e-Invoice Exemptions in Malaysia: Which Businesses and Transactions Are Exempt

e-Invoice Exemption in Malaysia: The Short Answer

The main e-invoice exemption in Malaysia applies to taxpayers with an annual turnover or revenue of less than RM3 million, who are not required to issue e-invoices or self-billed e-invoices under LHDN’s e-Invoice Guideline version 4.8, dated 30 August 2026. The exemption also covers foreign diplomatic offices, individuals who are not conducting business and certain transactions of statutory bodies and international organisations, and some types of income and expense, such as employment income and zakat, are outside e-invoicing altogether.

The headline threshold is only half the story. The RM3 million exemption is switched off for businesses that are part of a larger group, turnover is measured in a specific way, and exempt businesses still receive e-invoices from their own suppliers. This guide sets out who is exempt, what is not, and what to do if your business sits close to the line. For the consequences of getting it wrong, see our guide to e-invoice penalties in Malaysia.

The RM3 Million Turnover Exemption

LHDN announced on 30 August 2026 that the exemption threshold would rise from RM1 million to RM3 million, and the change appears in section 1.6.1(e) of the General Guideline version 4.8. The implementation timeline on the LHDN e-Invoice implementation timeline page now states that taxpayers with annual turnover or revenue of less than RM3,000,000 are exempted from e-invoice implementation.

How annual turnover is measured

LHDN’s e-Invoice FAQs (updated 4 September 2026) explain the basis for the test:

• Businesses with audited financial statements use the turnover shown in the statement of comprehensive income for the relevant year.
• Businesses without audited financial statements use the revenue reported in the tax return for the relevant year of assessment.
• Sole proprietors must add together all sole proprietorships owned or registered under the same person when applying the RM3 million test.

Where the threshold sits in the phased rollout

The original implementation phases are unchanged, so the exemption effectively narrows the last phase to businesses with turnover from RM3 million up to RM5 million.

For businesses with sales of RM1 million to RM5 million, the Government also announced in January 2026 that the penalty-free transition period would be extended by a further year. Businesses between RM3 million and RM5 million should therefore confirm their current position against the latest LHDN guidance rather than relying on older articles.

When the RM3 Million Exemption Does Not Apply

This is the rule most likely to catch Malaysian SMEs out. Section 1.6.10 of the General Guideline says the RM3 million exemption applies to all categories of taxpayers, but not where:

1. The taxpayer has a non-individual shareholder (or equivalent) with annual turnover or revenue of at least RM3 million.
2. The taxpayer is a subsidiary of a holding company with annual turnover or revenue of at least RM3 million.
3. The taxpayer has a related company or joint venture with annual turnover or revenue of at least RM3 million. Related company is defined by reference to section 2 of the Promotion of Investments Act 1986.

In practice, a small trading company with RM800,000 of sales is not exempt if it is owned by a larger company or sits alongside a sister company above RM3 million. Before you stop issuing e-invoices, map your group structure and check the turnover of every corporate shareholder, holding company, related company and joint venture partner.

Section 1.6.5 adds a related point: the exemption applies only to the exempt person itself. Companies or limited liability partnerships owned by an exempt person must still follow the implementation timeline if they are not exempt in their own right.

Other Persons Exempt from Issuing e-Invoices

Section 1.6.1 of the General Guideline lists five categories of persons currently exempt from issuing e-invoices, including self-billed e-invoices:

Note that statutory bodies, statutory authorities, local authorities and international organisations are required to implement e-invoicing for goods sold and services performed from 1 July 2025 onwards, under section 1.6.9. Their exemption now covers only statutory collections and earlier transactions.

Income and Expenses That Do Not Need an e-Invoice

Separately from exempt persons, section 1.6.7 lists types of income and expense for which no e-invoice or self-billed e-invoice is required, regardless of the size of the business:

• Employment income
• Pension
• Alimony
• Zakat
• Distribution of dividends in specific circumstances, as set out in section 11 of the e-Invoice Specific Guideline
• Trades in listed securities or derivatives
• Certain disposals of shares
• Certain donations or contributions, as explained in LHDN’s e-Invoice FAQs

Everything else is in scope by default. LHDN’s FAQs state that e-invoices are required for all income and expenses except those listed in the guidelines, and section 1.6.8 notes that the exemption lists are reviewed and updated from time to time. Some transactions that look like exemptions are actually handled through self-billed e-invoices, where the buyer issues the document. Dividend distributions outside the exempt cases and payments to agents, dealers and distributors are examples. Our explainer on self-billed e-invoices in Malaysia covers those scenarios.

What Being Exempt Means in Practice

Exemption changes what you issue, not everything you do. Under the General Guideline:

• Your receipts still count. Section 1.6.2 says existing receipts or other documents issued by exempt persons remain acceptable as proof of expense for tax purposes.
• Your suppliers still issue e-invoices to you. Section 1.6.3 confirms that suppliers selling to exempt persons must still issue e-invoices if they are within the implementation timeline. You should keep receiving and storing them as normal.
• You may still opt in. Section 1.6.6 allows exempt persons to adopt e-invoicing voluntarily. This can make sense where larger customers prefer validated e-invoices for their own records.

If you already started issuing e-invoices

Many businesses with turnover between RM1 million and RM3 million had already gone live before the threshold changed. LHDN’s FAQs say eligible taxpayers in this position may stop issuing e-invoices immediately, without an application or prior approval from LHDN, or continue voluntarily. The FAQs also state that no e-invoice compliance action or penalty will be imposed on exempt businesses whose original implementation date has passed, and that an exempt business is not required to join the Special Voluntary Disclosure Programme for e-invoices it did not issue. The group carve-outs in section 1.6.10 still apply, so confirm eligibility first.

Before switching off, consider the practical side: customers who have built their payables process around your e-invoices, contracts that refer to e-invoicing, and the cost of restarting later if you grow.

When an Exempt Business Must Start e-Invoicing

Exemption is not permanent. LHDN’s FAQs explain that when an exempt business’s turnover reaches RM3 million, it must implement e-invoicing from 1 January of the second year after the year of assessment in which that happens. In LHDN’s own example, a business whose revenue reaches RM3.17 million in year of assessment 2027 must implement from 1 January 2029.

The FAQs also say that once a business is mandated to implement, it does not regain the exemption if turnover later falls below RM3 million.

New businesses

Section 1.5 of the General Guideline sets the rules for new businesses:

• Businesses that commenced operations from 2023 to 2025 with annual turnover or revenue of at least RM3 million implement from 1 July 2026.
• Businesses commencing from 2026 onwards implement from 1 July 2026 or their commencement date, as applicable.
• If first-year turnover is below RM3 million, implementation starts on 1 January of the second year after turnover first reaches RM3 million.

For growing SMEs, this means the right time to choose an e-invoice-ready accounting system is while you are still below the threshold, not in the months before your mandatory date.

Next Steps: An e-Invoice Exemption Malaysia Checklist

A practical checklist for Malaysian SMEs reviewing their e-invoice exemption:

1. Confirm your turnover from audited financial statements or your tax return for the relevant year.
2. If you are a sole proprietor, add together all sole proprietorships registered under your name.
3. Map your group: corporate shareholders, holding company, related companies and joint ventures, and check whether any has turnover of at least RM3 million.
4. Review whether any of your income or expenses fall within the exempt transaction list or the self-billed rules.
5. Decide whether to stop or continue issuing e-invoices if you have already implemented, and tell customers either way.
6. Track turnover each year so you know when the RM3 million test is met and your implementation date is triggered.

Even exempt businesses benefit from an accounting system that can switch on e-invoicing when needed. AutoCount Accounting, implemented and supported by iDynamics, submits e-invoices to LHDN’s MyInvois system through the AutoCount e-Invoice Platform, which AutoCount says supports standard, consolidated and self-billed e-invoices. That means you can switch on e-invoicing when your status changes without replacing your accounts. If you are unsure whether the exemption applies to your business or group, book a free consultation with iDynamics and we will walk through your set-up with you. For the detailed rules on what is legally required, always check the latest guidelines on the LHDN website and confirm with your tax adviser.

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