. Compliance with Standards: Software needs to ensure compliance with the format (XML, JSON) and data standards set by IRBM.

  3. Cybersecurity Measures: Robust cybersecurity features to protect sensitive financial data during e-Invoice generation and transmission.

  4. Reporting and Analytics: Enhanced reporting capabilities to manage and analyze e-Invoices, aiding in compliance and financial decision-making.

  5. User-Friendly Interface: Simplifying the process of e-Invoice generation and management for businesses, especially for consolidating transactions and handling periodic statements.

  6. Adaptability and Scalability: Ability to adapt to ongoing changes in e-Invoicing guidelines and scalability to handle varying transaction volumes.

How should you prepare?

Preparing for e-invoicing requires a multi-faceted approach, encompassing technology upgrades, process redesign, staff training, and compliance measures. Here's a comprehensive guide for businesses to prepare for e-invoicing:

1. Understand the Legal Requirements

  • Research Regulations: Familiarize yourself with the local e-invoicing regulations. In Malaysia, this means understanding the guidelines set by the Inland Revenue Board of Malaysia (IRBM).

  • Compliance Standards: Identify the specific standards for e-invoices such as format, data fields, and submission protocols.

2. Assess Current Invoicing Processes

  • Audit Current Practices: Evaluate your current invoicing methods to understand the changes needed for e-invoicing.

  • Identify Gaps: Note any gaps between your current processes and the requirements of e-invoicing.

3. Upgrade or Implement E-Invoicing Software

  • Choose the Right Software: Select ERP or accounting software that supports e-invoicing and complies with IRBM standards. Consider features like integration capabilities, security measures, and user-friendliness.

  • Integration with Existing Systems: Ensure the new system integrates seamlessly with your existing financial and accounting software.

4. Data Management and Security

  • Data Readiness: Organize and digitize relevant data such as client information, tax rates, and product details.

  • Data Security: Implement robust cybersecurity measures to protect sensitive invoice data.

5. Staff Training and Change Management

  • Training Programs: Train your staff on the new e-invoicing system, focusing on how to generate, send, and manage e-invoices.

  • Change Management: Prepare your team for the transition with effective communication and support. Address any resistance to change and highlight the benefits of e-invoicing.

6. Pilot Testing

  • Test Run: Before full-scale implementation, conduct a pilot test with a subset of your invoices to identify any issues in the process.

  • Feedback Loop: Use feedback from the pilot to make necessary adjustments.

7. Communication with Clients and Suppliers

  • Inform Stakeholders: Notify your clients and suppliers about the shift to e-invoicing. Provide them with information on how the process will change.

  • Collaboration: Work with your clients and suppliers to ensure a smooth transition. This may involve aligning systems or formats for interoperability.

8. Review and Optimize

  • Continuous Review: Regularly review the e-invoicing process to identify areas for improvement.

  • Stay Updated: Keep abreast of any changes in e-invoicing regulations and technology to ensure ongoing compliance and efficiency.

9. Seek Expert Assistance

  • Consultation: If needed, consult with IT experts or e-invoicing service providers for specialized guidance, especially for unique business needs or complex integration challenges.

10. Prepare for Global Transactions

  • International Standards: If dealing with international clients, prepare for varying e-invoicing standards and requirements in different countries.

The implementation of e-Invoicing in Malaysia marks a significant stride towards digitalization and efficiency in financial transactions and tax compliance. This transition is not without its challenges but presents an opportunity for businesses to modernize their operations and for ERP and accounting systems to evolve. By ensuring seamless integration, compliance, and efficient data management, these systems can leverage the benefits of digital transformation, setting a new standard in business efficiency and regulatory compliance.


 

FINTECH RAKYAT is a Business Process Automation (BPA) Technology Consultancy based in Kuala Lumpur, Malaysia. We implement, support and manage software & hardware, covering our client's software journey from IT consulting to business automation and localized support, helping them avoid implementation failures and high opportunity costs, so they can focus on innovation & growth. Follow Us for more updates on e-invoicing for Malaysia and how we can help ensure a smooth adaptation.

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