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E-Invoicing FAQs for the Construction Industry

The construction industry in Malaysia plays a pivotal role in the country's economic development and infrastructure growth. It encompasses a broad spectrum of activities, ranging from residential and commercial buildings to large-scale infrastructure projects. Here are key aspects of the construction industry in Malaysia:

  1. Significant Economic Contributor

  2. Infrastructure Development

  3. Government Initiatives

  4. Green Building Practices

The COVID-19 pandemic posed challenges to the construction industry, causing disruptions in the supply chain and project timelines. However, the sector is expected to recover as economic activities normalize.

In summary, Malaysia's construction industry is dynamic and plays a crucial role in the nation's development. Ongoing infrastructure projects, government support, and a focus on sustainable practices contribute to its resilience and growth. The transition to e-invoicing is accompanied by guidelines and requirements that businesses within the construction sector must adhere to. The Frequently Asked Questions (FAQ) document serves as a resource to clarify these new standards, particularly as they pertain to various common transactions within the industry. Below, we will explore the specific requirements for issuing e-invoices in different scenarios, such as dealing with sub-contractors, handling progress claims, purchasing materials on behalf of the owner, and selling construction materials to related companies.

Issuing e-Invoices to Sub-Contractors

When a construction company charges their client for services rendered, it is now required to issue e-invoices. This ensures that all transactions are digitally recorded and can be easily tracked.

For example, if a main contractor hires a sub-contractor for electrical work, it is the sub-contractor who provides the service and, therefore, should issue an e-invoice to the main contractor for the payment due. The main contractor receives the e-invoice as the recipient of the service.

This aligns with standard invoicing practices where the provider of goods or services issues the invoice to the party receiving those goods or services.

So, would an e-invoice be required for charges to sub-contractors, including penalties?

Yes, contractors are required to issue e-invoices for all charges to sub-contractors. This includes any penalties that may be imposed on the sub-contractors.

For example, if a main contractor imposes a late completion penalty on a sub-contractor, an e-invoice must be issued for the penalty amount.

Progress Claims

Progress claims are periodic requests for payment issued by contractors for work completed during a specific period. Under the new e-invoice regulations, these claims must also be documented using e-invoices. Based on the FAQ, the e-invoice treatment for progress claims in construction contracts is as follows:

1. If certification of work done is not required:

The contractor can directly issue the customer an e-invoice for the progress payment claim amount to substantiate revenue recognition. There is no need to wait for external approval or certification.

For example - If contract terms specify invoicing 20% on completion of piling work, the piling contractor can directly issue an e-invoice upon finishing.

2. If certification of work done is required:

The contractor must first obtain the completion certificate confirming the claimed progress percentage from appropriate authorities like the supervising consultant, architect, etc.

Only after securing the certificate can the corresponding e-Invoice be issued against it to the customer.

For example - If a contract has a 10% payment milestone for basement slab concrete completion certified by a civil engineer, the stage invoice can only be generated after certification receipt.

Purchasing Materials on Behalf of the Owner

When a contractor purchases materials on behalf of the property owner, the transaction must be recorded using an e-invoice.

This applies whether the owner reimburses the contractor or the cost is included in the overall project billing. For instance, if a contractor buys bricks for a construction project, they must issue an e-invoice for the purchase, even if the owner will eventually cover the cost.

Selling Construction Materials to Related Companies

If a construction company sells materials to a company that is related to it, such as a subsidiary or a company with common shareholders, e-invoices must be used to document these sales.

This ensures transparency in transactions between related entities.

An example would be a construction company selling surplus steel to a sister company specialising in infrastructure projects; an e-invoice would need to be issued for this internal transaction.

In summary, the FAQ highlights the necessity for construction companies in Malaysia to adopt e-invoicing for a variety of transactions. Industry participants are urged to proactively realign systems, processes, partnerships and personnel capabilities in line with notified guidelines well in advance, factoring in lead times.

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