Singapore has expanded the Enterprise Innovation Scheme, or EIS, to provide new tax support for businesses adopting artificial intelligence, or AI. According to IRAS, for Year of Assessment 2027 and Year of Assessment 2028, a business may claim a 400% tax deduction on the first (SGD) 50,000 of qualifying AI expenditure incurred in each YA.
The measure is intended to reduce the tax cost of adopting AI. It is not a cash payment equal to 400% of the company’s spending. The actual tax benefit depends on the company’s taxable profits, applicable tax rate, existing tax reliefs, government support received and whether the expenditure satisfies the EIS requirements.
Qualifying expenditure generally includes subscribing to or licensing an AI system from another person, or subscribing to, acquiring or licensing a qualifying AI business service. Servers, storage devices, computing equipment and other physical infrastructure are excluded. Any portion subsidised by a government grant or subsidy cannot be claimed again under this AI deduction.
WHAT THE TAX BENEFIT ACTUALLY PROVIDES
Businesses should distinguish an ordinary tax deduction from an enhanced deduction.
Where AI expenditure is already deductible under Section 14 of Singapore’s Income Tax Act, the first (SGD) 50,000 of qualifying expenditure receives a 100% base deduction plus a 300% enhanced deduction, resulting in a total deduction of 400%. Any qualifying expenditure above (SGD) 50,000 generally continues to receive the ordinary 100% deduction, subject to the normal tax rules.
Where qualifying AI expenditure is not otherwise deductible under Section 14, the first (SGD) 50,000 may receive a 400% deduction if it satisfies the EIS AI-adoption requirements.
For example, if a company incurs (SGD) 50,000 of qualifying AI expenditure in a YA and the expenditure is not subsidised, the company may obtain a tax deduction of up to (SGD) 200,000 in calculating taxable profit. The (SGD) 200,000 is a tax deduction amount. It is not a cash payment from the Government.
Using Singapore’s general 17% corporate income tax rate as a simplified illustration, the additional 300% portion represents an additional deduction of (SGD) 150,000. If the company has sufficient taxable profit, the theoretical additional tax saving would be approximately (SGD) 25,500 at 17%. This is only an illustration. Partial tax exemptions, start-up tax exemptions, tax rebates, loss carry-forwards and other tax items may materially change the final result.
THE RELEVANT YEARS OF ASSESSMENT
The new EIS AI-adoption activity applies to YA 2027 and YA 2028. In the second-reading speech on the Finance (Income Taxes) Bill delivered on 6 October 2026, MOF also stated that businesses would be able to claim a 400% enhanced deduction on up to (SGD) 50,000 of qualifying AI expenditure for those two years of assessment.
A Year of Assessment is not simply the same as a calendar year. Singapore’s tax system generally uses the company’s preceding basis period to determine the income assessed. The company must therefore consider its financial year, basis period, the date expenditure is incurred and the relevant tax rules when deciding whether an expense falls into YA 2027 or YA 2028.
A business may have a financial year that spans two calendar years. The invoice date alone may not determine the relevant tax year. Service periods, payment terms, accounting treatment and the tax meaning of when expenditure is incurred may all matter.
WHAT AI EXPENDITURE MAY QUALIFY
IRAS describes two main categories of qualifying AI expenditure.
The first is a subscription to, or licence from another person of, an AI system.
This may include commercial AI systems, large-language-model APIs, enterprise AI assistants, intelligent content-generation tools, prediction systems, recommendation engines and systems that generate content, recommendations, predictions or decision support. Eligibility still depends on the system’s functions, contract and business use.
The second is a subscription to, acquisition or licensing from another person of a qualifying AI business service.
Examples may include AI services embedded in customer-service automation, document processing, risk screening, supply-chain forecasting, quality inspection or other business operations. The service must be assessed against the applicable IRAS requirements.
A company should not assume that a cost qualifies merely because a vendor uses the word “AI” in its marketing. The company should review the contract, product description, service scope, system capability and actual business use before classifying the expense.
WHAT IS EXCLUDED FROM THE AI DEDUCTION
Physical hardware and infrastructure are excluded from the AI-adoption expenditure category. This generally includes:
•servers;
•storage devices;
•computers and other computing equipment;
•data-centre or server-room works; and
•other physical infrastructure.
Buying servers to run an AI system does not automatically make the server cost eligible for the 400% AI deduction. Software subscriptions, AI-system licences and hardware purchases should be identified separately and accounted for under the relevant tax rules.
Ordinary employee salaries, general administrative costs, non-AI software outsourcing and routine IT expenses cannot be included merely because the wider project involves digitalisation. A cost must satisfy the relevant AI-adoption definition and supporting conditions.
Where one vendor invoice combines AI software licensing, implementation services, hardware, maintenance and general consulting, the company should request a clear breakdown of the price and scope. The supporting documents should explain which part relates to the qualifying AI system or business service.
GOVERNMENT SUPPORT MUST BE EXCLUDED FROM THE CLAIM BASE
IRAS states that expenditure subsidised by a Government grant or subsidy is excluded from qualifying AI expenditure.
A company therefore cannot claim the same cost twice through a grant and the full EIS AI deduction. It should calculate the net amount actually borne by the business.
For example, suppose a qualifying AI system costs (SGD) 20,000 and the company receives a 50% government grant of (SGD) 10,000. The company’s net self-funded amount is (SGD) 10,000. Subject to all other requirements, the company should use (SGD) 10,000 as the EIS AI deduction base and may claim a deduction of up to (SGD) 40,000. It should not use the original (SGD) 20,000 price to claim a deduction of (SGD) 80,000.
When applying for or using EDGE, PSG or another government support scheme, the company should record the project price, approved grant, amount received, vendor invoices and net self-funded amount. If the grant is received in a different financial year from the payment, the company should confirm with its accountant or tax adviser how the grant affects the relevant tax computation.
THIS IS NOT A CASH GRANT
The new AI-adoption activity is not eligible for the existing EIS cash-conversion mechanism.
Under certain other EIS activities, eligible businesses may convert part of qualifying expenditure into a non-taxable cash payout. IRAS expressly states that the cash payout option does not apply to the new AI-adoption activity. A business cannot therefore claim a cash refund equal to the 400% deduction merely because it has adopted AI.
If a company has no taxable profit in the relevant year, the immediate value of the deduction may be limited. Whether losses or unused deductions can be carried forward must be considered under the ordinary income-tax rules and the nature of the expenditure.
Businesses should distinguish among:
•the tax deduction amount;
•the reduction in taxable profit for the year;
•the actual reduction in tax payable; and
•any tax loss or other amount that may be carried forward.
“400% deduction” does not mean “the Government pays 400%”. It also does not mean that every company will save the same amount of cash in the year of adoption.
DOCUMENTS BUSINESSES SHOULD RETAIN
A company generally does not need a special pre-approval for each AI subscription. However, it should be able to demonstrate during its corporate-tax filing or a later IRAS review that the expenditure satisfies the EIS requirements.
The company should retain:
•the vendor tax invoice;
•the AI-system subscription, purchase or licence agreement;
•product features and technical descriptions;
•service period and payment records;
•bank payment evidence;
•an explanation of the AI tool’s business use;
•the expense classification and accounting entries;
•any grant application, approval letter and receipt records; and
•a calculation showing the qualifying net expenditure.
An internal AI-procurement approval process should also be established. It does not have to be complicated, but it should identify the system, vendor, business user, purpose, expense category, whether hardware is included, whether government support was received and who approved the tax treatment.
HOW TO ASSESS AN AI PURCHASE
First, identify what is being purchased.
The company should determine whether it is buying an AI system, an AI business service, a server, a computer, storage or general IT infrastructure. If the contract bundles software, hardware and services, the price and scope should be separated.
Second, identify the business purpose.
The company should explain how the system is used in its trade or business, such as improving customer-service efficiency, analysing transaction data, processing documents, improving production quality or managing supply-chain activity.
Third, determine the relevant tax year.
The company should consider the service period, when the expenditure is incurred and its basis period to determine whether the cost falls into YA 2027 or YA 2028.
Fourth, check for government support.
If the company has applied for or received EDGE, PSG or another subsidy, calculate the net qualifying expenditure after excluding the subsidised portion.
Fifth, monitor the annual limit.
The first (SGD) 50,000 of qualifying AI expenditure in each YA may receive the 400% deduction. Expenditure above that amount may still receive an ordinary deduction if it satisfies the general rules, but it does not receive the additional 300% deduction under the new AI activity.
Sixth, retain evidence and file correctly.
Accounting, finance and IT personnel should jointly confirm the nature of the purchase and retain the calculation. The company should report the amount using the applicable IRAS tax-return forms and instructions, rather than maintaining only an internal total labelled “AI expenditure”.
Singapore’s decision to include AI adoption in the EIS shows an intention to reduce the cost of business digitalisation and intelligent transformation through the tax system. For eligible businesses, the 400% tax deduction available in YA 2027 and YA 2028 may improve the economics of adopting AI. It is not, however, an unconditional cash reward.
The important questions are whether the purchase is an eligible AI system or AI business service, whether hardware has been correctly excluded, whether government support has been removed from the claim base, whether the annual limit has been monitored and whether the filing is supported by sufficient documentation.
A prudent approach is to classify the expenditure before signing the AI procurement contract. Software licences, AI business services, hardware, implementation services and government grants should be recorded separately. This helps the company calculate the tax benefit accurately and reduces the risk of having to explain or amend the filing later.
