Enterprise Innovation Scheme

Introduction

In today’s highly competitive market, digital transformation is no longer a choice; it has become a business imperative. Businesses must adapt to the evolving digital landscape or risk losing their competitive edge. The dual pressures of market competition and technological disruption are increasingly shaping corporate strategy, with sustainable business growth dependent on agile digital adaptation.

Recognising this business reality, the Singapore Government introduced the Enterprise Innovation Scheme ("EIS") in Budget 2023 to encourage businesses to invest in research and development ("R&D"), innovation, intellectual property ("IP") creation and workforce capability development. Significantly enhanced tax deductions or allowances (collectively referred to as “enhanced deductions”) are available for qualifying expenditures incurred from Year of Assessment ("YA") 2024 to YA 2028 across the initial five pillars of qualifying activities. Eligible businesses also have the option to convert a portion of their qualifying expenditure into a non-taxable cash payout, providing support to companies that may not yet be profitable enough to benefit fully from the enhanced deductions.

In Budget 2026, the Government announced an expansion of the EIS scope to introduce Artificial Intelligence ("AI") Adoption as the scheme’s sixth qualifying activity. The premium deduction window for this new category of expenditure is limited to YA 2027 and YA 2028, and it is without the cash payout option.

The EIS offers one of Singapore's most attractive tax support measures for businesses seeking to innovate, commercialise new ideas or accelerate digital transformation. The 400% enhanced deductions offer a high-value, time-sensitive opportunity for companies to subsidise digital transformation through their corporate tax shields.

Six pillars of qualifying activities

R & D activities undertaken in Singapore
The EIS provides enhanced deductions for qualifying R&D activities undertaken in Singapore. This includes systematic investigative or experimental activities aimed at acquiring new knowledge or creating new products, solutions, manufacturing processes or service offerings.
Registration of intellectual property (“IP”)
The EIS encourages businesses to protect the value of their innovations by providing enhanced deductions for the costs of registering eligible IP. Eligible costs may include patent registration fees, trademark and design registration expenses, subject to the applicable qualifying conditions.
Acquisition and licensing of IP rights
Businesses seeking growth through the acquisition or licensing of technology, patents, trademarks or software may qualify for enhanced deductions. This benefit can be particularly valuable for technology start-ups acquiring commercialised IP, manufacturers licensing production technology or businesses acquiring sector-specific proprietary software.
Training-Workforce and skills development
The EIS reinforces Singapore's emphasis on continuous workforce upskilling.
Enhanced deductions are available for qualifying training expenditure incurred on courses that are eligible for Skills and Workforce Development Agency funding and aligned with prescribed Skills Framework requirements.
This creates an additional incentive for organisations to strengthen workforce capabilities in areas such as digital transformation, data analytics, sustainability reporting and advanced manufacturing.
Innovation projects carried out with approved partner institutions
Recognising that innovation frequently occurs through collaboration, the EIS extends enhanced deductions to qualifying innovation projects where a business or company (who is the beneficiary of the project) collaborates directly with an approved partner institution.
Approved partner institutions include Polytechnics, the Institute of Technical Education (“ITE”), the Sectoral AI Centre of Excellence for Manufacturing and other qualified partners.
Qualifying innovation projects refer to projects that predominantly involve one or more of the innovation activities such as (a) R&D development activities, (b) engineering, design and other creative activities, (c) IP-related activities and (d) software development and database activities.
AI Adoption
The recent inclusion of AI Adoption as one of the scheme’s qualifying activities signals Singapore’s commitment to embedding AI capabilities across industries and accelerating enterprise productivity transformation.

What is qualifying AI expenditure

Definition: It covers costs incurred for (a) subscribing to or licensing an AI system, or (b) subscribing to, acquiring or licensing a qualifying AI business service.
Exclusion: It explicitly excludes physical infrastructure or hardware such as servers, storage devices and computing equipment.

What is an AI system

Definition: An AI system refers to a machine-based system designed to operate with varying levels of autonomy.
Function: It infers from input received and generates outputs such as predictions, content, recommendations or decisions that can influence physical or virtual environments.

What is a qualifying AI business service

Definition: It refers to a third-party service provided to a business to support the adoption or development of AI in its trade or business.
Function: The services must relate to the development, deployment, operation or maintenance of an AI system, including system development, consultancy and strategy, data and analytics services and the provision of a dedicated online platform for use by the business.

What does the EIS offer?

Pillar Category	Annual Expenditure Cap	Enhanced Deductions	Eligibility Window
Pillars 1 to 4 (R&D, IP, Training)	S$400,000 per activity	400%	YA2024 to YA2028
Pillar 5 (Innovation Projects)	S$50,000	400%	YA2024 to YA 2028
Pillar 6 (AI Adoption)	S$50,000	400%	YA2027 and YA2028

Cash conversion benefit

An attractive feature of the EIS is the option granted to businesses (subject to conditions) to convert up to S$100,000 of total qualifying expenditure across Pillars 1 to 5 qualifying activities for each year of assessment into a non-taxable cash payout at a conversion rate of 20%, in lieu of claiming the enhanced deductions. Unlike the primary five EIS pillars, the AI Adoption category carries no cash payout conversion option.

Whilst the cash payout option could provide immediate liquidity support for innovation projects that are still in development or growth-stage businesses that do not have sufficient taxable income to benefit immediately from the enhanced deductions, businesses considering this option should nevertheless evaluate whether the immediate cashflow benefit outweighs the potential tax savings from claiming the enhanced deductions.

Why AI Adoption was introduced and why it matters

AI is no longer just a technology trend or confined to technology companies. Businesses across all sectors are increasingly using AI to improve productivity, automate repetitive tasks, analyse large volumes of data, enhance customer experience and support decision-making.

AI Adoption can impact different business sectors in different ways.

Sector	Typical AI Uses	Commercial Benefit
🏭 Manufacturing	Predictive maintenance, computer-vision quality control, production planning, supply chain forecasting	Higher productivity, fewer defects, reduce downtime, optimise production processes
🍽 F&B	Algorithmic demand forecasting, food waste reduction, dynamic menu optimisation, AI ordering assistants	Minimise food wastage, overcome manpower shortages, better customer experience, lower operational costs
🛍 Retail	Personalised marketing, customer behaviour analytics, AI-powered customer engagement, inventory forecasting	Increased sales and customer satisfaction, improved inventory management
💼 Professional Services	Generative AI document drafting and review, knowledge retrieval and research, automated client communication, compliance automation	Accelerated time-to-market, a shift to high-value advisory, enhanced quality and risk mitigation
📦 Logistics	Real-time route optimisation, autonomous fleet and warehouse management, inventory forecasting, predictive maintenance	Reduced operational expenditures, maximise warehouse efficiency, faster delivery, agile supply chain resilience

An example to illustrate the commercial benefit of AI Adoption

Consider a corporation that incurs S$40,000 in qualifying AI consultancy and implementation costs in financial year 2026, and its corporate income tax rate is 17%.

	Standard tax deduction S$	Enhanced deductions under EIS S$
Qualifying AI expenditure	40,000	40,000
Tax deduction base rate	100% ($40,000)	400% ($160,000)
Reduction in taxable income	40,000	160,000
Actual tax savings in cash (at 17%)	6,800	27,200
Effective investment cost (expenses minus tax savings)	33,200	12,800

Based on this simplified illustration, the enhanced EIS deduction could provide an additional S$20,400 (S$27,200 less S$6,800) in potential tax savings compared with the standard 100% deduction on S$40,000 of qualifying expenditure.

What businesses should do now

The EIS presents a significant opportunity for businesses to reduce the after-tax cost of innovation investments.
Businesses should consider:

✅	Reviewing ongoing R&D, innovation and AI initiatives.
✅	Evaluating whether existing training programmes qualify.
✅	Assessing IP registration and acquisition activities.
✅	Exploring collaborative innovation projects with approved partners.
✅	Evaluating whether the cash conversion option is beneficial.
✅	Implementing processes to track qualifying expenditure.
	For expenditure incurred on AI adoption, it is important to mandate suppliers to provide distinct line-item separations for multi-part digital transformation bills. Core system license tokens should be clearly unbundled from excluded backend hardware hosting or raw cloud computing capacity fees.

We are here to assist

Most businesses know they need to invest in innovation, technology and workforce development to stay competitive. What they may not realise is the extent to which the EIS can help reduce the after-tax cost of qualifying investments.
With the scheme available through YA 2028 and now expanded to support AI adoption, organisations investing in technology, innovation and workforce transformation should proactively evaluate how they can maximise the available tax benefits.