Borealis Foods Inc. Income Taxes Disclosure

5. Income Taxes

 

The Company accounts for income taxes using the liability method. Deferred income tax assets and liabilities are determined based on differences between the financial statement and income tax basis of the respective assets and liabilities, using enacted tax rates in effect for the years when the differences are expected to reverse.

 

Borealis is taxed under Canadian tax laws at a rate of 26.5%. Borealis does not file a consolidated tax return. PGF, PGF RE I, and PGF RE II (the “United States subsidiaries”) are taxed as C corporations, with a statutory rate of 21%.

 

(Loss) income before income tax expense (benefit) for the years ended December 31, 2025 and 2024 is as follows

 

		2025				2024
U.S. Income (Loss) before Tax		$	(11,997,676	)		$	(4,635,408	)
Foreign Income (Loss) before Tax			(7,048,667	)			(20,826,690	)
Total Income (Loss) Before Taxes		$	(19,046,343	)		$	(25,462,098	)

 

Our income (loss) from continuing operations before income taxes is as follows

 

		2025				2024
Continuing Operations pre-tax book income		$	(19,046,343	)		$	(25,462,098	)
Discontinued Operations pre-tax book income		$	-			$	-

 

The components of income tax provision (benefit) for the years ended December 31, 2025 and 2024 were as follows:

 

		For the Years Ended December 31,
		2025				2024
Current provision
Federal		$	-			$	(832	)
State			(13,987	)			(14,116	)
Foreign			-				43,540
Current benefit (provision) for income taxes		$	(13,987	)		$	28,592
Deferred provision
Federal		$	(2,021,580	)		$	(4,628,566	)
State			(379,524	)			(903,382	)
Foreign			(1,750,184	)			(891,677	)
Valuation allowance for unrealizable net deferred tax assets			4,231,985				6,529,934
Deferred benefit/(provision) for income taxes		$	80,697			$	106,309
Total benefit/(provision) for income taxes		$	66,710			$	134,901

The Company adopted ASU 2023-09 “Income Taxes (Topic 740): Improvements To Income Tax Disclosures” on a prospective basis beginning with the year ended December 31, 2025. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended December 31, 2025:

 

		For the Year Ended December 31, 2025
		Amount				Percent
U.S. federal statutory tax rate		$	(3,999,732	)			21.00	%
State income taxes, net of federal income tax effect		$	(391,090	)			2.05	%
Foreign tax effects		$	-				0.00	%
Canada		$	-				0.00	%
Statutory tax rate difference between Canada and United States		$	(363,246	)			1.91	%
Stock Options		$	93,223				(0.49)	%
Other Adjustments		$	59				0.00	%
Changes in valuation allowance		$	1,750,184				(9.19)	%
Changes in valuation allowance		$	2,481,801				(13.03)	%
Nontaxable or nondeductible items		$	-				0.00	%
Impairment Loss		$	402,645				(2.11)	%
Other Adjustments		$	3,494				(0.02)	%
Deferred tax true-ups		$	(44,048	)			0.23	%
Other adjustments		$	-				0.00	%
Other Effective tax rate - (Benefit)/provision		$	-				0.00	%
		$	(66,710	)			0.35	%

 

The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for the year ended December 31, 2024:

 

		2024
		Amount
Federal tax expense			21.00	%
State tax expense			3.23	%
Statutory tax rate difference between Puerto Rico and United States			(27.81	)%
Changes in valuation allowance			1.39	%
Other			1.77	%
Provision for income taxes			(0.42	)%

 

Significant components of the Company’s deferred tax assets are as follows:

 

		As of December 31,
Deferred tax assets:		2025				2024
Net operating losses carried forward		$	31,762,682			$	26,153,662
Other deferred tax assets			164,721				294,263
Total deferred tax assets		$	31,927,403			$	26,447,925
Deferred tax (liabilities):
Property, plant and equipment		$	(6,832,156	)		$	(5,663,837	)
Total deferred tax (liabilities)			(6,832,156	)			(5,663,837	)
Valuation allowance			(26,474,473	)			(22,244,011	)
Net deferred tax assets/(liabilities)		$	(1,379,226	)		$	(1,459,923	)

 

As of December 31, 2025 and 2024, the Company had a net operating loss carryforward for federal income tax purposes of $31,762,682 and $26,153,662, respectively, all of which have indefinite carryforward periods. As of December 31, 2025 and 2024, the Company had a net operating loss carryforward for state income tax purposes of $31,762,682 and $26,153,662, respectively, which will begin to expire in 2039. The Company has foreign net operating loss carryforwards of $4,343,723 and $2,592,992 as of December 31, 2025 and 2024, respectively, which expire beginning in 2039.

Management has established a valuation allowance against the deferred tax assets as management does not believe it is more likely than not that these assets will be realized. The Company’s valuation allowance decreased by approximately $4,230,462 from 2024 to 2025.

 

The Company complies with the provisions of ASC 740-10 in accounting for its uncertain tax positions. ASC 740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740-10 and therefore has not included a tabular roll forward of unrecognized tax benefits. As there are no uncertain tax positions recognized, interest and penalties have not been accrued.

 

The Company is subject to income tax in the United States, South Carolina and Canada. The Company has not been audited by any federal, state or foreign tax authorities in connection with income taxes.

 

The Company’s tax years December 31, 2019 through December 31, 2025 generally remain open to adjustment for all federal, state and foreign tax matters until its net operating loss and tax credit carryforwards are utilized or expire prior to utilization, and the applicable statutes of limitation have expired in the utilization year. The federal and state tax authorities can generally reduce a net operating loss (but not create taxable income) for a period outside the statute of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statute of limitations.

 

The Company recognizes interest accrued related to unrecognized tax benefits and penalties, if incurred, as a component of income tax expense.

 

The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025. The company made no state or foreign tax payments for the year ended December 31, 2025; therefore, no table is needed as a result of the adoption.

 

One Big Beautiful Bill

 

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”), which resulted in the extension of many provisions of the current tax law as well as other rule changes that could impact the Company’s tax provision in 2025 or 2026. Examples of the new tax law include the following:

 

●

Full expensing of U.S. research and development costs under Section 174A.

 

●

Retroactive expensing of unamortized U.S. research and development costs capitalized between 2022 and 2024; either all in 2025, or over two years in 2025 and 2026.

 

●

Return of the Section 163(j) taxable income base excluding the deductions for depreciation and amortization in 2025 (change from “Tax EBIT” to “Tax EBITDA”).

 

●

Decrease in the Section 250 deduction for Net CFC Tested Income (formerly GILTI) to 40% (from 50%) in 2026, instead of the scheduled decrease to 37.5% prior to the OBBBA.

 

●

Decrease in the Section 250 deduction for foreign-derived income to 33.34% (from 37.5%) in 2026, instead of the scheduled decrease to 21.875% prior to the OBBBA.

 

●

Increase in the foreign tax credit rate on Net CFC Tested Income (formerly GILTI) to 90% (from 80%), and a 10% disallowance on repatriation, in 2026.

 

●

Removal of the allocation of interest expense and research and development expense to Net CFC Tested Income (formerly GILTI) in calculating the foreign tax credit limitation, effective in 2026.

 

The Company has determined the legislation will not have a material impact on the Company’s financial statements.