AvePoint, Inc. Income Taxes Disclosure

10. Income Taxes

 

Pretax income (loss) resulting from domestic and foreign operations is as follows:

 

		Year Ended December 31,
		2025				2024				2023
		(in thousands)
Domestic		$	(24,491	)		$	(63,588	)		$	(31,398	)
Foreign			64,992				39,189				12,784
Pretax income (loss) from continuing operations		$	40,501			$	(24,399	)		$	(18,614	)

 

On July 4th, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted in the United States, which extended and modified certain provisions of the 2017 Tax Cuts and Jobs Act (the “TCJA”). The OBBBA makes permanent keys elements of the TCJA, including 100 percent bonus depreciation and domestic research cost expensing. The Company continues to evaluate the impact of the OBBBA’s provisions that take effect in future years.

 

The components of the provision (benefit) for income taxes consists of the following:

 

		Year Ended December 31,
		2025				2024				2023
		(in thousands)
Current income tax expense:
Federal		$	510			$	(510	)		$	3,188
State and local			134				71				(1,121	)
Foreign			7,271				4,785				1,691
Total current income tax expense			7,915				4,346				3,758
Deferred income tax (benefit) expense:
Foreign			(2,534	)			397				(871	)
Total deferred income tax (benefit) expense			(2,534	)			397				(871	)
Total income tax expense		$	5,381			$	4,743			$	2,887

 

The effective income tax rate for the year ended December 31, 2025 differs from the statutory federal income tax rates as follows:

 

		Year Ended December 31,
		2025
		(in thousands, except percentages)
U.S. Federal Statutory Tax Rate		$	8,505				21.0	%
State and Local Income Taxes, Net of Federal Income Tax Effect			106				0.3	%
Foreign Tax Effects
Australia
Valuation Allowance			(2,518	)			(6.2	)%
Other			253				0.6	%
Germany
Effect of Rates Different than Statutory			1,310				3.2	%
Other			(9	)			(0.1	)%
United Kingdom
Valuation Allowance			(776	)			(1.9	)%
Other			(358	)			(0.9	)%
Japan
Effect of Rates Different than Statutory			1,388				3.4	%
Other			26				0.1	%
Singapore
Effect of Rates Different than Statutory			(5,381	)			(13.3	)%
Singapore Tax Credit			(621	)			(1.5	)%
Return To Provision			(1,068	)			(2.6	)%
Other			(60	)			(0.1	)%
Other foreign jurisdictions			(948	)			(2.3	)%
Effect of Cross-Boarder Tax Laws
Global intangible low-tax income			4,538				11.2	%
Changes in Valuation Allowances			4,260				10.5	%
Nontaxable or Nondeductible items
Share based compensation			(5,224	)			(12.9	)%
Executive compensation limitation			1,529				3.8	%
Other			412				1.0	%
Changes in Unrecognized Tax Benefits			(150	)			(0.4	)%
Other Adjustments
Return To Provision			167				0.4	%
Effective Tax Rate		$	5,381				13.3	%

 

During the year ended December 31, 2025, state taxes in District of Columbia and New York City comprised greater than 50% of the tax effect in this category.

 

For the years ended December 31, 2024 and 2023, the effective income tax rate differs from the statutory federal income tax rates as follows:

 

		Year Ended December 31,
		2024				2023
		(in thousands)
U.S. federal statutory tax rate		$	(5,124	)		$	(3,909	)
State and local income taxes, net			(2,419	)			(2,077	)
Stock-based compensation			(4,313	)			3,117
Executive compensation limitation			1,812				449
Fair value of earn-out liability			7,828				2,165
GILTI inclusion, net			3,903				1,940
Foreign-derived intangible income deduction			—				(1,534	)
Change in valuation allowance			3,866				1,794
Deferred rate change			(119	)			2,076
Foreign rate differential			(2,736	)			(1,107	)
Return-to-provision adjustments			2,095				274
Permanent differences			91				(343	)
Other, net			(141	)			42
Total		$	4,743			$	2,887

 

 

The Company’s effective tax rate differed from the U.S. federal statutory rate primarily due to mix of pre-tax income (loss) results by jurisdictions taxed at different rates than 21%, a permanent item recorded for stock-based compensation, and changes in valuation allowance in the U.S. and certain foreign jurisdictions.

 

Deferred income taxes are provided for the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Significant components of the Company’s deferred tax assets and (liabilities) are as follows:

 

		December 31,				December 31,
		2025				2024
		(in thousands)
Deferred Tax Assets:
Net operating loss carryforwards		$	7,076			$	7,881
Deferred revenue			4,472				3,834
Compensation and benefits			7,744				7,452
Research and development expenses			20,625				18,010
Lease liability			3,712				2,110
Other			2,893				475
Total Deferred Tax Assets			46,522				39,762
Less: Valuation allowance			(27,862	)			(25,808	)
Deferred Tax Assets, net			18,660				13,954
Deferred Tax Liabilities:
Property and equipment			(311	)			14
Amortization			(2,390	)			(2,026	)
Commissions			(13,167	)			(11,833	)
Unbilled receivable			(40	)			(204	)
Right-of-use assets			(3,552	)			(1,925	)
Total Deferred Tax Liabilities			(19,460	)			(15,974	)
Net Deferred Tax Liabilities		$	(800	)		$	(2,020	)

 

As of December 31, 2025, the Company had net operating loss (“NOL”) carryforwards for state and local income tax of approximately $49.0 million, which may offset future taxable income. The state NOL carryforwards expire beginning in 2026. The Company also has foreign NOL carryforwards of approximately $19.6 million, which will expire beginning in 2030 NOL carryforward periods vary from five years to indefinite. 

 

Cash paid for income taxes, net of refunds, were as follows:

 

		Year Ended December 31,
		2025
		(in thousands)
Foreign
Australia		$	1,456
China			415
Germany			3,518
Japan			500
Netherlands			450
Other			(75	)
Foreign Subtotal			6,264
US State and Local
Other			95
State Subtotal			95
Total cash paid for income taxes, net of refunds		$	6,359

 

 

Under the provisions of the Internal Revenue Code, the U.S. NOL carryforwards are subjected to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of a cumulative change in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. The Company may have experienced an ownership change prior to December 31, 2025, however, the Company does not believe its NOL carryforwards would be limited under IRC Section 382. The Company could experience an ownership change in the future which could limit the utilization of certain NOL carryforwards.

 

A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making this assessment, management considered all available positive and negative evidence, including the level of historical taxable income, future reversals of existing temporary differences, tax planning strategies, and projected future taxable income. On the basis of this evaluation, a valuation allowance of $27.9 million and $25.8 million was recorded as of December 31, 2025 and 2024, respectively, against certain jurisdictions’ net deferred tax assets for which it is more likely than not that the tax benefit will not be realized. The amount of the valuation allowance, however, could be reduced in the near term. The exact timing will be based on the level of profitability that we are able to achieve and our visibility into future results. Such a release would increase our effective tax rate in subsequent periods but would not affect cash paid for income taxes.

 

As of December 31, 2025, the Company did not provide any foreign withholding taxes related to its foreign subsidiaries’ undistributed earnings, as such earnings have been retained and are intended to be indefinitely reinvested to fund ongoing operations of the foreign subsidiaries. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings, because such tax, if any, is dependent upon circumstances existing if and when remittance occurs.

 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties is as follows:

 

		December 31,				December 31,				December 31,
		2025				2024				2023
		(in thousands)
Beginning balance		$	120			$	134			$	141
Expiration of applicable statute of limitations			(60	)			(14	)			(7	)
Ending balance		$	60			$	120			$	134

 

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. As of  December 31, 2025 and 2024, the Company had $0.1 million and $0.2 million, respectively, of accrued interest and penalties associated with unrecognized tax benefits. These amounts were included in other liabilities in their respective years. As of  December 31, 2025 and 2024, the total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was not material.

 

The Company files income tax returns in the U.S. federal jurisdiction, various state and foreign jurisdictions. The tax years 2021 through 2024 generally remain open for examination for federal, state and local tax purposes. The tax years 2015 through 2024 are open and subject to audit by foreign jurisdictions.