Singapore’s EIS has added AI adoption as a new qualifying activity from YA 2027, allowing businesses to claim a 400% tax deduction or allowance on up to SGD 50,000 of qualifying AI expenditure per YA.
Singapore’s Enterprise Innovation Scheme (EIS) has been expanded to cover the adoption of artificial intelligence (AI), allowing businesses to claim a 400% tax deduction or allowance on up to SGD 50,000 of qualifying AI expenditure per Year of Assessment (YA) for YA 2027 and YA 2028.
The change is set out in the Inland Revenue Authority of Singapore’s (IRAS) e-Tax Guide on the Enterprise Innovation Scheme (Third Edition), which also expands the list of partner institutions under the scheme to include the Sectoral AI Centre of Excellence for Manufacturing. The new AI activity does not qualify for the EIS cash payout option.
Six qualifying activities
The EIS was introduced under Singapore’s Budget 2023 for YA 2024 to YA 2028 to encourage businesses to undertake R&D, innovation and capability development activities.
Following the Budget 2026 enhancements, the scheme covers six qualifying activities:
- Qualifying R&D activities undertaken in Singapore, with a cap of SGD 400,000 per YA.
- Registration of Intellectual Property (IP), with a cap of SGD 400,000 per YA.
- Acquisition and licensing of IP Rights (IPRs), subject to a combined cap of SGD 400,000 per YA.
- Qualifying Training expenditure, capped at SGD 400,000 per YA.
- Innovation projects carried out with partner institutions, capped at SGD 50,000 per YA.
- Adoption of AI, capped at SGD 50,000 per YA for YA 2027 and YA 2028.
A business incurring qualifying expenditure across all six activities can claim enhanced deductions on up to SGD 1.7 million of qualifying expenditure per YA.
AI adoption expenditure
The new AI activity applies to qualifying expenditure incurred for the adoption of AI during YA 2027 and YA 2028.
Eligible expenditure includes subscription or licensing costs for AI systems and qualifying AI business services. Physical infrastructure and hardware, including servers and computing equipment, are excluded.
Businesses can receive a 400% tax deduction or allowance on qualifying AI expenditure up to the SGD 50,000 annual cap.
However, AI adoption expenditure cannot be converted into an EIS cash payout.
Enhanced deductions and allowances
The EIS provides enhanced tax deductions and allowances in addition to prevailing base deductions. The total deductions or allowances are effectively 400% per dollar of qualifying expenditure, subject to the relevant expenditure cap for each activity.
Expenditure above the applicable caps continues to qualify for standard base deductions or allowances under prevailing income tax rules.
For the acquisition and licensing of qualifying IPRs, eligibility for the enhanced writing-down allowance (WDA) or tax deductions requires the business, or its group where applicable, to derive less than SGD 500 million in revenue in the basis period for the relevant YA.
Enhanced deductions that cannot be fully offset against business income are treated as unutilised trade losses or allowances. They may be carried forward, transferred under the Group Relief system or carried back to the preceding YA, subject to prevailing tax rules.
Cash payout remains available for other activities
Eligible businesses can choose a non-taxable cash payout instead of tax deductions or allowances for qualifying expenditure under activities other than AI adoption.
The cash conversion rate is 20% on up to SGD 100,000 of total qualifying expenditure across activities (a) to (e) per YA, giving a maximum cash payout of SGD 20,000 per YA.
The choice is irrevocable. Once expenditure has been converted into a cash payout, it cannot subsequently be claimed for tax deductions or allowances.
Each cash payout application must meet a minimum expenditure threshold of SGD 400, and only one application can be filed per YA.
For IP registration and IPR acquisition, cash conversion is determined separately for each registration or IPR. Any expenditure exceeding the applicable cash conversion cap is forfeited and cannot be claimed as tax deductions.
Cash payout eligibility
To qualify for the cash payout, a company, partnership or sole-proprietorship must carry on business operations in Singapore.
It must also employ at least three full-time local employees for six months or more during the basis period of the relevant YA. The employees must be Singapore Citizens or Permanent Residents with CPF contributions.
A full-time local employee must earn a gross monthly salary of at least SGD 1,400 and be contracted to work at least 35 hours a week.
The requirement excludes sole-proprietors, partners of a partnership except non-equity salaried partners under a contract of service, and shareholder-directors of a company.
The business must also be carrying on a trade or business and must not have ceased business when the cash payout is disbursed.
Compliance and claw-back rules
Where qualifying expenditure is subsidised by a government grant or subsidy, only the amount net of the grant or subsidy is eligible for enhanced deductions or cash payouts.
For IP registration and IPR acquisition, the business must own the related IPRs, or keep the application active, for at least one year.
If an IPR is disposed of, or an application is assigned or ceased, within one year, enhanced deductions are clawed back and treated as taxable income, while the entire cash payout is recovered.
For IPR acquisitions where a cash payout was received, disposal after the first year but within five years results in a proportionate claw-back of the cash payout.
Companies claim enhanced deductions through their income tax returns. Sole-proprietors and partners must submit claims through the IRAS digital service “Submit EIS Enhanced Deduction/Allowance Records” after filing their income tax returns and before the filing deadline.
Eligible businesses seeking a cash payout must submit an irrevocable application through “Apply for EIS Cash Payout” after filing their tax returns and before the filing due date.
