Malaysia’s e-Invoicing mandate, implemented by Lembaga Hasil Dalam Negeri (LHDN), is transforming how businesses issue and manage invoices. While the system offers efficiency and transparency, it introduces new challenges in record retention that taxpayers must address to remain compliant.
The Retention Gap: 2 Years vs. 7 Years
Under the current e-Invoicing framework:
- LHDN will only retain e-Invoice records for 2 years in its MyInvois system.
- However, Section 82 of the Income Tax Act 1967 requires taxpayers to keep sufficient records for at least 7 years from the end of the relevant year of assessment.
This discrepancy means businesses cannot rely solely on LHDN’s portal for long-term compliance. If you fail to maintain records beyond the 2-year window, you risk penalties during audits or investigations.
MyInvois Portal Limitation: 31-Day Search Window
The MyInvois portal, while useful for issuing and validating e-Invoices, has a search restriction:
- You can only view documents from the last 31 days, and date range filters are limited to 10 days at a time.
- This makes retrieving older invoices cumbersome, especially for businesses handling high volumes.
Why This Matters
Tax audits in Malaysia often cover multiple years. If you cannot produce invoices older than 2 years because you relied solely on MyInvois, you could face:
- Fines up to RM10,000 or imprisonment under Section 119 of the Income Tax Act.
- Disallowed deductions and adjustments, leading to higher tax liabilities.
What Should Taxpayers Do? Practical Advice
- Implement Your Own Archiving System
- Download and store validated e-Invoices (XML/JSON format) immediately after issuance.
- Maintain backups in secure, redundant storage (e.g., cloud + local server).
- Convert to Readable Formats
- Keep a human-readable version (PDF) for easy reference during audits.
- Integrate with Accounting Software
- Use LHDN-compliant accounting or ERP systems that automatically archive e-Invoices for 7 years.
- Ensure the system supports bulk export for audit purposes.
- Establish a Retention Policy
- Align your internal policy with the 7-year legal requirement, not LHDN’s 2-year retention.
- Include supporting documents such as receipts, bank statements, and vouchers.
- Regular Backups and Testing
- Schedule periodic backups and test retrieval processes to ensure data integrity over time.
- Train Your Team
- Educate finance and compliance teams on the retention gap and the importance of internal archiving.
Key Takeaway
The e-Invoicing system is a step forward for Malaysia’s digital economy, but compliance doesn’t end with LHDN’s portal. Businesses must take ownership of record retention to avoid costly penalties and ensure smooth audits.