e-Invoicing in Malaysia: Choosing the right integration model for your e-Invoice flow

In our previous blog, we shared some points to consider in your preparation for your e-Invoicing journey as Malaysia adopts an electronic invoice system beginning June 2024. The Malaysian Inland Revenue Board (IRB) has since issued the e-Invoice Guideline Year 2023 on 21 July 2023, which provides further clarification in terms of the scope, coverage and data fields required, amongst others. In this blog, we use the analogy of choosing a car to outline the key steps you’ll need to take for a ‘fast and furious’ implementation of e-Invoicing.

Based on the IRB’s latest e-Invoicing implementation timeline, e-Invoice compliance will be applied to all taxpayers, including individuals and legal entities. To ensure a smooth transition and provide taxpayers with sufficient time to adopt e-Invoicing, the implementation will be mandatory based on annual turnover or revenue (either based on the numbers reported in audited financial statements for financial year 2022 or tax returns for year of assessment 2022). For more information, please refer to our latest TaXavvy Issue 15/2023.

Test drive - Your e-Invoicing checklist

The introduction of the e-Invoicing framework triggers these key changes in the Accounts Receivable and Accounts Payable functions:

1. e-Invoicing - Invoice needs to be validated by MyInvois portal

2. Buyers who receive foreign invoices will be required to self-e-Invoice

This is also an opportunity for you to further optimise both functions in its entirety through process and technology intervention. We have summarised in the below diagrams the changes that you would expect to see in your AR and AP processes:

Anticipated changes for the Accounts Receivable (AR) function

Anticipated changes for the Accounts Payable (AP) function

In getting ready for e-Invoicing, you’re likely to be looking for seamless integration of your ERP or accounting system of the businesses with the e-Invoice portal. We share a few key considerations as part of your test-drive checklist:

Which are the best cars? Evaluating your options for data integration in your e-Invoice flow

Based on IRB's guideline, there are two mechanisms to transmit e-Invoices to IRB’s database, which are as follows:

• MyInvois Portal (a free solution/portal hosted by IRB)  

• Application Programming Interface (API)

While we await the release of IRB’s Software Development Kit (SDK), which will be available in the fourth quarter of 2023, there are two integration options for API that you may be considering.

Option 1 (the Formula 1 car): Direct integration (via API) 

From our experience with other countries, we understand that there are e-Invoice solutions available for some of the more established Enterprise Resource Planning or billing systems (e.g. SAP, Oracle, etc.). Many multinational companies (MNCs) embarking on digital transformation with SAP S/4HANA have taken a global approach for e-reporting and e-Invoicing.  

One of the benefits of direct integration is that e-Invoices are generated in real time in the ERP system and sent directly to the IRB database without human intervention. The e-Invoice is also immediately available for further processing (e.g validation and approval). 

However, as e-Invoice requirements are likely to continue evolving, your in-house IT team would have to update the ERP/billing system frequently. It may be costly and require more resources e.g. setting up and reconfiguring the ERP systems due to regulatory updates which is anticipated to incur multiple one-time development costs, and maintaining a stable connection as a recurring expense. As some ERP systems’ infrastructure are set up to meet global requirements, getting the systems to reflect local requirements may present further challenges for the adoption timelines for Malaysian organisations when it comes to e-Invoicing. 

Option 2 (the sports car): Integration through middleware

Middleware is a commonly used software, where the primary purpose of the solution is to facilitate the exchange of invoices between the supplier’s accounts receivable and buyer’s accounts payable. The supplier does not own the platform, nor does the buyer. 

One of the benefits of this option is that there will likely be limited changes that you’ll need to make on the ERP/billing system. The middleware will be updated on a regular basis to meet compliance requirements. As long as mandatory data is available, middleware will be able to consolidate the information in line with the e-Invoice requirements. It provides various convenient and interactive modes, including desktop application and cloud-based application, some even offering further customisation for your own use.

Some middleware have comprehensive offerings for end-to-end e-Invoicing compliance, and some may have e-reporting capabilities. Previously, we shared that there are requirements for suppliers to print a QR code on the invoice provided to the buyers, and some middleware would be able to support this requirement. 

How to select the best “car” that is fit for purpose?

Whether you go with a Formula 1 car (direct integration) or sports car (middleware), this depends on your current system setup and operation requirements, as they may be complex and require further considerations. Here is a non-exhaustive list of solution features that you may want to think about:

e-Invoicing will become mandatory for all taxpayers regardless of sales threshold from January 2027. We would encourage taxpayers to conduct impact assessments to understand their technical, system, process change and data requirements before making a decision on a solution that best fits your purpose. As you would do in choosing the right car for you, an assessment of which model would best suit your preferences and needs would need to be weighed up before deciding on the purchase. This is to ensure that there are minimal hiccups during and after implementation, while leaving some flexibility for expansion e.g. to cover e-reporting aspects. 

Switching gears: what's next

Many taxpayers, especially businesses with complex billing processes, have found the implementation timing proposed by IRB challenging. Based on our experience in other territories, we believe that steps taken correctly from the start can set you up for a swift and smooth implementation experience. Regardless of which option you take for API integration, here are some non-technology considerations to take into account: 

• Do you have a diverse project team who has relevant experience, e.g. IT, tax, finance, project management, etc. to drive change in the organisation to ensure a seamless e-Invoice roll-out?  

• Are you aware of the full aspects of your current AR billing processes? Would the timing of issuance of e-Invoice be a challenge in terms of submission of e-Invoice data to IRB? 

• Do you issue invoices to foreign customers? What is your game plan for self e-Invoice for foreign transactions? How does your system account for these transactions?

• How are you going to collate the mandatory e-Invoice data fields, e.g. tax identification number (TIN) of your buyers which we understand most companies may not have in the system? 

• How can you upskill your AR and AP teams to understand their roles and take on the additional responsibilities to comply with e-Invoice requirements?

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