Malaysian SMEs and Accounting Advisors

How do Malaysian SMEs assess whether they qualify for the LHDN RM 1 million e-invoicing exemption?

Following the December 2025 update to the LHDN e-Invoice Guidelines, businesses with annual turnover or revenue below RM 1,000,000 are fully exempt from the mandatory e-invoicing requirements. SMEs must calculate their annual turnover against this threshold using the correct revenue measurement basis and confirm that none of the higher-threshold phases apply to their business size.

How is the RM 1 million threshold calculated?

The exemption threshold of RM 1,000,000 is based on annual turnover or revenue. Businesses must assess their most recent completed fiscal year's turnover against this threshold. Key clarifications: (1) the threshold was raised from RM 500,000 to RM 1,000,000 in the December 7, 2025 policy update—businesses that previously believed they were within scope of the (now cancelled) July 2026 phase under the old RM 500k threshold are now exempt; (2) the threshold applies to total annual turnover/revenue, not taxable income or profit; (3) businesses that grow above RM 1 million in a subsequent year will need to monitor when they cross into the Phase 4 (RM 1-5 million) requirement effective January 1, 2026.

  • Calculate most recent fiscal year's total annual turnover/revenue
  • Confirm turnover is below RM 1,000,000 (not RM 500,000 old threshold)
  • Check whether business has any related parties or group structure that affects threshold calculation
  • Monitor turnover annually and assess phase-in timing if approaching RM 1 million
  • Confirm Section 1.6 exemptions apply to any specific income types regardless of threshold

Do exempt businesses have any LHDN record-keeping obligations?

While businesses below the RM 1 million threshold are exempt from the mandatory e-invoicing generation requirement, they remain subject to normal income tax record-keeping obligations under the Income Tax Act 1967. This means they must maintain adequate documentation of their transactions (invoices, receipts, contracts) for audit purposes, even if those documents are not required to be in LHDN-cleared e-invoice format.

Frequently Asked Questions

Can an exempt business voluntarily use the LHDN e-invoicing system?
Yes. LHDN has indicated that exempt businesses can choose to adopt e-invoicing voluntarily through the MyInvois system even if not legally required to do so. Early voluntary adoption can provide operational benefits including improved AP automation capabilities and a smoother transition if the business subsequently grows above the threshold.
What happens if an exempt business accidentally issues a LHDN-cleared e-invoice?
Voluntarily issuing a LHDN-cleared e-invoice does not create any additional compliance obligations for the exempt business. The document is legally valid and can be retained by the buyer. The exemption means the business is not required to use the system, not that it is prohibited from doing so.

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