ACM Research, Inc.ACMR
ACM Research, Inc. Income Taxes Disclosure
INCOME TAXES
The following represent the U.S. and foreign components of income before income tax for the years ended December 31, 2024, 2023 and 2022:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| U.S | $ | 21,282 | $ | 10,420 | $ | (3,456) | |||||||||||
| Foreign | 145,018 | 105,796 | 70,818 | ||||||||||||||
| Income before income taxes | $ | 166,300 | $ | 116,216 | $ | 67,362 | |||||||||||
The following represent components of the income tax benefit (expense) for the years ended December 31, 2024, 2023 and 2022:
Provision
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | (483) | $ | (12,757) | $ | (479) | |||||||||||
| U.S. state | (2) | (150) | (18) | ||||||||||||||
| Total U.S. current tax benefit (expense) | (485) | (12,907) | (497) | ||||||||||||||
| Foreign | (29,120) | (19,696) | (11,139) | ||||||||||||||
| Total current tax expense | (29,605) | (32,603) | (11,636) | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. federal | (5,244) | 7,316 | (10,927) | ||||||||||||||
| U.S. state | (63) | 63 | 8 | ||||||||||||||
| Total U.S. deferred tax benefit (expense) | (5,307) | 7,379 | (10,919) | ||||||||||||||
| Foreign | (119) | 5,860 | 5,757 | ||||||||||||||
| Total deferred tax benefit | (5,426) | 13,239 | (5,162) | ||||||||||||||
| Total income tax expense | $ | (35,031) | $ | (19,364) | $ | (16,798) | |||||||||||
The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 12.5% to 25% for mainland China income tax purpose due to the effects of the valuation allowance and certain permanent differences as they pertain to book-tax differences in employee stock-based compensation and non-US research expense. A new requirement to capitalize and amortize previously deductible research and experimental expenses resulting from a change in Section 174 made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) became effective on January 1, 2022. Under the TCJA, the Company is required to capitalize, and subsequently amortize R&D expenses over fifteen years for research activities conducted outside of the U.S. The capitalization of overseas R&D expenses resulted in a significant increase in the Company’s global intangible low-taxed income inclusion beginning in 2022.
Pursuant to the Corporate Income Tax Law of mainland China, all of the Company’s mainland China subsidiaries are liable to mainland China Corporate Income Taxes at a rate of 25%, except for ACM Shanghai and ACM Lingang. According to Guoshuihan 2009 No. 203, an entity certified as an “advanced and new technology enterprise” is entitled to a preferential income tax rate of 15%. ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016, 2018, 2021 and 2024, effective until December 31, 2026.. In 2021, ACM Shanghai was certified as an eligible integrated circuit production enterprise and was entitled to a preferential income tax rate of 12.5% from January 1, 2020 to December 31, 2022. Certain entities which meet requirements according to the Policy of the Lingang New area in China (Shanghai) Pilot Free Trade Zone are entitled to a preferential income tax rate of 15%. ACM Lingang was certified for this in 2021, and this preferential income tax rate is valid from January 1, 2020 until December 31, 2024. The provision for mainland China corporate income tax for ACM Shanghai is calculated by applying the income tax rate of 15% for the years ended December 31, 2024 and December 31, 2023 and 12.5% for the year ended December 31, 2022.
Income tax expense for the years ended December 31, 2024, 2023 and 2022 differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income as a result of the following:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Effective tax rate reconciliation: | |||||||||||||||||
| Income tax provision at statutory rate | 21.00 | % | 21.00 | % | 21.00 | % | |||||||||||
| Stock compensation | (2.96) | (2.00) | (2.72) | ||||||||||||||
| Foreign rate differential | (3.27) | (10.47) | (9.43) | ||||||||||||||
| Other permanent difference | 0.21 | 0.03 | (0.26) | ||||||||||||||
| Foreign income taxed in US | 3.74 | 7.39 | 19.86 | ||||||||||||||
| Foreign research expense | (6.42) | (8.01) | (4.79) | ||||||||||||||
| Change in valuation allowance | 8.78 | 8.72 | 1.28 | ||||||||||||||
| Total income tax expense | 21.08 | % | 16.66 | % | 24.94 | % | |||||||||||
Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2024 and 2023 are presented below:
| December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating loss carry forwards (offshore) | $ | 8,106 | $ | 11,499 | ||||||||||
| Net operating loss carry forwards (U.S.) and credit | 8,653 | 4,930 | ||||||||||||
| Deferred revenue (offshore) | 6,428 | 2,277 | ||||||||||||
| Accruals (U.S.) | 212 | 3,632 | ||||||||||||
| Reserves and other (offshore) | 6,631 | 4,662 | ||||||||||||
| Stock-based compensation (U.S.) | 2,974 | 2,455 | ||||||||||||
| Stock-based compensation (offshore) | 10,325 | 4,393 | ||||||||||||
| Lease liability | 1,157 | 1,252 | ||||||||||||
| Total gross deferred tax assets | 44,486 | 35,100 | ||||||||||||
| Less: valuation allowance | (26,516) | (11,917) | ||||||||||||
| Total deferred tax assets | 17,970 | 23,183 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Property and equipment | (1,190) | (1,325) | ||||||||||||
| Equity investments and unrealized gain on short-term investments | (1,999) | (1,587) | ||||||||||||
| Total deferred tax liabilities | (3,189) | (2,912) | ||||||||||||
| Deferred tax assets, net | $ | 14,781 | $ | 20,271 | ||||||||||
The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available evidence, a partial valuation allowance has been established against some net deferred tax assets as of December 31, 2024 and 2023, based on estimates of recoverability. In order to fully realize the deferred tax assets, the Company must generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.
As of December 31, 2024 and 2023, the Company had valuation allowances, respectively, of $5,467 and $29 for U.S. federal purposes, $295 and $279 for U.S. state purposes and $20,209 and $11,585 for mainland China income tax purposes, and $515 and $14 for Korea income tax purposes.
As of December 31, 2024, the Company had operating loss carryforward amounts, or NOLs, of $2,030 for U.S. federal income tax purposes and $929 for U.S. state income tax purposes. As of December 31, 2023, the Company had NOLs, of $3,121 for U.S. federal income tax purposes and $593 for U.S. state income tax purposes. As of December 31, 2022, the Company had NOLs of $4,385 for U.S. federal income tax purposes and $545 for U.S. state income tax purposes.
As of December 31, 2024 and 2023, the Company had NOLs, respectively, $30,481 and $46,467 for mainland China income tax purposes and $2,339 and $64 for Korea income tax purposes. Such losses begin expiring in 2037, 2032, 2027 and 2037 for U.S. federal, U.S. state, mainland China, and Korea income tax purposes, respectively.
Under provisions of the U.S. Internal Revenue Code (the “IRC”), a limitation applies to the use of the U.S. net operating loss and credit carry-forwards that would be applicable if ACM experiences an “ownership change,” as defined in IRC Section 382. ACM conducted an analysis of its stock ownership under IRC Section 382 and $2,030 of the net operating loss carryforwards are subject to annual limitation as a result of the ownership change in 2017. The net operating loss carryforwards are not expected to expire before utilization.
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, for the years ended December 31, 2024, 2023 and 2022 were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Beginning balance | $ | 13,026 | $ | 8,448 | $ | 6,066 | |||||||||||
| Increase of unrecognized tax benefits related to current year | 2,308 | 4,379 | 2,623 | ||||||||||||||
| Increase of unrecognized tax benefits taken in prior years | 6,871 | 199 | — | ||||||||||||||
| Reductions for tax positions related to prior years | (5,431) | — | (241) | ||||||||||||||
| Ending balance | $ | 16,774 | $ | 13,026 | $ | 8,448 | |||||||||||
The Company is subject to taxation in the United States, state, and foreign jurisdictions. All tax returns will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credits. Certain tax years are subject to foreign income tax examinations by tax authorities until the statute of limitations expire.
The Company had $16,774 and $13,026 of unrecognized tax benefits as of December 31, 2024 and 2023, respectively.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024 and 2023, respectively, the Company had $2,973 and $1,667 of accrued penalties related to uncertain tax positions, all of which was recognized in the Company’s consolidated statements of comprehensive income (loss) for the year then ended. The amount of the unrecognized tax benefit that, if recognized, would impact the effective tax rate was $16,638 as of December 31, 2024. There were no ongoing examinations by taxing authorities as of December 31, 2024 or 2023.
Prior to the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), the Company asserted that all unremitted earnings of its foreign subsidiaries were considered indefinitely reinvested. As a result of the Tax Act, the Company reported and paid U.S. tax on the majority of its previously unremitted foreign earnings, and repatriations of foreign earnings will generally be free of U.S. federal tax, but may incur other taxes such as withholding or state taxes. As of December 31, 2024, the Company has not made a provision for U.S. or additional foreign withholding taxes on approximately $238,605 of undistributed earnings of its foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 3, 2025 | Showing above |
| 2022 | Mar 2, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.