Singapore Enterprise Innovation Scheme (EIS): 400% Tax Deduction and Cash Payout Explained

What Is the Enterprise Innovation Scheme?

Singapore's Enterprise Innovation Scheme encourages businesses to invest in research, intellectual property, employee capabilities and innovation.

For qualifying expenditure incurred from Year of Assessment (YA) 2024 to YA 2028, businesses may receive enhanced tax deductions or allowances of up to 400%, subject to the applicable expenditure limits.

Eligible businesses may alternatively convert up to S$100,000 of qualifying expenditure into a non-taxable cash payout at 20%, giving a maximum cash payout of S$20,000 per YA. The same expenditure cannot receive both the cash payout and tax deduction.

Which Activities Qualify for EIS?

1. Research and Development Undertaken in Singapore

Businesses may receive a total 400% tax deduction on the first S$400,000 of qualifying R&D expenditure for each YA.

The project must satisfy the relevant R&D requirements. Ordinary product improvement, routine data collection and market research do not automatically qualify.

2. Registration of Intellectual Property

A 400% tax deduction is available on up to S$400,000 of qualifying IP registration costs for each YA. Qualifying costs may include official and professional fees incurred to register patents, trademarks, designs or plant varieties.

The related intellectual property generally must be owned for at least one year. Disposal before the required ownership period may result in a claw-back.

3. Acquisition and Licensing of Intellectual Property Rights

Qualifying businesses may receive enhanced allowances or deductions on up to S$400,000 of expenditure relating to the acquisition or licensing of qualifying intellectual property rights.

Conditions apply to the type of intellectual property, the purpose for which it is acquired and its use in the trade or business.

4. Qualifying Training Courses

A business may claim a 400% tax deduction on the first S$400,000 spent on qualifying employee training for each YA.

The course generally must be eligible for funding by the Skills and Workforce Development Agency and aligned with the Skills Framework. A general seminar or overseas course does not automatically qualify.

5. Innovation Projects with Qualified Partners

A 400% tax deduction is available on up to S$50,000 of qualifying expenditure for innovation projects conducted with polytechnics, the Institute of Technical Education or other approved partners.

New EIS Benefit for AI Adoption

For YA 2027 and YA 2028, EIS has been expanded to cover qualifying AI-adoption expenditure.

Businesses may claim a 400% tax deduction on the first S$50,000 of qualifying AI expenditure per YA. Qualifying expenditure may include:

• Subscribing to or licensing an AI system.
• Subscribing to, acquiring or licensing a qualifying AI business service.

Physical infrastructure and hardware, including servers, storage devices and computers, do not qualify under this AI measure. Expenditure subsidised by a government grant is also excluded.

The EIS cash-payout option is not available for AI-adoption expenditure.

How Does the 400% Deduction Work?

Assume a profitable company incurs S$100,000 of qualifying expenditure entitled to the full 400% deduction.

S$100,000 × 400% = S$400,000 total tax deduction

The additional EIS deduction above the normal 100% deduction is S$300,000. At the prevailing 17% corporate income tax rate, that additional deduction could reduce tax by up to S$51,000, assuming the company has sufficient normal taxable income and satisfies all conditions.

The actual benefit may differ where the company is in a loss position, has insufficient taxable income, earns income at a concessionary rate, receives government grants or does not satisfy the relevant conditions.

Tax Deduction or Cash Payout?

Eligible businesses may convert up to S$100,000 of qualifying expenditure across the applicable EIS activities into cash at 20%.

S$100,000 × 20% = maximum S$20,000 cash payout per YA

The payout is non-taxable. It may be attractive to a young or growing business without sufficient taxable profits to use the enhanced deductions. A profitable company may obtain a larger benefit from the tax deduction, depending on its circumstances.

The decision should be reviewed carefully because:

• Converted expenditure cannot also be claimed as a tax deduction or allowance.
• The cash-payout election is irrevocable.
• Special conversion rules apply to IP registration and acquisition costs.
• Partial conversion is not permitted for certain IP-related expenditure.

Who Qualifies for the Cash Payout?

A business generally must:

• Carry on active business operations in Singapore.
• Incur qualifying expenditure during the relevant basis period.
• Incur at least S$400 of qualifying expenditure.
• Meet the three full-time local employee condition.
• File its income tax return before the statutory filing deadline.
• Submit its cash-payout application after filing the return and before the applicable deadline.

The business generally must make CPF contributions for at least three qualifying local employees for at least six months during the relevant basis period.

For this purpose, a qualifying employee generally must be a Singapore citizen or permanent resident earning at least S$1,400 per month and working at least 35 hours a week under a contract of service. Sole proprietors, partners and shareholders who are also company directors do not count towards this employee condition.

Investment-holding companies and certain other entities are not eligible for the cash payout. Their eligibility for enhanced deductions should be considered separately.

Records Businesses Should Maintain

• Supplier invoices and payment records.
• Contracts, proposals and project agreements.
• Detailed descriptions of the innovation activity.
• R&D objectives, technical uncertainties and project records.
• Intellectual-property registration documents.
• Training course details and funding eligibility.
• Agreements with approved innovation partners.
• Employee and CPF records for cash-payout applications.
• Details of government grants or subsidies received.

A supplier describing a product as innovative or AI-powered does not by itself make the expenditure eligible.

Common EIS Mistakes

• Claiming 400% on the entire cost without checking the applicable cap.
• Claiming expenditure reimbursed by a government grant.
• Claiming both the cash payout and enhanced deduction on the same expenditure.
• Assuming all software subscriptions or training courses qualify.
• Treating routine product improvements as qualifying R&D.
• Applying for the cash payout without meeting the employee condition.
• Failing to retain technical and commercial supporting documents.

How LN Corporate Services Can Help

LN Corporate Services can assist with reviewing expenditure against the EIS qualifying activities, preparing tax computations and enhanced-deduction schedules, comparing the deduction and cash-payout options, reviewing supporting documents and preparing the relevant corporate income tax filings.

The availability and amount of any EIS benefit depend on the business's facts, supporting documents and satisfaction of the applicable legislation and IRAS requirements.