In this guide · 8 sections
Short answer
For YA 2027 and YA 2028, you can claim a 400% tax deduction on the first S$50,000 of qualifying AI expenditure each year: AI software subscriptions or licences and services to build, deploy or run an AI system. Hardware and grant-funded spend do not count, and there is no cash payout option.
What the EIS AI adoption deduction is
The Enterprise Innovation Scheme has run since YA 2024 and gives enhanced deductions for R&D, IP registration, IP licensing, approved training and innovation projects with polytechnics or ITE. In Budget 2026 the Government added a sixth activity: adoption of artificial intelligence, for YA 2027 and YA 2028.
IRAS describes it like this, as of October 2026:
| Item | Before YA 2027 | YA 2027 and YA 2028 |
|---|---|---|
| Qualifying AI spend up to S$50,000 | 100% (if normally deductible) | 400% deduction |
| Qualifying AI spend above S$50,000 | 100% (if normally deductible) | 100% (if normally deductible) |
| Cash payout option | Not applicable | Not available for AI spend |
The 400% is made of a 100% base deduction plus a 300% enhanced deduction where the spend is already deductible under Section 14 of the Income Tax Act. Where it would not normally be deductible, IRAS says the full 400% is granted on the first S$50,000.
Is the AI deduction law yet? Status in October 2026
The measure was announced at Budget 2026. MOF then ran a public consultation on the draft Finance (Income Taxes) Bill 2026 from 8 June to 1 July 2026, which lists the EIS AI enhancement as one of ten Budget measures in the Bill.
On 6 October 2026 Second Minister for Finance Jeffrey Siow opened the second reading of the Bill, saying Clause 13(1) enhances the EIS to support AI adoption with a 400% deduction on up to S$50,000 for YA 2027 and YA 2028. IRAS has already published the detailed rules on its EIS page.
What counts as qualifying AI expenditure
IRAS defines qualifying AI expenditure as spend on two things, both bought from another person:
- Subscribing to or licensing an AI system. IRAS describes an AI system as a machine-based system that infers from its input how to generate outputs such as predictions, content, recommendations or decisions. Capabilities listed include content generation, reasoning, knowledge retrieval, natural language processing, planning and optimisation, and image, object or audio-to-text recognition.
- Subscribing to, buying or licensing a qualifying AI business service. This is a service that supports adopting or developing AI in your business and relates to developing, deploying, operating or maintaining an AI system.
IRAS lists examples of qualifying AI business services, when they relate to an AI system: an online platform for your use, system development, consultancy and strategy, data and analytics, research and development, system engineering and compliance, and system-related training.
In everyday SME terms, items that look like they fit this description include paid business plans of AI assistants, AI features licensed inside your accounting or CRM software, an AI chatbot built and run for your website, and a developer's fee to connect an AI model to your systems. Whether a specific invoice qualifies is a judgement for you and your tax agent, using IRAS's wording.
What does not count
Three exclusions catch most people out:
Common exclusions
Bundled invoices are the other trap. Where one invoice mixes AI and non-AI items (say, a website rebuild with a chatbot added), IRAS says only the AI portion qualifies. If you cannot get evidence of the split despite reasonable efforts, you apportion on a reasonable basis. It is far easier to ask suppliers to itemise the AI part on the quote and invoice from the start.
Who can claim and how much it is worth
IRAS says sole proprietorships, partnerships, companies (including registered business trusts), registered branches and subsidiaries of foreign companies are eligible for EIS enhanced deductions, provided they carry on a trade or business. Investment holding companies that do not trade do not qualify.
The 3 full-time local employee condition on the EIS page applies to the cash payout, which AI spend cannot use anyway. Ask your tax agent to confirm whether any other condition applies to your case.
If you spend more than S$50,000 in a Year of Assessment, the amount above the cap only gets the normal 100% deduction, if it is deductible at all.
Records to keep for an EIS AI claim
IRAS does not ask you to submit documents when you file, but you need to show them if asked. Set up a folder now for each basis period:
Ask suppliers to itemise AI work on quotes and invoices
A line such as "AI chatbot development and deployment" is much easier to defend than "website package". Ask for a separate line for any hardware.
Keep the scope document or statement of work
It should say what AI system is being built, deployed or maintained, and for which part of your business. This is your evidence that the service relates to an AI system.
Record grants received against each project
Note the grant name, amount and which invoices it covered, so your accountant can claim on the net amount.
Track subscriptions by billing period
Download monthly or annual invoices for AI tools (in your company name, not a staff member's personal card) and tag them as AI spend in your accounting software.
Hand a summary to your tax agent before filing
A one-page list of qualifying items, amounts, dates and any apportionment basis saves time at Form C-S or Form C stage.
If you already use Xero, QuickBooks or Zoho Books, a tracking category or tag called "EIS AI" on each bill is the simplest way to total the spend at year end.
Do it yourself or get help?
You can claim the deduction yourself through your tax agent; nothing needs to be pre-approved. The work that matters is choosing AI spend that is useful for the business, and making sure the paperwork describes it clearly. For help planning the wider project, see our guide on what AI agents cost a small business, and compare it with grant routes in our EDG guide for websites and IT and the Enterprise Compute Initiative.
If you want an AI tool built, IT Sorted is a Singapore-based team of developers with over 10 years of experience. Our AI Website Assistant is S$790 fixed, and a Custom Tool or Dashboard starts from S$1,990 with a written scope and fixed quote. We itemise AI work on the quote and invoice so your accountant can see it, but we do not give tax advice: your tax agent decides what to claim.
Frequently asked questions
IRAS says the AI adoption deduction applies for Year of Assessment 2027 and Year of Assessment 2028. A Year of Assessment taxes the income of the previous financial year, so for a company with a December year end, YA 2027 covers spend in calendar 2026 and YA 2028 covers spend in 2027. Check your own basis period with your tax agent.
IRAS defines qualifying AI expenditure as subscribing to or licensing an AI system for your trade or business, and lists content generation and natural language processing as AI capabilities. Business subscriptions to AI assistants appear to fit that description, but the decision for a specific invoice rests with you and your tax agent. Keep invoices in the company name.
No. IRAS states that the cash conversion option, which turns up to S$100,000 of qualifying expenditure into a 20% cash payout, does not apply to the new AI adoption activity. AI spend can only be claimed as a 400% tax deduction, so it helps businesses that have taxable profit to offset.
No. IRAS excludes expenditure on physical infrastructure or hardware such as servers, storage devices and computing equipment from qualifying AI expenditure. Hardware may still qualify for normal capital allowances, but not for the 400% EIS AI deduction. Ask suppliers to show hardware on a separate invoice line.
Only on the part you paid yourself. IRAS excludes expenditure subsidised by a government grant or subsidy from qualifying AI expenditure, and its FAQ says EIS claims should be net of grants. So if a grant covered half of a project, only the other half can count towards the S$50,000 cap.