Mandatory Adoption of E-Invoicing in Malaysia by the LHDN

What is E-Invoicing?

The Inland Revenue Board of Malaysia (LHDNM) has announced the mandatory adoption of electronic invoicing (e-invoicing) for several categories of taxpayers by stages starting 2023. E-invoicing requires companies to generate, share and store invoices digitally instead of traditional paper documents. As per tax authority guidelines, e-invoice flow have to comply with stipulated formats and contain digital signatures for authenticity along with QR codes connecting it to the underlying supply. 
An e-invoice is a digital record of a transaction between a supplier and a customer. Paper or electronic documents such as invoices, credit notes, and debit notes are replaced by e-invoices. An e-Invoice has the same basic information as a traditional document, such as supplier and buyer details, item description, quantity, price excluding tax, tax, and total amount, and it maintains transaction data for everyday company activities.

What is Purpose of Mandatory E-Invoicing

  • Enhance Tax Compliance e-invoicing enables real-time reporting of transaction details to authorities to minimize tax fraud and evasion through stronger verification mechanisms.
  • Standardization Mandatory specifications around data formats, signature requirements and integration with IRB network aims to standardize invoice content and quality.
  • Revenue Growth Widened tax monitoring abilities is expected to directly translate into higher tax revenue collection for Malaysia as shadow transactions come into formal ambit.
  • Administrative Efficiency Automated reconciliation, processing and analysis of invoice data allows faster scrutiny with lower manual review needs - improving efficiency.
  • Digital Transformation The policy accelerates Malaysia’s aim to modernize tax administration and migrate manual reporting systems to integrated digital platforms.

In summary, e-invoicing in Malaysia adoption on august 2024 aims to uplift governance, transparency and digital capabilities to strengthen economic resilience against fraud risks for public and private sector players. To ensure a seamless adoption, businesses are encouraged to proactively prepare for the switch to e-invoicing. This involves investing in compatible software, conducting training programs for employees, and conducting thorough testing before the full-scale implementation. The time for organizations to begin the transition is now. For more info and Q&A can read more here

What the Requirements for Malaysian Businesses?

The impending electronic invoicing requirements essentially necessitate an enterprise-wide digitization overhaul for companies in Malaysia from the ground up. Businesses will have to migrate manual paper-based invoicing tools, scattered record books and isolated archiving to automated integrated digital systems by august 2024. Who does it e-invoicing apply to ? All businesses, including small and medium enterprises (SMEs), will be required to adopt e-invoicing for their transactions. This initiative is inclusive, covering a wide range of industries and business sizes.

Specifically, Malaysian companies will have to generate electronic invoicing compliant with stipulated formats and data validations as legally binding documents for underlying transactions. This entails integration with business operation software, procurement of digital certificates and appointment of CFO signatories. Smooth integration with customers and suppliers invoicing platforms also becomes critical. Modernizing the interconnections enabling seamless financial data transfer down supply chains is crucial.

There are obvious technology infrastructure upgrade costs to bear for most companies with legacy set-ups – securing compatible accounting software, cloud storage, SSL encryptions, blockchain integrations etc. Staff across finance, supply chain and IT functions will require retraining as well. We understand that there are e-Invoice solutions available for some of the more established Enterprise Resource Planning or billing systems.

However, once e-invoicing in Malaysia sophistication is embedded enterprise-wide, gains like consistent standards, improved security, higher quality financial information and faster processing promise immense dividends for Malaysian firms competing on cutting edges. 

What is Benefits of Shifting to E-Invoicing?

  1. Increased Efficiency
    E-invoicing eliminates time-consuming manual processes of generating, sending and storing paper invoices. Digital invoicing automates the entire workflow from creation to archival, saving costs and working hours.
  2. Enhanced Cash Flow Visibility
    Real-time tracking of invoice status and faster payments improves cash flow visibility for businesses struggling with working capital crunches. Better forecasting and planning is enabled.
  3. Minimized Risks of Fraud
    With features like digital signatures, blockchain-backed records and SSL encryption, e-invoices are harder to tamper providing end-to-end security. This minimizes financial risks associated with invoicing frauds.
  4. Higher Accuracy of Information
    Digitalization removes errors linked to manual data entry, calculations and dissemination across finance teams. This enhances accuracy of underlying information.
  5. Regulatory Compliance
    E-invoicing solutions have inbuilt mechanisms to validate tax details, applicable codes etc. to prevent compliance issues right at source even as regulations evolve.
  6. Sustainability Benefits
    Shifting away from paper-based invoicing cuts down carbon footprint and promotes environmental consciousness among organizations.

The move towards e-invoicing in Malaysia brings a multitude of advantages for businesses. From reducing operational costs and improving cash flow management to minimizing errors and enabling faster transactions, e-invoicing enhances overall business efficiency. The digital trail also aids in transparency and compliance. By transitioning e invoicing process to an automated, resilient and agile digital platform, businesses can save resources while driving growth in a transparent, and compliant manner. Download the e-invoicing guideline Version 2.1 (published on 28 October 2023)

E-Invoicing Implementation Timeline

Date Based on Budget 2024 AnnouncementImplement
01 August 2024Taxpayers with an annual turnover or revenue of more than RM100 million 
01 January 2025 Taxpayers with an annual turnover or revenue of more than RM25 million and up to RM100 million
01 July 2025All taxpayers

The mandatory adoption of electronic invoicing by the IRB marks a pivotal step toward to seamless integration and more digitally integrated business operations in Malaysia. Businesses are encouraged to start preparations early to ensure a seamless transition and to leverage the benefits of this digital transformation.

As the implementation date approaches, the IRB may release additional guidelines and resources to assist businesses in complying with the new e-invoicing requirements. Staying informed and proactive will be key for businesses navigating this shift in invoicing practices. Businesses are encouraged to stay informed about the specific guidelines and deadlines set by the Inland Revenue Board. Early preparation and a proactive approach will not only ensure compliance but will also position businesses as innovators in the evolving Malaysian business landscape. Can go to the LHDN website for additional information on e-invoicing

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