LHDN Postpones e-Invoice Implementation for MSMEs, Exempts Businesses Below RM500K

KUALA LUMPUR, June 6, 2025 – The Inland Revenue Board of Malaysia (LHDN) has announced a revised timeline for its mandatory e-Invoice system, offering significant relief to micro, small, and medium enterprises (MSMEs). Businesses with annual revenue or sales between RM1 million and RM5 million now have until January 1, 2026, to comply, while those below RM500,000 are exempt from the requirement for the time being.

A Phased Approach to Digital Tax Transformation

New Timeline for e-Invoice Rollout

The LHDN’s decision, announced on June 5, 2025, responds to the challenges faced by MSMEs in adopting the e-Invoice system, part of Malaysia’s push toward a digital economy under the Twelfth Malaysia Plan. The updated implementation phases are:

• Phase 1 (August 1, 2024): Mandatory for businesses with annual turnover exceeding RM100 million.

• Phase 2 (January 1, 2025): Mandatory for businesses with turnover between RM25 million and RM100 million.

• Phase 3 (July 1, 2025): Mandatory for businesses with turnover exceeding RM5 million up to RM25 million.

• Phase 4 (January 1, 2026): Mandatory for businesses with turnover exceeding RM1 million up to RM5 million (deferred from July 1, 2025).

• Phase 5 (July 1, 2026): Mandatory for businesses with turnover up to RM1 million.

• Exemption: Businesses with annual revenue or sales below RM500,000 are exempt from e-Invoicing requirements indefinitely, benefiting over 700,000 small traders.

The government acknowledged the “operational challenges” and need for “sufficient preparation time” for MSMEs, particularly in integrating systems and training staff for the MyInvois platform, which validates e-Invoices in XML or JSON formats.

Grace Period and Consolidated e-Invoicing

Easing the Transition

Each phase includes a six-month grace period during which businesses can issue consolidated e-Invoices for all transactions, including self-billed e-Invoices, without facing prosecution under Section 120 of the Income Tax Act 1967. During this period:

• Businesses may include necessary details in the “Product or Service Description” field.

• If a buyer requests an e-Invoice, sellers can issue a single consolidated e-Invoice instead of individual ones.

• Consolidated e-Invoices must be submitted to LHDN for validation within seven calendar days after the month’s end.

However, starting January 1, 2026, businesses subject to e-Invoicing must issue individual e-Invoices for transactions exceeding RM10,000, and consolidated e-Invoicing will no longer be permitted.

Support for MSMEs

Incentives and Resources

To ease the financial burden, the government offers tax deductions of up to RM50,000 annually (2024–2027) for e-Invoicing setup costs, including consultancy fees, benefiting MSMEs transitioning to digital invoicing. Businesses can use the MyInvois Portal for manual submissions or integrate ERP systems with LHDN’s API for automated compliance. The LHDN has also released updated guidelines (Version 4.2, February 21, 2025) and a Software Development Kit (SDK) to simplify integration.

For businesses with low transaction volumes, the MyInvois Portal is ideal, requiring no technical integration. Micro-businesses now need to fill only six of the 55 data fields, reducing compliance complexity.

Why the Delay and Exemption?

Addressing MSME Challenges

The deferral and exemption reflect concerns raised by groups like the Small and Medium Enterprises Association of Malaysia (Samenta), which advocated for a higher exemption threshold (previously RM150,000) to ease the burden on small businesses. The revised RM500,000 threshold and delayed timelines for Phases 4 and 5 aim to give MSMEs—over 240,000 of which fall between RM150,000 and RM500,000—more time to upgrade systems, train staff, and communicate with suppliers.

LHDN emphasized that the decision recognizes MSMEs’ commitment to compliance despite challenges like temporary operational disruptions and employee resistance to digital systems.

Looking Ahead

A Step Toward Digital Efficiency

The e-Invoice system aims to enhance tax compliance, reduce fraud, and streamline business processes by replacing paper-based invoicing with machine-readable formats. Benefits include faster payment processing, improved data accuracy, and reduced administrative costs. However, businesses must act now to avoid last-minute disruptions, ensuring ERP compatibility, staff training, and supplier coordination.

For inquiries, LHDN offers support through its e-Invoice Help Desk