It’s the end of the month again, and you’re closing your company’s monthly accounts. Your company has received a loan from the bank and is currently repaying it. However, due to the implementation of e-invoicing, you are unsure how the interest payments should be recorded in the accounting system and how to get a tax deduction. Will the bank provide an e-Invoice to your company? Or is your company required to issue a self-billed e-Invoice on the bank’s behalf? Worry no more; here is everything you need to know about interest payments under self-billed e-Invoicing. 

According to the e-Invoice guidelines, “interest payment” is one of the seven (7) scenarios where a self-billed e-Invoice is required. In this case, the buyer shall assume the role of the supplier, issue a self-billed e-Invoice, get it validated, and share it with the supplier. This serves as proof of the expense, allowing the buyer to obtain a tax deduction. 

For any scenarios other than the seven (7) mentioned in the guidelines, an e-Invoice must be issued instead of a self-billed e-Invoice. However, there are three (3) exceptional scenarios where the supplier must issue an e-Invoice for the interest payment:  

(1）Businesses That Charge Interest to the Public At Large 

This scenario involves businesses whose main income is interest income. They must issue e-Invoices on the interest payments received from their customers (individuals or businesses) to recognize the income. Financial institutions, such as banks issuing loans to customers, are the best example. Since the main income of a bank is the interest payments from their customers, the bank must issue an e-Invoice to its clients when the interest payment is due. Customers do not need to issue a self-billed e-Invoice in this case. 

(2) Interest Payments Made by Employees to Employers 

This scenario applies when employers provide loans or advances with interest to employees. The loans are not restricted to any specific purpose and must be repaid to the employer with interest in the future. The employer shall issue an e-invoice to the employee for the interest income received.   

(3) Interest Payments Made by Foreign Payors to Malaysian Taxpayers 

This scenario applies when Malaysian taxpayers provide financial instruments (e.g., loans) to a foreign entity. The Malaysian taxpayers must issue an e-Invoice for the interest received from the foreign entity to recognize the interest income. The foreign payor is not required to issue a self-billed e-invoice as they do not have access to the e-invoice system. 

In any scenario other than the three (3) mentioned above, the buyer will have to assume the role of the supplier and issue a self-billed e-Invoice. This includes interest transactions within the company. 

Additionally, it is important to note that self-billed e-Invoices are generally not applicable for consolidation, except for the following self-billed circumstances: 

(a) acquisition of goods or services from individual taxpayers (who are not conducting a business) 

(b) interest payment to public at large (regardless businesses or individuals)