Navigating E-Invoicing in Malaysia's Financial Sector: A Comprehensive Guide
E-invoicing is rapidly transforming business operations worldwide, and Malaysia's financial institutions are a key part of this evolution. By digitizing the invoicing process, financial institutions can streamline operations, reduce costs, and enhance transparency. But what exactly does e-invoicing entail for this sector, and how can institutions ensure compliance? This guide breaks down the essential aspects of e-invoicing for financial services in Malaysia based on the recent guidelines by LHDN.
E-Invoicing Requirements for Malaysian Financial Institutions
The Inland Revenue Board of Malaysia (LHDN) has specific guidelines for e-invoicing, and financial institutions must adhere to these regulations. Key requirements include:
Customer Consent: Financial institutions must obtain customer consent to issue individual e-invoices, aligning with obligations under the Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA).
Description of Product or Service: While regulated industries like financial institutions are not required to disclose statement/bill reference numbers in the "Description of Product or Service" field of consolidated e-invoices, relevant and appropriate descriptions are still necessary.
Bank Branches: Resident companies carrying on banking business must issue e-invoices for activities both inside and outside Malaysia.
E-Invoice Issuance for Various Financial Transactions
Understanding how to issue e-invoices for different transaction types is crucial. Here are some examples:
Interest Income: If customers request e-invoices for income received (e.g., interest on fixed deposits), financial institutions must provide them. Periodic statements, detailing amounts owed and credits to the customer can also be provided to enable them to understand the various transactions.
Loan Repayments: E-invoices are required for interest charged on loans, but not for the repayment of the loan principal itself.
Fees paid to card network processors: Financial institutions must issue self-billed e-invoices for charges paid to foreign card network processors and operators. Local processors/operators will issue e-invoices for payments received from financial institutions.
Premium for Treasury Products: E-invoices are required for premium or upfront fees related to treasury products and Sharia-compliant services, if these fees are non-refundable.
Cashback & Reward Points: Financial institutions can consolidate cardholder debts and credit (cashback pay-out) in the same E-invoice presented as statements or bills. For reward points, no e-invoice is required to be issued by financial institutions to cardholders.
Penalties for Non-Compliance
Failure to comply with e-invoicing regulations can result in penalties. To avoid disruptions or financial repercussions, it is essential to stay informed about the latest LHDN guidelines and ensure your institution's systems are fully compliant.
Securities and Derivatives Broking
The buying and selling of securities and/or derivatives traded on a stock exchange or derivatives exchange in Malaysia or elsewhere is currently exempted from e-invoice.
Brokers are allowed to issue e-invoices in the format of XML or JSON format, which includes the amount owed by clients as well as payment/credit to clients in the same e-invoice. They can convert the validated e-invoice into physical statements/bills (either contract note/statement or monthly statement of account).
The e-invoice Guideline including the Specific Guideline for Financial Services, Stockbroking, and Unit Trust shall apply to unit trust companies.
Stay Ahead of the Curve
E-invoicing is not just a regulatory requirement; it's an opportunity to enhance efficiency and modernize your financial institution. By understanding the specific requirements and leveraging available resources, you can ensure a smooth transition and reap the benefits of digital transformation.
Where to Find More Information
LHDN Website: https://www.hasil.gov.my/
E-Invoice Specific Guidelines https://www.hasil.gov.my/media/acil1u20/specific-faq-financial-services-stockbroking-and-unit-trust.pdf