EIS AI capital expenditure deduction for YA 2027 and YA 2028

The EIS AI capital expenditure deduction can give a business a 400% tax deduction on the first S$50,000 of qualifying artificial intelligence expenditure for each of YA 2027 and YA 2028. This matters when the approved AI cost is capital in nature and would not normally qualify for a deduction under section 14 of the Income Tax Act. It does not turn every technology purchase into qualifying expenditure.

Finance teams should separate the AI project, hardware, grants and recurring operating costs before they prepare the tax computation. The approval letter and invoices must identify the acquisition, its qualifying basis and the date the business incurred the cost.

Start with the new AI activity

The IRAS Enterprise Innovation Scheme page adds qualifying AI adoption expenditure for YA 2027 and YA 2028. A business must adopt a qualifying AI solution that Enterprise Singapore or the Infocomm Media Development Authority approves under the relevant route.

The activity is narrower than a general digital upgrade. The business should retain the approval, project scope and description of the AI function. An invoice that only says software, platform or implementation may not show that the vendor delivered the approved AI solution.

Keep the EIS review separate from any grant claim. Approval for support and qualification for an enhanced tax deduction involve related facts, but they are not the same accounting entry or evidence decision.

Identify capital and revenue expenditure

Classify each cost under the business’s accounting policy and the Income Tax Act. A perpetual software right, substantial implementation element or other enduring asset may be capital in nature. A subscription, support service or routine operating cost may be revenue in nature. The contract terms and actual benefit matter more than the invoice label.

For qualifying revenue expenditure that is deductible under section 14, IRAS explains the result as a 100% base deduction plus a 300% enhanced deduction on the first S$50,000. For qualifying capital expenditure that is not deductible under section 14, the EIS provides a 400% deduction on the first S$50,000.

That distinction affects the tax computation presentation. It also prevents the business from claiming a normal revenue deduction after already treating the amount as capital.

Remove excluded hardware and infrastructure

The IRAS guidance excludes hardware and infrastructure costs from the qualifying AI expenditure. Separate computers, servers, networking, storage and other infrastructure even when the project team bought them for the same project. Do not allocate them to the approved solution merely because the AI software needs them to operate.

Ask the vendor for a cost breakdown where one invoice combines licences, configuration, hardware, training and support. If no reliable allocation exists, record the limitation and obtain clarification before filing.

Ordinary capital allowance rules may need separate consideration for hardware. Therefore, keep that tax analysis separate from the EIS AI calculation.

Deduct grants before applying the cap

Government grants and subsidies do not form part of qualifying EIS expenditure. Match each grant to the cost it supports, then calculate the net qualifying amount. A project budget is not enough because the actual invoice and approved grant may differ from the original estimate.

Suppose an approved AI solution costs S$70,000 and a grant supports S$20,000 of that cost. The starting amount for the EIS review is S$50,000, subject to all other conditions. The business should not claim the enhanced deduction on the subsidised S$20,000.

Keep the grant approval, claim outcome and bank receipt with the tax schedule. If the grant amount changes later, revisit the computation before the return becomes final.

Apply the annual S$50,000 limit correctly

The 400% rate applies to the first S$50,000 of qualifying AI expenditure for the relevant year of assessment. The timing follows the applicable tax rules and facts, not the date when management first approved the project. Map invoices, acceptance milestones and accounting recognition to the basis period.

Where one implementation crosses two financial years, do not divide the cost simply to obtain two limits. Use the contract, delivery and tax treatment to determine when the expenditure arose. Document the conclusion and any professional advice used.

The balance above the enhanced cap requires its own treatment. For revenue expenditure, the ordinary deduction may continue when the costs meet section 14 conditions. Capital expenditure does not become ordinarily deductible merely because it exceeds the EIS limit.

Build an EIS AI capital expenditure deduction schedule

Reconcile the claim to the tax return

Give every item a unique schedule reference. Reconcile the ledger amount to invoices, credit notes, grants, excluded items and the final qualifying total. Then tie the EIS AI capital expenditure deduction to the tax computation and supporting form.

Review related-party charges, bundled fees and foreign currency conversions. A management recharge without the underlying supplier record may not establish the nature of the AI expenditure. Retain the exchange rate source and conversion date used.

The reviewer should be able to trace the claim in both directions: from the return to the supporting invoice, and from the invoice back to the return.

Keep this claim distinct from the cash payout

IRAS excludes qualifying AI adoption expenditure from the EIS cash payout. The capital expenditure deduction is therefore a tax deduction route, not a cash reimbursement choice. Avoid copying a cash-payout election from other EIS activities into the AI schedule.

The EIS cash payout and tax deduction guide explains the wider choice for eligible activities. The AI grant-offset reconciliation guide provides more detail on subsidies, while the Singapore business support decision guide is the pillar cornerstone.

Once the classification, exclusions, grant offset and timing agree, the business has a defensible EIS AI capital expenditure deduction rather than a percentage applied to an undifferentiated technology budget. The Enterprise Support and Grants hub connects the rest of the support library.