LHDN Updates the e-Invoice FAQ: The “Related Company” Test and an Extended Relaxation Period
On 5 May 2026, the Inland Revenue Board of Malaysia (IRBM / LHDN) issued an updated e-Invoice Frequently Asked Questions (FAQ). This advisory — “LHDN Updates the e-Invoice FAQ: The ‘Related Company’ Test and an Extended Relaxation Period” — explains the two changes that matter most to smaller businesses and to groups of companies in Malaysia, and sets out what you should do about them.
1. Background
Malaysia’s e-Invoice regime, administered by the IRBM / LHDN, is being rolled out in phases according to a business’s annual turnover or revenue:
Annual turnover / revenue | Mandatory implementation date |
More than RM100 million | 1 August 2024 |
More than RM25 million and up to RM100 million | 1 January 2025 |
More than RM5 million and up to RM25 million | 1 July 2025 |
Up to RM5 million | 1 January 2026 |
Below RM1 million (concessionary date, where applicable) | 1 July 2026 |
MSME exemption. A key feature of the regime is that the Government has exempted taxpayers with annual turnover or revenue below RM1 million from issuing e-Invoices (including self-billed e-Invoices). However, that exemption is not automatic for everyone under RM1 million — it is withdrawn where the taxpayer is connected to a larger corporate group.
LHDN periodically refreshes its e-Invoice FAQ to clarify how the rules apply in practice. The 5 May 2026 update introduces two changes that matter for smaller businesses and for groups of companies.
2. What Has Been Updated
Update 1 — A new question (Q94) clarifying the “related company” test
The exemption for businesses under RM1 million does not apply where the taxpayer:
has a non-individual (corporate) shareholder with annual turnover or revenue of at least RM1 million; or
is a subsidiary of a holding company with annual turnover or revenue of at least RM1 million; or
has a related company or joint venture with annual turnover or revenue of at least RM1 million.
The new Q94 explains when companies are treated as “related” for this purpose, through four scenarios:
(a) Common corporate shareholder → companies ARE related. Where one company controls another, directly or indirectly, they are related companies for e-Invoice purposes. Holding at least 20% of another company’s issued share capital is deemed to be control. Control can also exist below 20% where the corporate shareholder in fact controls the other company’s operations. The consequence: if one company in the group crosses RM1 million, the other group companies lose their exemption — even if they individually remain under RM1 million.
(b) Common individual shareholder → companies are NOT related. Where two companies are owned by the same individual, they are not related for e-Invoice purposes. Even if one person owns 100% of two companies, each company is assessed on its own turnover, because the shareholder is an individual rather than a corporate entity.
(c) Common director who holds no shares → companies are NOT related. The mere presence of a shared director does not make two companies related. The test looks at shareholding and control at the shareholder level, not at the board / directorship level.
(d) Common individual shareholder who is also a common director → companies are NOT related. The outcome is the same as scenario (b): because the shareholder is an individual, the companies are assessed separately, regardless of the shared directorship.
The takeaway: The RM1 million exemption is effectively shared across a corporate group — common corporate ownership or control pulls everyone in. But where the only link between businesses is an individual owner or a shared director, each business is assessed on its own.
(“Related company” takes the meaning assigned in Section 2 of the Promotion of Investments Act 1986.)
Update 2 — Extended interim relaxation period for taxpayers up to RM5 million (Q104)
LHDN has confirmed that the interim relaxation period for taxpayers with annual turnover or revenue up to RM5 million runs until 31 December 2027, and that this applies to both the 1 January 2026 and the 1 July 2026 implementation dates.
Targeted taxpayers | Interim relaxation period |
More than RM100 million | 1 August 2024 – 31 January 2025 |
More than RM25 million and up to RM100 million | 1 January 2025 – 30 June 2025 |
More than RM5 million and up to RM25 million | 1 July 2025 – 31 December 2025 |
Up to RM5 million (1 Jan 2026 and 1 Jul 2026 dates) | Until 31 December 2027 |
During the relaxation period, eligible taxpayers who are not yet ready to issue individual e-Invoices may instead issue consolidated e-Invoices / consolidated self-billed e-Invoices on a monthly basis, are not required to share the consolidated documents with buyers / suppliers, and may use any appropriate description in the relevant field. Taxpayers whose systems are ready may still choose to issue individual e-Invoices instead.
3. How These Updates Impact Businesses in Malaysia
Group companies can no longer assume the under-RM1 million exemption applies. If your company is part of a corporate group — with a corporate shareholder, a holding company, or a related company / joint venture — and any of those connected entities reaches RM1 million in annual turnover or revenue, your company is required to implement e-Invoice even if it is individually below the threshold. The 20% “deemed control” rule, and the “actual control” extension below 20%, mean relatedness can arise more easily than businesses may expect.
Individually-owned and family businesses generally get relief. Businesses held directly by individuals (rather than through a holding company), and businesses that merely share a common director, are assessed standalone. A person who owns several companies as an individual — or sits on several boards — does not automatically drag them all into the regime.
Sole proprietors are still aggregated. Separately from Q94, for a sole proprietor all businesses registered under the same individual are added together to test the RM1 million threshold.
Smaller taxpayers have more breathing room. The confirmation that the relaxation period extends to 31 December 2027 for the up-to-RM5 million tier (covering both the 1 January 2026 and 1 July 2026 dates) gives smaller businesses additional runway to get their systems and processes ready, while still recording transactions through monthly consolidated e-Invoices in the meantime.
Once mandated, there is no reversal. If a business becomes mandated (for example, because a related company crosses RM1 million), it must continue issuing e-Invoices in subsequent years even if its own turnover later falls below RM1 million.
4. What Action Should Businesses Take
Map your group structure. Identify every corporate shareholder, holding company, subsidiary, related company and joint venture connected to your business, together with each entity’s annual turnover or revenue.
Apply the relatedness test. Check for corporate shareholders holding 20% or more (or with actual operational control below 20%). If any connected corporate entity reaches RM1 million, your under-RM1 million company likely loses its exemption and must implement e-Invoice.
Re-confirm the status of entities you assumed were exempt. Small companies sitting inside a larger group are the most likely to be caught — review these first.
Distinguish individual links from corporate links. Where the only connection between businesses is a shared individual owner or a shared director, treat each business on its own turnover — but document the basis for that position.
Aggregate sole proprietorship businesses under the same owner when testing the threshold.
Use the relaxation window deliberately. If you are in the up-to-RM5 million tier, you may rely on monthly consolidated e-Invoices until 31 December 2027 — but begin system readiness, master-data clean-up, and process design now rather than at the deadline.
Keep supporting documentation of your turnover, group relationships and exemption assessment, in case of review by LHDN.
Consider voluntary adoption where helpful — LHDN encourages exempt taxpayers to adopt e-Invoice early, and onboarding ahead of any mandatory date reduces last-minute risk.
This advisory summarises the IRBM / LHDN e-Invoice FAQ updated 5 May 2026 and is provided for general information only. It does not constitute tax or legal advice. The application of the rules depends on each business’s specific facts and group structure. Please contact us for an assessment of your exemption status and implementation obligations.
Comments