Singapore 400% AI Tax Deduction: CFO Briefing Pack

Compiled by Prabjeet Singh Anand. CEO, PeopleCentral. 20 years operating Singapore-incorporated businesses. Not a tax adviser. This pack is for informational purposes only and should be reviewed with your IRAS-accredited tax adviser before filing.

1. Executive Summary

2. The Maths Explained

The 400% deduction is a tax deduction, not a cash refund. The actual benefit depends on your effective tax position.

Qualifying AI spend                      S$50,000
Deduction at 400%                        S$200,000
Reduction in taxable income              S$200,000
Tax saving at 17% corporate tax rate     S$34,000
Net cost of S$50,000 AI investment       S$16,000
Effective government co-funding          68%

Important: This benefit is only realisable if the company has sufficient taxable income in the relevant Year of Assessment. Loss-making businesses cannot use the deduction in that year, and there is no carry-forward.

3. Eligibility Criteria

The scheme is open to: Singapore-incorporated companies, partnerships, sole proprietorships, and Singapore branches of foreign companies carrying on an active business in Singapore.

The business must have taxable income to benefit. The AI expenditure category specifically excludes the cash payout conversion option that is available under other EIS categories.

4. Qualifying vs Non-Qualifying Expenditure

IRAS will publish the definitive qualifying list by mid-2026. Until then, finance teams should categorise spend conservatively based on existing EIS principles and current government guidance.

Likely to qualify

The qualification test: Does the spend create measurable AI capability inside the business — or does it just use AI features as an enhancement to a non-AI core product?

Will not qualify

5. Stacking Rules — PSG and Other Schemes

Stacking is permitted but never on the same dollar of spend.

PSG interaction

If PSG covers a portion of an AI tool purchase, EIS 400% applies only to the out-of-pocket portion.

Worked example: S$50,000 AI tool with 50% PSG

Other EIS categories

The AI category sits alongside the existing EIS categories (R&D, IP registration, IP licensing, training, innovation projects). Each has its own cap. The AI cap is S$50,000 per YA, separate from the other category caps.

6. Documentation Requirements

This is where most claims will fail at audit. IRAS expects clear separation of AI expenditure from regular IT costs from day one.

Account category setup

Create a dedicated expense category: Qualifying EIS AI Expenditure — YA [year]

Sub-categorise as: AI software subscriptions, AI implementation and consulting, AI literacy training, Custom AI development.

Vendor invoice requirements

Every AI-related invoice must include: (1) Description of AI capability — explicit naming, not just product name; (2) Component split if product has AI and non-AI elements; (3) Service period with clear dates; (4) Vendor confirmation statement that AI components qualify under EIS guidelines.

Sample description that works: "AI-powered document intelligence platform — including ML-based data extraction, automated classification, and intelligent workflow routing. Service period: 1 Jan 2026 to 31 Dec 2026."

Sample description that will not pass: "Software subscription — annual fee." Request revised invoices from any vendor whose invoice looks like this.

Supporting documentation per investment

For every qualifying AI investment, maintain one folder containing: vendor invoice with AI capability described; vendor SOW or contract specifying AI deliverables; implementation plan showing AI integration; PSG approval letter if applicable with portion split; internal use case document; adoption metrics for the financial year.

7. Action Checklist for Finance Team

This week

• Create the Qualifying EIS AI Expenditure — YA 2027 expense category in chart of accounts
• Identify all current AI-related vendor relationships
• Draft vendor request email asking for revised invoices with AI components named explicitly
• Brief procurement team on new invoice requirements for all future AI purchases

This month

• Review FY2026 AI spend year-to-date against qualifying criteria in Section 4
• Reclassify spend already incurred where it qualifies
• Schedule 30-minute review with IRAS-accredited tax adviser to confirm approach
• Prepare FY2026 AI spend forecast against the S$50,000 cap

Before 31 December 2027

• Ensure all qualifying AI expenditure for FY2026 and FY2027 is documented and categorised
• Complete any final qualifying spend before the window closes — no carry-forward
• File EIS claims correctly on corporate tax return for YA 2027 and YA 2028

8. Common Mistakes to Avoid

10. Frequently Asked Questions from CFOs

Q. Do we need pre-approval from IRAS to claim the AI category?
Based on existing EIS structure, claims up to the S$50,000 cap should not require prior approval. IRAS has not yet published full operational details for the AI category. Confirm with your tax adviser when full details are released by mid-2026.

Q. What if our financial year doesn't align with the calendar year?
YA 2027 generally covers income earned in the financial year ending in 2026. Check with your tax adviser to confirm the basis period for your specific financial year end.

Q. What if the AI tool is purchased on a multi-year contract?
Generally, only the portion of expenditure recognised in the relevant YA qualifies for that year's deduction. Allocate the spend across financial years based on accounting period recognition, not the contract date.

Q. Can we claim on internal staff costs for AI projects?
Internal staff salaries dedicated to qualifying AI projects may qualify, but documentation requirements are more demanding than for vendor invoices. Track time allocation by individual to specific qualifying AI projects from the start.

Q. What happens if we are audited?
IRAS will request the supporting documentation listed in Section 6. Without proper categorisation, vendor invoices describing AI capability, and supporting investment files, the enhanced 400% deduction will likely be disallowed and reverted to the standard 100% deduction rate.

Q. Is there a minimum spend to claim?
No minimum specified. The S$50,000 is a cap, not a floor. Smaller qualifying spend still receives the 400% treatment up to the cap.