Singapore businesses can claim a 400% tax deduction on the first S$50,000 of qualifying artificial intelligence (AI) expenditure for each of YA 2027 and YA 2028 under the Enterprise Innovation Scheme (EIS).
The enhanced deduction covers qualifying AI software subscriptions, licences and AI-related business services. Hardware purchases and government-subsidised expenditure are excluded.
Unlike certain other EIS activities, the AI deduction does not offer a cash conversion option.
Who is eligible?
The deduction is available to businesses carrying on active business operations in Singapore, including companies, sole proprietorships, partnerships and registered branches of foreign companies.
To qualify, the expenditure must:
- Be incurred for the purpose of the business.
- Fall within the basis period for YA 2027 or YA 2028.
- Meet IRAS' definition of qualifying AI expenditure.
The S$50,000 expenditure cap applies separately to each Year of Assessment (YA), not to each software subscription or vendor.
For a company with a 31 December financial year-end, YA 2027 generally relates to expenditure incurred during the financial year ending 31 December 2026.
Which AI expenses qualify?
IRAS recognises two categories of qualifying expenditure:
1. AI system subscriptions and licences
Payments to subscribe to or license AI systems from another provider.
An AI system includes software capable of generating content, making predictions, processing natural language, retrieving information, recognising images or performing automated planning and optimisation.
2. Qualifying AI business services
Third-party services supporting the adoption or development of AI in a business. These must relate to the development, deployment, operation or maintenance of an AI system.
Examples include AI consultancy, system development, integration, data analytics and system-related training.
Examples of qualifying and non-qualifying expenditure
| Expense | Treatment |
|---|---|
| Subscription to AI writing, analysis or coding software | May qualify as an AI system subscription |
| AI-powered document processing or transcription software | May qualify |
| Licence for an AI forecasting or business analytics platform | May qualify |
| External consultant engaged to develop and implement an AI workflow | May qualify as an AI business service |
| AI system integration, deployment and maintenance services | May qualify |
| Training services directly related to deploying or operating an AI system | May qualify |
| Servers, GPUs, storage devices and laptops | Excluded |
| Standard accounting, CRM or office software without qualifying AI functionality | Does not qualify merely as ordinary software |
| General IT consultancy unrelated to AI adoption | Excluded |
| AI expenditure funded by a government grant | Subsidised portion excluded |
Eligibility depends on the actual nature and business use of the product or service. A product advertised as AI-powered does not automatically qualify.
How is the 400% deduction calculated?
The enhanced deduction applies to the first S$50,000 of qualifying AI expenditure for each YA.
For expenditure ordinarily deductible under Section 14 of the Income Tax Act, the 400% deduction comprises:
- 100% base deduction, available under the normal tax rules.
- 300% additional deduction, provided under the EIS enhancement.
Example 1: S$12,000 AI subscription
A company incurs S$12,000 on qualifying AI software subscriptions during the relevant basis period.
| Calculation | Amount |
|---|---|
| Qualifying expenditure | S$12,000 |
| Total deduction (400%) | S$48,000 |
| Of which: normal 100% deduction | S$12,000 |
| Additional 300% deduction | S$36,000 |
The company receives a total tax deduction of S$48,000, rather than the normal S$12,000.
At the prevailing 17% corporate income tax rate, the additional S$36,000 deduction represents a potential S$6,120 reduction in tax, assuming the company has sufficient taxable income and before considering applicable exemptions or rebates.
Example 2: S$70,000 AI expenditure
A company incurs S$70,000 of qualifying AI expenditure that is otherwise deductible under the normal tax rules.
| Calculation | Amount |
|---|---|
| First S$50,000 at 400% | S$200,000 |
| Remaining S$20,000 at 100% | S$20,000 |
| Total tax deduction | S$220,000 |
The 400% enhancement applies only to the first S$50,000. The remaining expenditure continues to qualify for the normal deduction where applicable.
Capital expenditure: IRAS also permits the 400% deduction on qualifying AI expenditure that would not ordinarily be deductible under Section 14. However, expenditure exceeding the S$50,000 cap does not automatically qualify for a normal deduction.
The deduction reduces taxable income. It is not a reimbursement of the amount spent.
Exclusions and limitations
Hardware and infrastructure
Expenditure on physical infrastructure is excluded, even where the equipment is purchased specifically for AI adoption. This includes servers, storage devices, GPUs and other computing equipment.
Government grants and subsidies
Expenditure funded by a government grant or subsidy is excluded to the extent of the subsidy.
For example, if a business incurs S$20,000 of qualifying AI expenditure and receives a S$10,000 government subsidy, only the remaining S$10,000 can be considered for the enhanced deduction.
Mixed expenditure
A single vendor invoice may include qualifying AI services alongside unrelated IT services, software or hardware. Only the qualifying AI component is eligible.
Businesses should obtain an itemised cost breakdown where possible. Where a breakdown cannot be obtained despite reasonable efforts, IRAS permits reasonable apportionment between qualifying and non-qualifying expenditure.
How to claim the AI tax deduction
Companies claim the enhanced deduction through their Corporate Income Tax Return for the relevant YA, under the Enterprise Innovation Scheme section.
Supporting records should include:
- Vendor invoices and payment records.
- Subscription or licensing agreements.
- Service proposals or statements of work.
- Documentation showing the business use of the AI system.
- Cost breakdowns for bundled services.
- Details of government grants or subsidies received.
GST-registered businesses should exclude recoverable input GST from qualifying expenditure. Non-GST-registered businesses may include the GST component in their qualifying costs.
The deduction is subject to the applicable tax filing requirements and IRAS' verification of the claim.
Reviewing AI expenditure before claiming
Businesses adopting AI should distinguish qualifying software and service costs from hardware, general IT expenses and grant-funded expenditure when recording their transactions.
This helps ensure the relevant costs can be identified and supported when preparing the annual tax computation.
For companies requiring assistance with the tax treatment of AI expenditure, we can help review the relevant expenses and prepare the corporate tax computation.
Official reference: IRAS – Enterprise Innovation Scheme.
