As a key economic driver, the construction industry is at the forefront of the government’s push for digitalisation – starting with e-invoicing. Known for its complex project structures and multiple stakeholders, the construction industry has long faced challenges in tax reporting and compliance.
To improve transparency and streamline administrative processes, the Inland Revenue Board of Malaysia (IRBM) is rolling out mandatory e-invoicing, with construction companies among the early adopters. To get a full picture of Malaysia’s e-invoicing rollout and when your company needs to comply, check the official implementation timeline and grace periods here.
In this guide, we break down what e-invoicing means for construction SMEs, the types of transactions involved, how to implement it effectively, and how Funding Societies can help support your cash flow throughout the transition.
Looking for the full breakdown of the e-invoicing initiative by the IRBM, including the latest timelines and regulations? Read our e invoicing Malaysia guide here
E-Invoicing in Construction: A Regulatory and Strategic Shift
Starting 1 August 2024, construction companies with an annual turnover above RM100 million must begin using e-invoicing under Phase 1 of IRBM’s national rollout. Smaller businesses will be included in later phases.
While e-invoicing is a compliance requirement, it also offers real benefits for construction companies, including:
- Faster payments
- Better financial visibility
- Less paperwork
- Easier audit trails
- Fewer tax disputes
In construction, projects often involve multiple contracts, progressive billing, and long chains of subcontractors. E-invoicing helps simplify these complex processes—making it easier to stay on track financially and keep projects running smoothly.
Scope of E-Invoicing for the Construction Industry
Income-Generating Transactions That Require E-Invoices:
IRBM mandates that e-invoices must be issued for the following types of transactions as proof of income:
- Contracting and construction services
- Construction projects outside Malaysia
- Sale and supply of materials
- Consultancy or professional services
- Subcontracting arrangements
- Government-funded contracts
- Services received from foreign subcontractors or consultants (contractors must self-issue an e-invoice under the reverse charge mechanism)
Common Business Expenses Requiring E-Invoices as Proof:
As proof of expenditure, construction companies must also maintain e-invoices for:
- Materials (steel, cement, bricks, etc.)
- Subcontractor payments
- Labour and site wages
- Equipment and machinery rental
- Professional fees (architects, engineers, project managers)
- Utilities during project execution
- Permits, licences and regulatory fees
- Insurance premiums (e.g. construction all-risk)
- Transport and logistics costs
Joint Venture and Consortium Projects
For JV or consortium projects, each participating company must issue its own e-invoice for its portion of the work. Even if only one party handles client billing, each contributor still needs to report their share.
Maintaining accurate e-invoices for these transactions helps reduce the risk of inflated expense claims or disputes with the tax authorities.
For more details on what qualifies as income or expense under the e-invoicing framework, refer to the official IRBM Construction Industry FAQs.
E-Invoicing and Subcontractor Payments (Including Penalties)
Under the Income Tax (Construction Contracts) Regulations 2007, e-invoices are mandatory for:
- Payments made to subcontractors
- Charges related to variation orders
- Penalties for contract breaches, delays, or non-compliance
A subcontractor is any third party hired to carry out specific tasks, such as electrical work, plumbing or finishing.
For variation orders, an e-invoice should only be issued after the client has formally accepted the VO. Make sure it’s tied to the original contract or invoice to keep everything traceable.
This ensures that every transaction, including deductions and penalties, is traceable and documented digitally.
E-Invoicing for Progress Claims on Work-in-Progress Projects
Construction billing is often based on progress claims, which are issued at different milestones of a project.
Here’s how to handle them under the new system:
- If certification is not required: The contractor can issue an e-invoice immediately after submitting the claim.
- If certification is required: The e-invoice can only be issued once a certificate of work done is obtained.
For retention sums, the e-invoice should only be issued when the payment is actually released, not when the work is completed. This helps with accurate income reporting and avoids premature tax recognition.
Keeping your e-invoice format and fields accurate is especially important when claims are based on work milestones. Make sure you include all the required e-invoice details to avoid rejection.
Buying Materials on Behalf of the Project Owner
In certain cases, main contractors purchase materials on behalf of the owner and later include those costs in their billing.
Under the e-invoicing framework:
- Contractors can still include these purchases in progress claims.
- However, the invoice issued to the project owner must be an e-invoice, regardless of who originally made the purchase.
This promotes full traceability of expenses within the project lifecycle.
Advance Payments and Deposits
If you receive an advance before the project starts, you need to issue an e-invoice for that amount first. Then, issue the final e-invoice after the relevant work is completed. This approach makes your billing process clearer and aligns with IRBM’s requirements.
Selling Construction Materials to Related Companies
If a construction company sells materials such as sand, steel, or precast units to a related entity (within the same holding group), e-invoices are still required.
Note: According to the Construction Industry Development Board (CIDB) Act 1994, consolidated e-invoices are not permitted for such transactions. Each sale must be individually itemised.
This rule prevents the underreporting of income within related-company transactions.
Practical Guide to Implementing E-Invoicing in Construction
Adapting to e-invoicing doesn’t need to be difficult. Here’s how construction SMEs can transition smoothly:
Step 1: Assess Your Accounting System
Check whether your current system supports e-invoicing integration or whether you need third-party software.
Step 2: Choose a IRBM-Approved Provider
Select a platform or provider compliant with IRBM’s MyInvois system, offering features like validation, correction workflows, and secure digital archiving.
Step 3: Standardise Internal Billing Workflows
Set clear internal procedures for progress claims, certifications, variation orders, and penalties.
Step 4: Train Your Staff
Finance and project managers must understand how to issue, track, and correct e-invoices, especially for complex billing scenarios. Not sure how the validation and submission flow works? Explore the full e-invoicing process from submission to approval.
Step 5: Start Small
Start with one or two active projects, refine your approach, and roll out across the business in phases.
Step 6: Stay compliant
- Submit e-invoices to IRBM within 72 hours
- Store all e-invoices for seven years
- Use credit notes if you need to revise or cancel invoices
Funding Societies: Helping Construction SMEs Stay Liquid During Transition
While e-invoicing promises long-term benefits, the upfront cost of implementation can hit construction SMEs hard. Especially those managing multiple active projects or working with thin margins.
Many construction businesses will face:
- Software upgrades or integration costs to comply with IRBM
- Training expenses for finance and project teams
- Delays in client payments, which still stretch 30–90 days despite e-invoicing
- Cash flow pressure from having to pay workers, subcontractors, and material suppliers upfront
- Tight budgets during a time when you’re also investing in digitalisation
This financial strain can slow down project delivery or even cause SMEs to miss out on new tenders due to limited working capital.
That’s where Funding Societies can support your business with practical financing options.
Invoice Financing
Convert your e-invoices into upfront working capital. With credit line up to RM1 million, use it to cover site wages, equipment rental, and material costs while waiting for payment.
Micro Financing
Quick, collateral-free financing of up to RM200,000 for smaller contractors or suppliers. Ideal for covering setup costs like accounting software, IT upgrades, or onboarding support staff.
Property-Backed Secured Financing
Access larger financing amounts of up to RM2 million using property as collateral. Useful for taking on larger contracts, managing progressive claims, or handling retention sums.
Don’t wait until cash flow becomes a problem. Plan ahead and use financing to stay operational and competitive during the transition to e-invoicing.
A Smarter Way Forward for Construction SMEs
E-invoicing is here to stay. And for construction SMEs, it presents an opportunity to not only meet compliance but also transform operations. From reduced admin work to stronger cash flow control, the benefits go beyond tax reporting.
With digital support, industry-specific training, and financing solutions, your business can turn this mandate into a competitive advantage.
