The Lembaga Hasil Dalam Negeri (LHDN) has officially raised the e-invoice exemption RM3 million threshold, providing significant regulatory relief for many Malaysian small and medium-sized enterprises. Starting 1 September 2026, businesses with an annual turnover or revenue of less than RM3 million are no longer mandated to issue e-invoices for their transactions.
This update means that businesses with an annual turnover below RM3 million are exempt from mandatory e-invoicing starting 1 September 2026, provided they do not meet specific group-related criteria. This policy shift aims to reduce the administrative burden on smaller firms while maintaining digital transformation goals for larger corporate entities.
Key Takeaways
- The mandatory e-invoice threshold is now set at RM3 million in annual turnover.
- Exempt businesses currently issuing e-invoices may stop or continue at their discretion.
- The exemption does not apply if a corporate shareholder, holding company, related company or joint venture has annual turnover of RM3 million or more.
- Current relaxation measures for consolidated e-invoices remain valid until 31 December 2027.
Understanding the Threshold Adjustment
The revised LHDN guidelines provide much-needed clarity for business owners. If your company’s annual turnover is below RM3 million, you are exempt from the mandatory requirements effective 1 September 2026. However, it is vital to assess whether your business falls into an exclusion category. You are not eligible for this exemption if you have corporate shareholders, are part of a holding or related company structure, or participate in joint ventures where that shareholder, holding company, related company or joint venture has annual turnover of RM3 million or more.
For businesses currently participating in the e-invoicing rollout, the decision to opt-out is voluntary. If your systems are already integrated, you are not required to seek formal approval from the authorities to cease issuance. You may choose to continue issuing e-invoices to maintain streamlined digital records, or you may revert to traditional documentation methods until your turnover exceeds the new statutory limit.
Phasing and Timeline Considerations
The timeline for implementation remains distinct for different revenue brackets. Entities with an annual turnover between RM3 million and RM5 million are still required to comply with the mandate starting 1 January 2026. If your annual turnover reached the RM3 million threshold based on your Year of Assessment (YA) 2023, 2024, or 2025 financial statements, you are expected to be ready by 1 July 2026.
To assist businesses in the transition, the LHDN has extended certain relaxation measures. Specifically, the ability to issue monthly consolidated e-invoices for all transactions (for businesses in the 2026 implementation phase) remains in effect until 31 December 2027. This provision is designed to help smaller businesses adjust their internal processes without needing to generate individual e-invoices for every single retail transaction during the initial adoption phase.
Compliance Risks and Penalties
Failure to adhere to the mandate when required carries significant risks. Under Section 120 of the Income Tax Act 1967, non-compliance can lead to a fine ranging from RM200 to RM20,000, or imprisonment for a term not exceeding six months, or both. These penalties highlight the importance of accurately auditing your annual turnover figures annually to ensure you remain within the correct compliance bracket.
Businesses that find themselves within the mandatory scope must ensure their systems are compatible with the MyInvois portal or an integrated ERP solution. Relying on manual processes may lead to data entry errors, which increase the risk of audit scrutiny. Maintaining accurate records of your revenue is not just a tax requirement; it is a fundamental aspect of corporate governance that protects your directors and shareholders.
SME Owner Checklist
- Review audited financial statements to confirm your annual turnover.
- Verify if your company is part of a corporate group or related company structure.
- Decide whether to maintain or cease e-invoice issuance if your turnover is below RM3 million.
- Update your accounting templates and inform customers of your invoicing status.
- Ensure your ERP systems are updated if you are required to comply by 2026.
- Perform an annual turnover check to monitor if your business crosses the threshold.
Conclusion
Raising the e-invoice exemption to RM3 million offers a practical reprieve for smaller businesses to focus on growth. However, business owners must remain vigilant about their group status and annual turnover to ensure continued compliance. By staying informed through official LHDN channels, you can effectively manage your tax obligations.
Frequently Asked Questions
Does the RM3 million threshold apply to group revenue?
Yes. Even if your individual company turnover is below RM3 million, you are not exempt if you are part of a corporate group, have corporate shareholders, or have a joint venture where that shareholder, holding company, related company or joint venture has annual turnover of RM3 million or more. The test looks at that related entity’s own turnover, not a combined group total.
Can I stop issuing e-invoices if I am currently compliant?
Yes. Businesses that fall below the new RM3 million threshold after 1 September 2026 may choose to stop issuing e-invoices voluntarily. You do not need to apply for or receive formal approval from the LHDN to cease your current e-invoicing operations.
What happens if I cross the RM3 million threshold later?
If your annual turnover increases in future financial years and exceeds the RM3 million threshold, you lose the exemption, but not immediately: under the current LHDN guideline, you must implement e-invoicing from 1 January of the second year after the year your turnover first reaches RM3 million (for example, first reached in 2027 means implementation from 1 January 2029).
Are there penalties for incorrect turnover reporting?
Yes. Providing false information regarding your turnover to avoid mandatory e-invoicing can lead to severe penalties under the Income Tax Act 1967. This includes fines up to RM20,000 and potential imprisonment. Always ensure your financial reporting is accurate and transparent.
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e-Invoice Exemption Raised to RM3 Million in 2026: What Malaysian SMEs Must Do Now