(TAX UPDATE) E-Invoice Treatment for Foreign Employee

(TAX UPDATE) E-Invoice Treatment for Foreign Employee

From 1 August 2024 onwards, Malaysian employers must adapt to the e-invoicing framework introduced by the Inland Revenue Board of Malaysia (LHDN). This includes payments made to foreign workers, whether they are employees, freelancers, or supplied by an agency.

The correct e-invoice treatment depends on the nature of the working arrangement. Misclassification can lead to penalties, non-compliance issues, and unnecessary disputes with LHDN.

Below is a practical guide for employers.

01Scenario 1: Employee under full-time employment

If the foreign worker is your full-time employee, no e-invoice is required. This is because employment income is already covered under your payroll system and reported in Form E and EA/EC.

The definition of “full-time employment” generally includes workers who have an employment contract, fixed salary, and follow your working hours and policies.

02Your action:

• Continue to process wages through payroll
• Ensure proper reporting in Form E and EA/EC

03Scenario 2: Freelancer as an individual

If you engage a foreign worker as a freelancer (without a registered business), you must issue a self-billed e-invoice.

This is because the freelancer is not registered for e-invoicing in Malaysia and cannot issue one to you. A self-billed e-invoice ensures the payment is properly recorded for tax compliance.

04Your action:

• Prepare and submit a self-billed e-invoice to LHDN via MyInvois portal or API
• Keep proper supporting documents for the payment

05Scenario 3: Freelancer with a company incorporated in Malaysia

If the foreign worker operates through a locally incorporated company, the company is responsible for issuing the e-invoice to you.

06Your action:

• Request the e-invoice from the company before making payment
• Ensure the e-invoice is valid in the MyInvois system

07Scenario 4: Freelancer with a company incorporated overseas

If the freelancer operates through an overseas company, you must issue a self-billed e-invoice.

This is because foreign companies are outside the Malaysian e-invoicing system and cannot issue e-invoices.

08Your action:

• Issue and submit a self-billed e-invoice
• Maintain documentation to support the payment and service provided

09Scenario 5: Worker provided by a third party (such as an agency)

If the worker is provided by a manpower agency, your contractual relationship is with the agency, not the worker. In this case, you must request the e-invoice from the agency.

10Your action:

• Obtain the e-invoice from the agency before payment
• Do not issue e-invoices to the worker directly

11Scenario 6: Individual casual workers

Casual workers are individuals who perform work for short periods but are required to follow your instructions and schedule.

You may treat them under Scenario 1 (full-time employment) or Scenario 2 (freelancer as an individual), depending on your chosen approach.

If you choose Scenario 1, you must include their wages in Form E reporting. LHDN generally presumes that casual workers who follow your instructions have an employment relationship with you.

If you choose Scenario 2, you must issue a self-billed e-invoice.

12Your action:

• Decide on the treatment and be consistent in reporting
• Keep proper contracts or agreements as proof

13Key Takeaways for Employers

1. Always identify the working arrangement before deciding on the e-invoice treatment.
2. Keep complete records including contracts, payment details, and proof of services.
3. Where self-billed e-invoices are required, submit them promptly through MyInvois.
4. When in doubt, follow the LHDN guideline to avoid non-compliance risk.

E-invoicing is not just a system change. It affects payroll, procurement, and compliance processes. By understanding these scenarios, you can avoid mistakes, protect your company from penalties, and maintain good standing with LHDN.

Visit Us

• Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
• Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

• Website www.ktp.com.my
• Instagram https://bit.ly/3jZuZuI
• Linkedin https://bit.ly/3sapf4l
• Telegram http://bit.ly/3ptmlpn

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

• Website www.thks.com.my
• Facebook https://bit.ly/3nQ98rs

KTP Lifestyle

An internal community for our colleagues on work and leisure.

• Tiktok http://bit.ly/3u9LR6Q
• Youtube http://bit.ly/3ppmjyE
• Facebook http://bit.ly/3ateoMz
• Instagram https://bit.ly/3jZpKLo

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

• Instagram https://bit.ly/3u2PxHg
• Facebook http://bit.ly/3rPxz9o

#Thk

#KTP