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In the fast-paced world of Malaysian commerce, invoicing isn’t always a one-way street. Sometimes, an amount billed needs to be reduced—whether due to a product return, a pricing error, or a cancelled service. In professional accounting, you cannot simply “delete” a finalised invoice. Instead, you must issue a Credit Note.
A Credit Note is a legal document issued by a seller to a buyer, notifying them that a specific amount is being credited to their account. It acts as a “reverse invoice,” ensuring that both parties’ ledgers remain accurate and that tax liabilities are adjusted correctly.
With the advent of LHDN e-invoicing and the existing requirements for Sales and Service Tax (SST), managing credit notes is no longer just about good bookkeeping—it is a critical part of regulatory compliance.
Key Takeaways
- Meaning: A document that reduces the balance a buyer owes a seller based on a previously issued invoice.
- Purpose: Used for returns, damaged goods, overcharges, or post-purchase discounts.
- Legal Compliance: Essential for adjusting SST records with the Royal Malaysian Customs Department.
- LHDN E-Invoicing: One of the six mandatory document types that must be validated through the MyInvois portal.
- The Link: A credit note must always reference the original invoice number to maintain a clear audit trail.
Why Does a Malaysian Business Issue a Credit Note?
Issuing a credit note is the professional way to handle several common business scenarios:
- Returns and Cancellations: A customer returns a faulty item or cancels a service after the invoice has been generated.
- Pricing Errors: You accidentally charged a client RM1,500 when the agreed price was RM1,200.
- Damaged Goods: Items arrived at the customer’s warehouse in a damaged state, and you agree to reduce the bill.
- Discounts & Rebates: A volume discount is applied to a customer’s account after the initial billing is complete.
- Incomplete Delivery: You invoiced for 10 units but only delivered 8; a credit note “voids” the charge for the missing 2 units.
Credit Notes and SST Compliance
If your business is registered for Sales Tax or Service Tax (SST), a credit note is your primary tool for tax reconciliation.
If you have already recorded an invoice in your SST-02 return but later need to reduce that amount, you are effectively overpaying tax to the government. By issuing a formal Credit Note, you can:
- Reduce your tax liability in the next filing period.
- Provide evidence to Customs that the taxable revenue was legitimately adjusted.
Note: Under Malaysian tax law, credit notes for SST purposes generally need to be issued within a specific timeframe (often 12 months) from the original invoice date to qualify for tax adjustments.
The Impact of LHDN E-Invoicing on Credit Notes
The rollout of e-invoicing in Malaysia has made credit notes more technical. Under the LHDN mandate, a credit note is a “Mandatory Document Type.”
- Mandatory Validation: You can no longer just email a PDF credit note. It must be submitted to the MyInvois portal for validation.
- The UUID Reference: Every e-credit note must reference the UUID (Universally Unique Identifier) of the original validated e-invoice.
- Real-Time Tracking: LHDN tracks these adjustments in real-time, ensuring that businesses don’t “double-claim” expenses or hide revenue.
Sample Credit Note Structure (Template)
A valid Malaysian Credit Note should contain specific details to be accepted by auditors and LHDN. Here is a standard template structure:
[YOUR COMPANY NAME]
(Address, UEN/SSM Number, SST Registration Number)
CREDIT NOTE
CN Number: CN-2024-001
Date: 24 December 2024
Original Invoice Ref: INV-2024-505
LHDN UUID (if applicable): [36-character-code]
TO:
[Customer Name]
[Customer Address]
[Customer TIN/SST Number]
| Description | Quantity | Unit Price (RM) | Total (RM) |
| Return of Damaged Item (Model X) | 1 | 500.00 | (500.00) |
| SST Adjustment (8%) | (40.00) | ||
| TOTAL CREDIT AMOUNT | (540.00) |
Reason for Credit: Goods damaged during transit.
Authorised Signature: ____________________
Did You Know?
While a Credit Note reduces the amount owed, a Debit Note does the opposite. If you accidentally undercharged a client, you issue a Debit Note to increase the balance without needing to cancel and re-issue the entire invoice.
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Conclusion: Accuracy Protects Your Business
A credit note is more than just a correction; it is a fundamental accounting instrument that protects the integrity of your financial data. In the era of LHDN e-invoicing, Malaysian businesses must ensure their credit notes are accurately referenced, validated, and recorded. Proper management not only keeps you compliant with tax authorities but also builds professional trust with your customers by providing clear, transparent adjustments.
Frequently Asked Questions (FAQs)
1. Can I issue a refund without a credit note?
Technically, you can send money back, but without a Credit Note, your accounting system will still show the full original amount as “owed” or “income,” leading to incorrect tax filings.
2. Is a credit note the same as a voucher?
No. A Credit Note is a formal accounting document that corrects a debt. A Voucher is typically a promotional tool used to encourage future spending.
3. How does e-invoicing change my credit note process?
Once you are in the LHDN e-invoicing phase, your credit notes must be validated through the MyInvois portal and must link back to the original invoice’s UUID.
4. What happens if I don’t reference the original invoice?
LHDN or Customs may reject the credit note during an audit if there is no clear link to the original taxable transaction, potentially resulting in you paying tax on revenue you never actually collected.
