E-INVOICING was introduced in Malaysia to digitalise tax administration, improve efficiency and enhance overall compliance.
The first three phases have been implemented with minimal issues, largely due to the extensive preparation efforts by the Inland Revenue Board (IRB) and other government agencies.
Their work in educating taxpayers and providing practical tools has been central to the rollout’s success. Larger taxpayers, who generally have the resources to adopt new systems, have led the way in implementing e-invoicing.
The next stages covering smaller businesses pose a greater challenge. Taxpayers with turnover above RM1 million and below RM5 million will enter the system on Jan 1, 2026, followed by those below RM1 million.
Businesses with turnover under RM500,000 are exempt unless they are a subsidiary of a holding company, or have a related company or joint venture with an annual turnover exceeding RM500,000. Many smaller companies lack manpower, time, and financial capacity to understand and comply with the technical requirements despite the government giving a RM50,000 tax deduction for such expenses..
Common questions
A number of recurring questions have emerged, many of which cut across all types of taxpayers. One major challenge is the handling of self-billed e-invoices. These are necessary when vendors themselves do not issue e-invoices, including individuals not in business, foreign companies outside Malaysia’s e-invoicing scope, agents, dealers, distributors and parties receiving profit distributions that are not taxed (unlike single-tier dividends). They are also required for payments to lenders not offering loans to the public, such as in intercompany financing arrangements.
Self-billing is additionally required for payments connected to capital reduction, share capital redemption, share buyback, return of capital or distribution in specie upon liquidation. Although certain persons and transactions are exempt, such as individuals not conducting business, entities with turnover below RM500,000, and statutory or local authorities acting under written law, businesses must still issue e-invoices when transacting with these parties. The one exception is that a self-billed e-invoice is not required when making payments to an exempt business whose turnover do not exceed RM500,000.
Several types of income and transactions are fully excluded from e-invoicing, such as employment income, pensions, alimony, single-tier dividends, sale of listed shares and zakat. Understanding these distinctions is essential, as many smaller taxpayers remain unsure about when an e-invoice is necessary and when it is not.
Another major concern for taxpayers is the penalty regime. Non-compliance can attract penalties ranging from RM200 to RM20,000, imprisonment of up to six months, or both. Each mistake or failure counts as a separate offence, which could result in multiple penalties for repeated errors due the taxpayer misunderstanding or misinterpreting the rules. While IRB is prepared to exercise leniency during the early stages for smaller taxpayers, this will not go on forever.
Taxpayers are also anxious about IRB mining the e-invoice data for audit and investigation purposes. However, this is part of the compliance enhancement process aimed at encouraging accurate and complete disclosure by taxpayers to improve transparency within the tax system.
There are still many issues lingering in the mind of taxpayers. Issues such as the timing of the invoices, how to deal with backdated invoices and how to correct errors made in the past, and finally dealing with unique issues faced by industries and businesses. These questions are unique to each taxpayer and the only way to resolve these issues is to quickly engage IRB and ask them specific questions so that you will not be caught out in the future.
It is best you get your confirmation in writing so that there is no dispute in the future about the positions you have taken.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
