Jan 9

E-Invoice 12-Month Transition Relief for SMEs

Effective Date: 1 Jan 2026

BACKGROUND

On 5 January 2026, the Government announced a major compliance relief for Phase IV e-Invoice taxpayers, which
mainly consist of SMEs / PMKS.
The announcement introduces a 12-month transition period, extended from the original 6 months, together with several
practical relaxations aimed at reducing compliance pressure on smaller businesses that are not yet system-ready.
This transition year is intended to help SMEs prepare for full mandatory e-Invoicing starting 1 January 2027.

Extension of the Phase IV Transition Period

Phase IV taxpayers are given a 12-month transition period: New transition period: 1 January 2026 – 31 December 2026 Previously: Only 6 months This extension provides significant relief to SMEs that: Are still using manual or basic accounting systems Require more time to upgrade software Need staff training and internal process adjustments
No Penalties – With Conditions

During the 2026 transition year, no penalties will be imposed for e-Invoice non-compliance only if specific conditions are met.

SMEs must:
  • Issue consolidated e-Invoices,
  • and Follow the relaxation rules issued by LHDN


Failure to comply with the relaxed rules may still expose businesses to enforcement action.

What are Allowed?

Special Relief for the Building Materials Sector

From 1 January 2026, wholesale and retail businesses dealing in building materials receive additional relief.

• Consolidated e-Invoices are allowed
• e-Invoices are only required if: 
   - Transaction value exceeds RM10,000, or
   - The buyer specifically requests an e-Invoice

This directly benefits:
1. Hardware shops
2. Construction material traders
3. Cash-based, high-volume retailers

Implication For Business

Positive Impacts
More time to upgrade accounting systems Time to train staff and improve internal controls Lower compliance stress during 2026 Reduced administrative and invoicing costs Avoidance of penalties if conditions are followed

Risks and Misunderstandings to Avoid

• "No penalty" does not mean "no compliance" 
• 2026 is not optional — it is a transition year
• Full compliance is still mandatory from 1 January 2027

KEY TAKEAWAY

The 2026 transition period offers valuable breathing space for SMEs, but it must be used wisely. Businesses should treat 2026 as a preparation year, not a postponement, to avoid compliance risks when full enforcement begins in 2027.
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