Budget 2026 added a sixth item to the Enterprise Innovation Scheme’s (EIS) list of qualifying activities: AI adoption. For Years of Assessment (YA) 2027 and 2028, a Singapore business can now claim a 400% tax deduction on up to S$50,000 of qualifying AI adoption expenditure each YA, on top of the four existing S$400,000-capped categories and the S$50,000-capped innovation-projects category that the EIS already offered. This is confirmed directly on IRAS’s EIS page, which states that “the EIS was enhanced to include a new qualifying activity for the adoption of artificial intelligence (AI) for YA 2027 and YA 2028,” with the caveat that “the cash conversion option does not apply to the new qualifying activity.”
For finance teams and directors, the practical question is not whether the incentive exists, it clearly does, but what actually counts as “AI adoption expenditure” under this new category, as distinct from the software subscriptions, cloud hosting and IT support costs a business would be incurring anyway. This article works through the mechanics of the enhancement, how it sits alongside the EIS’s existing categories, and how to think about the qualifying-versus-ordinary-spend boundary before you file a claim.
Recap: how the EIS’s 400% deduction already worked
The EIS was introduced in Budget 2023 and runs from YA 2024 to YA 2028. Before the Budget 2026 enhancement, it already offered a 400% tax deduction or allowance (the ordinary 100% base deduction plus a 300% enhancement) on qualifying expenditure across five activities:
- Qualifying research and development (R&D) undertaken in Singapore, capped at S$400,000 of expenditure per YA
- Registration of intellectual property (IP), such as patents, trade marks, designs and plant varieties, capped at S$400,000 per YA
- Acquisition and licensing of intellectual property rights (IPRs), capped at S$400,000 per YA, subject to conditions
- Training courses eligible for Skills and Workforce Development Agency (SWDA, formerly SkillsFuture Singapore) funding and aligned with the Skills Framework, capped at S$400,000 per YA
- Innovation projects carried out with polytechnics, the Institute of Technical Education (ITE) or other qualified partners, capped at S$50,000 per YA
Eligible businesses could also elect to convert up to S$100,000 of qualifying expenditure across these categories into a non-taxable cash payout at a 20% conversion rate (a maximum payout of S$20,000 per YA), which is useful for younger companies without enough taxable profit to absorb the deduction. Our earlier guide on stacking Singapore government grants touches on how EIS deductions interact with other support schemes when you’re planning a capability upgrade.
What Budget 2026 actually changed
Budget 2026 did two specific things to the EIS in relation to AI, according to IRAS:
1. A new AI adoption category, capped separately at S$50,000
For YA 2027 and YA 2028, “AI adoption” becomes its own qualifying activity, attracting the 400% deduction on up to S$50,000 of qualifying expenditure per YA. A business that incurs the full S$50,000 in a YA can therefore claim up to S$200,000 in tax deductions or allowances for that year. This cap sits alongside, not inside, the S$400,000 caps for R&D, IP registration, IP acquisition/licensing and training, so a company with genuine spend across several categories in the same YA could in principle claim under more than one heading.
Critically, IRAS is explicit that the cash payout option does not extend to this category. If your company is loss-making and was relying on the cash conversion route rather than the deduction itself, the AI adoption category will not help you in the same way the other five categories can.
2. An expanded list of qualified partners for innovation projects
Separately, the list of qualified partners for the existing “innovation projects with partner institutions” category (the one already capped at S$50,000) has been expanded to include the Sectoral AI Centre of Excellence for Manufacturing, again for YA 2027 and YA 2028. This is a distinct change from the new AI adoption category above and matters mainly to manufacturers running innovation projects with that specific centre.
Both changes are time-limited to YA 2027 and YA 2028, which lines up with the EIS’s overall sunset at YA 2028. Businesses planning AI-related capital expenditure should map it against their financial year to confirm which YA it falls into before assuming the enhanced rate applies.
What counts as qualifying AI adoption expenditure, and what probably doesn’t
This is where businesses need to be careful. IRAS’s public EIS page confirms that the category exists and the cap, but the detailed line-by-line definition of qualifying AI adoption costs sits in the scheme’s conditions and supporting e-Tax guidance rather than in the summary page. As a general principle carried over from how IRAS treats the EIS’s other categories, the enhanced deduction is aimed at expenditure that represents a genuine step up in capability, not the ordinary cost of running a business that happens to use software.
Based on that principle, and pending the detailed conditions IRAS publishes for this specific category, businesses should expect the boundary to run roughly as follows:
| Likely to be treated as AI adoption expenditure | Likely ordinary IT spend, not AI-specific |
|---|---|
| Consultancy or implementation fees to deploy an AI tool or model into a specific business process (e.g. an AI-driven forecasting or document-processing workflow) | General cloud hosting, email, or office productivity subscriptions with no AI-specific component |
| Licence fees for AI software where the AI functionality is the substantive reason for the purchase, not an incidental feature | Renewing an existing accounting or CRM package that has simply added a minor AI feature to its marketing, with no change in how the business uses it |
| Staff training specifically in the use or configuration of AI tools adopted by the business (noting this may also be assessable under the existing training category if SWDA-funded and Skills Framework-aligned) | General digital literacy or basic computer skills training unrelated to AI |
| Costs of integrating an AI model or API into existing systems, including testing and validation | Routine IT maintenance, helpdesk support, or hardware replacement |
Until IRAS publishes the detailed qualifying conditions for this category, businesses should treat the table above as a working guide, not a final answer, and should check the official EIS guidance before filing. This is also why documentation matters more here than for routine expenses: keep invoices, scopes of work and internal notes that clearly link the spend to an AI adoption initiative, in case IRAS asks for substantiation during a review.
Worked example
Consider a Singapore-incorporated logistics SME that, in YA 2027, spends S$45,000 engaging a vendor to configure an AI-based route-optimisation tool into its dispatch system, and separately spends S$120,000 on qualifying staff training under the existing training category.
| Category | Qualifying expenditure | Cap applied | Deduction at 400% |
|---|---|---|---|
| AI adoption (new) | S$45,000 | S$50,000 | S$180,000 |
| Training (existing) | S$120,000 | S$400,000 | S$480,000 |
The two caps are separate, so the company’s total qualifying spend of S$165,000 could support up to S$660,000 in combined deductions or allowances, assuming both sets of expenditure meet the respective conditions. Because the AI adoption spend cannot be converted to cash, if the company were loss-making, it would only be able to convert the training expenditure (subject to the S$100,000 combined cash-conversion cap across the cash-eligible categories), not the AI adoption spend.
How this fits with other grants and schemes
The AI adoption category sits inside the tax system, administered by IRAS through the company’s own tax return, rather than as a grant applied for upfront. It is not a substitute for capability grants such as the EDGE Grant, which co-funds project costs directly rather than offering a deduction against tax payable. Our EDGE Grant 2026 update covers the H2 launch timeline and how EDG, PSG and MRA have consolidated, which is worth reading if you are weighing a grant-funded AI project against a self-funded one that would instead rely on the EIS deduction.
It is also worth distinguishing the EIS AI adoption category from the funding routes covered in our guide on National AI Missions funding for foreign AI and deep-tech firms, which addresses a different audience (foreign AI and deep-tech companies accessing Singapore funding programmes) and a different mechanism (co-funding and support schemes, not a tax deduction available to any qualifying Singapore business). A locally incorporated SME adopting AI tools for its own operations should look to the EIS category described here, not the National AI Missions routes.
If your business has previously had a grant application turned down, it is worth reviewing our piece on common reasons Singapore SMEs get their grant applications rejected before assuming a tax-based route like the EIS is automatically simpler. It generally is more straightforward procedurally, since there is no application to approve before you spend, but it still requires the expenditure to genuinely meet the qualifying conditions and to be properly documented in your tax computation.
Practical steps before you claim
- Confirm your company meets the EIS’s general qualifying conditions: carrying on active business operations in Singapore and having incurred the expenditure during the basis period of the qualifying YA.
- Map planned AI-related spend against YA 2027 and YA 2028 specifically. Expenditure incurred in earlier or later YAs will not attract this particular enhancement, even though the broader EIS runs to YA 2028.
- Separate AI adoption costs from ordinary IT and software renewal costs in your accounting records from the outset, rather than trying to reconstruct the split at filing time.
- Check whether related staff training could instead (or additionally) be claimed under the existing training category, since the qualifying conditions differ slightly.
- Refer to IRAS’s Enterprise Innovation Scheme page and the detailed EIS e-Tax Guide for the qualifying conditions before finalising a claim, and monitor for updated guidance specific to the AI adoption category as YA 2027 approaches.
- Note that EDB has flagged AI adoption incentives as part of a broader Budget 2026 push to support enterprise transformation; see EDB’s overview of what Budget 2026 means for businesses for the wider policy context.
Conclusion
The Budget 2026 enhancement gives Singapore businesses a genuine, if capped, tax incentive to formalise AI adoption spending rather than treating it as background IT cost. The S$50,000 cap is modest next to the S$400,000 ceiling on R&D, IP and training, and the absence of a cash conversion option means loss-making companies will not see immediate cash relief from this category specifically. Even so, for a business already planning to bring in AI tooling, consultancy or integration work, structuring that spend to meet the qualifying conditions, and keeping the paperwork to prove it, can turn a S$50,000 outlay into up to S$200,000 of tax deductions. Raffles Corporate Services helps Singapore companies work through EIS claims alongside their broader tax and grant planning, so the qualifying categories, caps and documentation line up correctly at filing time.