Starting January 1, 2025, Malaysia will enter Phase 2 of its e-invoicing implementation. This marks a significant shift in how businesses, particularly medium-sized enterprises (MSEs) with an annual turnover between RM25 million and RM100 million, handle their invoicing processes. For these businesses, ensuring compliance with the new regulations will be crucial to avoid penalties and ensure smooth operations. This blog outlines what you need to know about Phase 2 and how your business can prepare for this change.
What Is Phase 2 of E-Invoicing?
Phase 2 is the second stage of Malaysia's digital invoicing initiative, launched by the LHDN/IRBM.Under this phase, businesses in the specified turnover range will be required to issue electronic invoices (e-invoices) for all business transactions. The e-invoicing system will integrate directly with the IRBM’s system for real-time validation, and all invoices must be generated and transmitted via a government-approved platform.
This move towards digital invoicing aims to streamline the invoicing process, reduce tax evasion, and improve overall business efficiency. By mandating the use of e-invoices, the government expects to enhance tax compliance and provide greater transparency in the business ecosystem.
What Does This Mean for Your Business?
If your business falls within the RM25 million to RM100 million turnover range, here’s what you need to know about the upcoming requirements:
- Mandatory Use of E-Invoices- All invoices, including credit notes and debit notes, must be generated in the prescribed e-invoice format. These e-invoices will need to be submitted to the RMCD for validation. Any manual or paper invoices will no longer be accepted, and non-compliance could result in fines or other penalties.
- Integration with the RMCD’s System- Your invoicing system must be integrated with the RMCD’s platform for real-time data transmission. This means that businesses will need to update their invoicing systems to support the new requirements, ensuring seamless communication with the government’s tax platform.
- Record Keeping and Archiving- E-invoices must be stored for a minimum period of seven years, as mandated by the tax authorities. Ensure your business has the necessary infrastructure to archive and retrieve e-invoices for future audits or inspections.
Preparatory Tips for MSEs
To ensure a smooth transition to Phase 2, medium-sized enterprises can take several steps to prepare:
- Review and Update Your Invoicing System- If you’re still using manual invoicing methods, it’s time to invest in accounting or invoicing software that supports e-invoicing. Check if your current system can integrate with the RMCD’s platform or if you need to upgrade to a compliant solution. Training on how to use the e-invoicing system and how to address potential issues will help avoid disruptions when the system goes live.
- Understand the Compliance Requirements- Familiarize yourself with the specific data fields and technical standards required for e-invoices. The RMCD has published guidelines and technical documents that outline the format and requirements for e-invoices. Training your accounting and finance teams on these guidelines will help ensure compliance.
- Engage with Approved E-Invoicing Providers- Choose an e-invoicing solution that is officially recognized by the RMCD. The government has approved certain platforms that meet the technical and security standards required for e-invoicing. Make sure your selected provider offers real-time validation, seamless integration with RMCD, and adequate support for your business. Before the January 2025 deadline, conduct thorough testing to ensure that your invoicing system works correctly and is integrated with the RMCD platform. This will help identify and resolve any potential issues well in advance of the enforcement date.
What to Expect Ahead
As the 2025 deadline approaches, the LHDN/IRBM will possibly conduct awareness campaigns to help businesses with the transition. It’s essential to stay updated on any new announcements and adjust your preparations accordingly.
The shift to e-invoicing in Malaysia is a major step towards digitalization in the business sector. For MSEs, while the transition may require an initial investment in software and training, the long-term benefits of increased efficiency, reduced paperwork, and improved compliance will far outweigh the costs. Start preparing now to avoid last-minute hassles and ensure a smooth transition when Phase 2 of e-invoicing takes effect in 2025.
Conclusion
The upcoming Phase 2 of e-invoicing is an important milestone for medium-sized businesses in Malaysia. By understanding the requirements, investing in the right systems, and ensuring your team is prepared, you can ensure compliance and streamline your invoicing processes. Preparing early will allow your business to operate seamlessly under the new regulations and avoid potential disruptions when the new rules come into effect.