Overcoming Hurdles in E-Invoicing Implementation in Malaysia’s Older Economic Sectors

In the 19th and 20th centuries, older economic sectors such as farming and manufacturing dominated. Most of these businesses did not have to rely on the development of the Internet.

Most businesses from Malaysia's older economic sectors now rely on technology for many processes, including data management, surveillance, marketing, etc.

Another hurdle these organizations must overcome is the introduction of mandatory e-invoicing, which significantly impacts one of a business's most critical aspects—cash flow.

Today’s high-technology companies offering services such as software development and internet providers have made it easy for businesses to access the Internet and its related technological developments.

Therefore, any business from the older economic sector can go digital and incorporate the right technology to enable e-invoicing in Malaysia. With the right software and partners, they can adhere to the new e-invoicing regulations.

This mandate by the Inland Revenue Board of Malaysia (IRBM) is set to gradually compel businesses, from the most prominent companies to start-ups, to use a common e-invoicing method.

In this post, we’ll discuss several aspects of e-invoicing in Malaysia, including the rules and implementation timeline. We’ll also discuss the challenges Malaysia’s older economic sectors may face in this transition and how to overcome them.

Timeline for electronic invoicing implementation in Malaysia

According to the latest IRBM guidelines, the e-invoicing implementation process in Malaysia is expected to occur in three phases. Each phase will target a specific category of taxpayers, ranking them according to their annual turnover.

Let us look at the phases in which mandatory e-invoicing in Malaysia will take place:

1 January 2024

The Malaysian government has allowed a test period for the new e-invoicing system starting January 2024. This will allow businesses to test their ERPs and determine whether.

1 August 2024

The first phase of the e-invoicing process will require all businesses with an annual turnover of at least RM 100 million to use the new system. This will mainly include large corporations and government institutions.

1 January 2025

By 1 January 2025, businesses with an annual revenue of between RM 25 million and RM 100 million must use the new IRBM system. The main companies that fall under this category are medium-sized enterprises.

1 July 2025

By the final date of the implementation process, all businesses with an annual turnover of below RM 25 million must adhere to the new e-invoicing regulations. The last phase will also include all Malaysian taxpayers.

What are the e-invoicing rules in Malaysia?

The latest guidelines released by the IRBM outline how businesses should transmit compliant electronic invoices and the dos and don’ts to ensure seamless integration.

Let us discuss the main rules for sending and receiving electronic invoices in Malaysia:

Format

Malaysia’s electronic invoicing system accepts invoices in XML or JSON format. The MyInvois portal can request invoice documents in various formats, including XML/JSON, CSV reports, metadata, PDF files, and grids.

Digital signature

After validating an invoice, the IRBM issues a digital signature to both the sender and recipient. The recipient should embed it on the invoice before issuing it to the sender, who uses the signature to verify it.

Entry information

Invoices must have all the information required, including the buyer and seller details. Some of the details to be filled in the 53 mandatory fields are cost, date, goods or services in question, time, and more critical data.

Archiving

The minimum archiving period for electronic invoices in Malaysia is seven years.

Which transactions fall under the e-invoice rule in Malaysia?

Malaysia’s e-invoicing guidelines state that e-invoices must be generated for the following transactions:

B2B (Business-to-Business) transactions

These are transactions in which businesses exchange goods or services among themselves. For example, a service provider may supply its services to a manufacturing or retailing company.

B2C (Business-to-Consumer) transactions

B2C transactions are common transactions to consumers all around Malaysia. They mainly occur in retail environments, service industries, and online commerce platforms.

B2G (Business-to-Government) transactions

The government often contracts business entities to build roads and provide software solutions. You must generate electronic invoices for the goods and services exchanged between government agencies and individual companies.

What are the hurdles in e-invoicing implementation in Malaysia's older economic sectors?

Businesses in Malaysia’s older sector may face more challenges than modern businesses. However, if a company keeps up with technological trends and is open to innovations, its transition may be more seamless.

Let us look at some of the hurdles Malaysia’s older economic sectors may have to overcome during the electronic invoicing adoption process:

Data security issues

Older economic sectors have seen it all, from collecting their data in books and printing papers to more effective databases. However, there is a concern about data leaks, which can be detrimental to any business.

Financial data is critical and requires exemplary security and privacy methods.

Technological transition

Adopting the new e-invoicing system requires transitioning from traditional manual operations, popular among the older economic sectors, to automatic processing systems.

Most businesses must hire professionals to help them overcome the hurdles to integrating e-invoicing into their systems and ensuring staff proficiency.

Accurate ERP integration

The IRBM provides both automated and manual methods of issuing invoices. To avoid manual generation, businesses in the older economic sector must have reliable ERP or e-invoicing software with a compatible solution to the new system.

Your software should be able to generate compliant invoices in XML or JSON format and archive them for a minimum of seven years. Such software allows your data to flow seamlessly between the MyInvois portal and your ERP.

Understanding rejection and amendment of e-invoices

The IRBM can reject an invoice requiring an amendment from the issuer before transmission. If an invoice has errors, the buyer can request rejection, or the supplier can cancel it within 72 hours of issuance.

Both parties have to give valid justifications for taking such action. If you fail to reject an invoice that contains errors within the given period, you will have to generate a new one.

There may be some confusion about how to reject and amend e-invoices in Malaysia, making it challenging for older economic sectors to generate compliant documents.

Lack of e-invoicing support by transacting partners

For e-invoicing to work in Malaysia, your trading partner must have a system that supports electronic invoicing for them to receive the documents. You must transact with a business that supports e-invoicing to adhere to the new mandates.

Most of your trading partners likely already support e-invoicing. However, you may encounter a trading partner who wants you to use paper invoicing.

How to overcome the hurdles in e-invoicing implementation in Malaysia's older economic sectors

The older economic sectors in Malaysia require adaptive strategies and execution to ensure efficient data flow and minimize disruptions.

Here are some of the steps businesses in the older economic sector can take to overcome the hurdles above:

Enhancing security measures

When looking for an e-invoicing solution, find one with robust security measures and features. This will help protect your data from unauthorized access, disclosure, and modification and ensure e-invoicing compliance with the General Data Protection Regulation (GDPR).

You can also enhance your current system’s security by strengthening encryption, authentication, and other security protocols.

You may also like: 5 Advantages of Using an E-invoicing Portal in 2023.

Timely and accurate submissions

Although Malaysia offers a manual option for transmitting invoices, an automated process remains more accurate. Older economic sectors should opt for a reliable ERP system that can integrate an Application Programming Interface (API).

They must also implement approval workflows and notifications in the system to minimize delays and ensure timely business operations. Adhering to timely submissions prevents penalties for tax evasion and non-compliance with the IRBM.

Addressing technology integration

Ensuring compatibility between different hardware and software systems is one of the most common challenges older economic sectors face. Many of them may use unique applications, each with its features and functionalities.

When integrating e-invoicing into your system, business owners must work hand-in-hand with the IT department. They can also hire an external consultant to provide valuable insights into the technical aspects of your hardware and software systems.

Use third-party providers to ensure compliance

Developing a new e-invoicing framework during the digital transformation can be quite costly. A reliable, easy-to-manage system requires a significant investment.

The old business sectors can opt for a more affordable and efficient method: hiring a third-party service provider to connect you to the PEPPOL network.

Reliable providers such as Storecove help businesses ensure compliance while allowing cross-border transactions.

Impact of e-invoicing in Malaysia

The digital age has brought about an inevitable shift from traditional invoicing processes to electronic invoicing. This digital transformation will favor businesses as well as the Malaysian tax authorities.

Let us look at some of the impact of e-invoicing in Malaysia’s older economic sectors:

Enhanced transparency among trading partners

The IRBM system will allow information viewing between suppliers and buyers. The system will generate a digital signature for validation and issue it to both parties for transparency when tracking the invoice.

A more accurate digital paper trail

The e-invoicing process in Malaysia requires the IRBM to view and validate an invoice in real-time before it is issued. This will help prevent tax evasion while increasing accuracy.

Generating invoices is virtually error-free, especially when using an efficient service provider such as Storecove to ensure compliance.

Cost reduction

The transition from manual processes to digital e-invoicing helps businesses save substantial amounts of money. It eliminates the need for paper, printing, and postal services, the costs of which are quite high.

Increased cash flow

An e-invoicing system with near real-time validation quickens the invoicing process, which in turn improves cash flow management. Quick invoice submission and processing means faster payment cycles.

This is extremely beneficial to smaller organizations that rely on prompt payments. It improves a business’s financial liquidity and stability.

Takeaway: Get ready to be e-invoicing compliant in Malaysia

Older economic sectors continue to adopt technological advancements for enhanced efficiency. Electronic invoicing is one of the main business operations that can help them enhance processes through improved cash flow and error reduction.

Compliance is not out of reach even for the older economic sectors. With the right strategies, you can easily adopt electronic invoicing in Malaysia and generate compliant e-invoices.

To understand how your business will transition, you must first understand the IRBM guidelines. This will help you determine the type of software or hardware to incorporate into your existing system.

Storecove can help ensure compliance when generating invoices. We help businesses connect to the PEPPOL network and generate invoices that adhere to Malaysia's e-invoicing regulations.

Schedule a consult today to get started.

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