ACM Research, Inc.ACMR

ACM Research, Inc. Income Taxes Disclosure

10-KFiled Mar 2, 20268 min read
INCOME TAXES
The following represent the U.S. and foreign components of income before income tax for the years ended December 31, 2025, 2024 and 2023:
Year Ended December 31,
202520242023
U.S$16,777 $21,282 $10,420 
Foreign118,415 145,018 105,796 
Income before income taxes $135,192 $166,300 $116,216 
The following represent components of the income tax benefit (expense) for the years ended December 31, 2025, 2024 and 2023:
Year Ended December 31,
202520242023
Current:   
U.S. federal$(8,631)$(483)$(12,757)
U.S. state(2)(2)(150)
Total U.S. current tax expense(8,633)(485)(12,907)
Foreign(19,632)(29,120)(19,696)
Total current tax expense(28,265)(29,605)(32,603)
Deferred:
U.S. federal652 (5,244)7,316 
U.S. state— (63)63 
Total U.S. deferred tax benefit (expense) 652 (5,307)7,379 
Foreign14,314 (119)5,860 
Total deferred tax benefit (expense)14,966 (5,426)13,239 
Total income tax expense$(13,299)$(35,031)$(19,364)

The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 25% for mainland China income tax purposes 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-U.S. research and development 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. The enactment of the One, Big, Beautiful, Bill Act, signed into law in July 2025, repeals the mandatory capitalization requirement for domestic R&D expenses for tax years beginning after December 31, 2025. However, the capitalization requirement for research activities conducted outside of the U.S remains unchanged.

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. 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 was valid from January 1, 2020 until December 31, 2024.ACM Lingang’s tax is expected to be exempt for first two profitable years after net operating loss utilization and half of the statutory tax rate for the next three years. 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, 2025, 2024 and 2023 .
Income tax expense for the years ended December 31, 2025, 2024 and 2023 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,
202520242023
Effective tax rate reconciliation:
Income tax provision at statutory rate21.0 %21.0 %21.0 %
Stock compensation(4.9)(3.0)(2.0)
Foreign rate differential7.6 (3.3)(10.5)
Foreign income taxed in US10.5 3.7 7.4 
Foreign research and development expense(11.9)(6.4)(8.0)
Change in valuation allowance(12.6)8.8 8.7 
Other permanent difference0.1 0.2 — 
Effective income tax rate9.8 %21.0 %16.6 %

A reconciliation of the federal statutory income tax rate to the effective income tax rate for the year ended December 31, 2025 is as follows:
Year Ended December 31,
2025
Amount
Tax rate
U.S. federal statutory tax and Rate$28,390 21.0 %
State and local income taxes, net of federal income tax effect*2 — 
Foreign tax effects
China
Statutory rate differential6,225 4.6 
Tax incentive adjustment(24,688)(18.3)
R&D deduction(16,082)(11.9)
Change in valuation allowance1,356 1.0 
Withholding tax3,249 2.4 
Other(708)(0.5)
Other foreign jurisdictions1,358 1.0 
Enactment of new tax laws
Effect of cross-border tax laws
Global intangible low-taxed income20,925 15.5 
Subpart F2,251 1.7 
Other(123)(0.1)
Tax Credits
Foreign tax credits(10,049)(7.4)
Change in valuation allowance323 0.2 
Nondeductible Items16 — 
Worldwide changes in unrecognized tax benefits6,787 5.0 
Other
 Share-based payment awards(5,942)(4.4)
 Other9 — 
Tax Expense / Effective Tax Rate
$13,299 9.8 %
*In 2025, state and local income taxes in California comprise the majority of the domestic and state and local income taxes, net of the federal income tax effect category.
Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2025 and 2024 are presented below:
December 31,
20252024
Deferred tax assets:
Net operating loss carry forwards (offshore)$2,968 $8,106 
Net operating loss carry forwards (U.S.) and credit10,152 8,653 
Deferred revenue (offshore)3,179 6,428 
Accruals (U.S.)480 212 
Reserves and other (offshore)11,333 6,631 
Stock-based compensation (U.S.)3,209 2,974 
Stock-based compensation (offshore)13,594 10,325 
Lease liability1,681 1,157 
Total gross deferred tax assets46,596 44,486 
Less: valuation allowance(9,454)(26,516)
Total deferred tax assets37,142 17,970 
Deferred tax liabilities:
Property and equipment(1,615)(1,190)
Equity investments and unrealized gain on short-term investments(6,138)(1,999)
Total deferred tax liabilities(7,753)(3,189)
Deferred tax assets, net$29,389 $14,781 
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, 2025 and 2024, 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, 2025 and 2024, the Company had valuation allowances, respectively, of $5,789 and $5,467 for U.S. federal purposes, $593 and $295 for U.S. state purposes and $2,182 and $20,209 for mainland China income tax purposes, and $840 and $515 for Korea income tax purposes.
As of December 31, 2025, the Company had operating loss carryforward amounts, or NOLs, of $1,056 for U.S. federal income tax purposes and $7,364 for U.S. state income tax purposes. As of December 31, 2024, the Company had 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, 2025 and 2024, the Company had NOLs, respectively, $17,863 and $30,481 for mainland China income tax purposes and $3,816 and $2,339 for South Korea income tax purposes. Such losses begin expiring in 2037, 2032, 2028 and 2037 for U.S. federal, U.S. state, mainland China, and South 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, 2025, 2024 and 2023 were as follows:
Year Ended December 31,
202520242023
Beginning balance$16,774 $13,026 $8,448 
Increase of unrecognized tax benefits related to current year4,132 2,308 4,379 
Increase of unrecognized tax benefits taken in prior years— 6,871 199 
Reductions for tax positions related to prior years(1)(5,431)- 
Ending balance$20,905 $16,774 $13,026 

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 $20,905 and $16,774 of unrecognized tax benefits as of December 31, 2025 and 2024, respectively.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025 and 2024, respectively, the Company had $7,094 and $2,973 of accrued penalties and interest related to uncertain tax positions, all of which was recognized in the Company’s consolidated statements of comprehensive income for the year then ended. The amount of the unrecognized tax benefit that, if recognized, would impact the effective tax rate was $20,770 as of December 31, 2025. There were no ongoing examinations by taxing authorities as of December 31, 2025 or 2024.

Prior to the TCJA, the Company asserted that all unremitted earnings of its foreign subsidiaries were considered indefinitely reinvested. As a result of the TCJA, 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, 2025, the Company has not made a provision for U.S. or additional foreign withholding taxes on approximately $343,266 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.

Cash income taxes paid by the Company were as follows:

Year Ended December 31, 2025
U.S.
Federal$2,574 
State and local(10)
Total U.S.2,564 
Foreign
China29,792 
Others19 
Total foreign29,811 
Total cash paid$32,375 
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Historical Timeline

Fiscal YearFiled
2025Mar 2, 2026Showing above
2024Mar 3, 2025
2023Feb 28, 2024
2022Mar 2, 2023
2021Mar 1, 2022
2020Mar 1, 2021
2019Mar 24, 2020
2018Mar 14, 2019
2017Mar 23, 2018

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.

Other Available Disclosures

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