BENTLEY SYSTEMS INCBSY
BENTLEY SYSTEMS INC Income Taxes Disclosure
Income Taxes
The components of Income before income taxes consist of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 160,489 | $ | 118,624 | $ | 16,652 | |||||||||||
| Foreign | 190,244 | 174,431 | 166,875 | ||||||||||||||
Income before income taxes | $ | 350,733 | $ | 293,055 | $ | 183,527 | |||||||||||
The (Provision) benefit for income taxes consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (4,940) | $ | (7,194) | $ | (12,899) | |||||||||||
| State | (1,831) | (2,674) | (2,567) | ||||||||||||||
| Foreign | (41,873) | (36,287) | (40,171) | ||||||||||||||
| (48,644) | (46,155) | (55,637) | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (18,940) | (7,627) | 134,516 | ||||||||||||||
| State | (5,399) | (4,057) | 29,514 | ||||||||||||||
| Foreign | 6 | (887) | 34,848 | ||||||||||||||
| (24,333) | (12,571) | 198,878 | |||||||||||||||
(Provision) benefit for income taxes | $ | (72,977) | $ | (58,726) | $ | 143,241 | |||||||||||
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate after the adoption of ASU 2023‑09 (see Note 2) is as follows:
Year Ended December 31, 2025 | |||||||||||
| $ | % | ||||||||||
| U.S. federal statutory income tax rate | $ | 73,654 | 21.0 | % | |||||||
| U.S. federal: | |||||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Stock-based compensation | (18,673) | (5.3) | |||||||||
| Nondeductible officer compensation | 14,151 | 4.0 | |||||||||
| Other | 324 | 0.1 | |||||||||
| Tax credits | (4,958) | (1.4) | |||||||||
| Other adjustments | (958) | (0.3) | |||||||||
State and local income tax, net of U.S. federal income tax effect (1) | 5,712 | 1.6 | |||||||||
| Foreign tax effects: | |||||||||||
| Ireland: | |||||||||||
| Foreign tax rate differential | (11,516) | (3.3) | |||||||||
| Other | (1,029) | (0.3) | |||||||||
| Other foreign jurisdictions | 16,270 | 4.7 | |||||||||
| Effective tax rate | $ | 72,977 | 20.8 | % | |||||||
(1)New York state and city, California, Oregon, and Pennsylvania represent the majority of the tax effect in this category.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate prior to the adoption of ASU 2023‑09 (see Note 2) is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| State and local income tax, net of U.S. federal income tax effect | 2.1 | (0.3) | |||||||||
| Stock-based compensation | (16.0) | (22.9) | |||||||||
| Nondeductible officer compensation | 14.1 | 14.9 | |||||||||
| Tax credits | (3.0) | (5.8) | |||||||||
| Withholding taxes | 3.4 | 4.9 | |||||||||
| Foreign tax rate differential | (3.3) | (3.0) | |||||||||
| U.S. net tax on foreign earnings | 0.5 | 4.2 | |||||||||
| Tax impact of internal legal entity restructuring | — | (93.1) | |||||||||
| Other | 1.2 | 2.1 | |||||||||
| Effective tax rate | 20.0 | % | (78.0 | %) | |||||||
For the year ended December 31, 2025, the effective tax rate was higher as compared to the year ended December 31, 2024 primarily due to the decrease in tax benefits related to stock‑based compensation, net of the impact from officer compensation limitation provisions, recognized in the current year. For the year ended December 31, 2024, the effective tax rate was higher as compared to the year ended December 31, 2023 primarily due to the tax benefit recognized as a result of the internal legal entity restructuring during the fourth quarter of 2023 described below, as well as a decrease in tax benefits related to stock‑based compensation, net of the impact from officer compensation limitation provisions, partially offset by the decrease in the adverse effective tax rate impact of the net tax on foreign earnings. The decrease in net tax on foreign earnings is primarily related to increased foreign creditable taxes available to reduce the net impact of the U.S. Global Intangible Low-Taxed Income (“GILTI”) inclusion.
On July 4, 2025, President Trump signed into law the OBBBA. The OBBBA includes the permanent extension of certain expiring provisions of the JOBS Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates. The OBBBA had a favorable impact on the Company’s cash paid for income taxes in 2025, primarily attributable to the change in restoring immediate U.S. tax deductions for domestic research and development expenses. The OBBBA did not have a material impact on the effective tax rate for the year ended December 31, 2025.
During the fourth quarter of 2023, the Company recognized a net income tax benefit of $170,784 attributable to internal legal entity restructuring and related intra-entity transactions as part of its continuing efforts to align intellectual property ownership with the Company’s business operating model. These transactions resulted in the recognition of deferred tax benefits arising from the net increase in deferred tax assets related to intangibles and goodwill of $171,622. As of December 31, 2023, the deferred tax assets represented the undiscounted future anticipated cash tax impacts of basis differences, which were expected to be realized through tax amortization over the next 13 years, beginning in 2024. The benefit of the internal legal entity restructuring was partially offset by an increase in the effective tax rate impact of the GILTI inclusion due to the mandatory capitalization of research and development expenses for U.S. tax purposes and a decrease in tax benefits related to stock‑based compensation, net of the impact from officer compensation limitation provisions, recognized during the year ended December 31, 2023.
The Company has elected the “period cost method” and treats taxes due on future U.S. inclusions in taxable income related to Net Controlled Foreign Corporation Tested Income, formerly known as GILTI, as a current‑period expense when incurred.
Cash paid for income taxes, net of refunds, after the adoption of ASU 2023‑09 (see Note 2) was as follows:
Year Ended | |||||
December 31, | |||||
| 2025 | |||||
| U.S. federal | $ | 10,495 | |||
| U.S. state and local | 4,402 | ||||
| Foreign: | |||||
| Ireland | 22,544 | ||||
| India | 4,486 | ||||
| Brazil | 2,608 | ||||
| All other foreign | 7,042 | ||||
Cash paid for income taxes, net of refunds (1) | $ | 51,577 | |||
(1)Cash paid for income taxes, net of refunds, excludes $7,518 of third‑party withholding taxes.
The following is a summary of the significant components of the Company’s deferred tax assets and liabilities:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Accrued compensation | $ | 31,072 | $ | 32,875 | |||||||
Tax loss and credit carryforwards | 18,775 | 19,679 | |||||||||
| Intangible assets including goodwill | 118,038 | 142,293 | |||||||||
| Convertible debt | 4,014 | 5,281 | |||||||||
| Lease liabilities | 5,451 | 5,810 | |||||||||
| Other accruals not currently deductible | 1,091 | 1,294 | |||||||||
| Allowance for doubtful accounts | 787 | 1,048 | |||||||||
| Deferred revenues | 3,273 | 1,899 | |||||||||
| Other | 2,197 | 581 | |||||||||
| Total deferred tax assets | 184,698 | 210,760 | |||||||||
| Less: Valuation allowance | (6,411) | (4,474) | |||||||||
| Net deferred tax assets | 178,287 | 206,286 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use assets | (4,314) | (4,607) | |||||||||
| Prepaid expenses | (1,132) | (714) | |||||||||
| Unrealized gains and losses | (4,088) | (8,522) | |||||||||
| Property and equipment | (2,753) | (2,769) | |||||||||
| Total deferred tax liabilities | (12,287) | (16,612) | |||||||||
| Net deferred tax assets (liabilities) | $ | 166,000 | $ | 189,674 | |||||||
The Company recognizes deferred income tax assets and liabilities for the expected future tax consequences of NOL carryforwards, credit carryforwards, and temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, using enacted tax rates in effect for the year in which the items are expected to reverse.
The Company had deferred tax assets for tax credits and NOLs, net of unrecognized tax positions, primarily related to:
| Jurisdiction: | December 31, 2025 | Begin to Expire | |||||||||
| U.S. Federal NOL | $ | 4,463 | 2034 | ||||||||
| U.S. Federal research and development credits | $ | 60 | 2039 | ||||||||
| U.S. Federal foreign tax credits | $ | 254 | 2028 | ||||||||
| U.S. State NOL | $ | 1,473 | 2026 | ||||||||
| U.S. State research and development credits | $ | 1,237 | 2029 | ||||||||
| U.K. NOL | $ | 2,814 | Indefinite | ||||||||
| U.K. research and development credits | $ | 340 | Indefinite | ||||||||
| Canadian research and development credit | $ | 1,274 | 2030 | ||||||||
As of December 31, 2025 and 2024, the Company has a valuation allowance recorded against net deferred tax assets related to NOLs and tax attributes in certain jurisdictions of $6,411 and $4,474, respectively. During the year ended December 31, 2025, the Company increased the valuation allowance by $1,937, which was primarily related to taxable losses in various foreign jurisdictions. A valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company assesses the available positive and negative evidence to estimate whether the existing deferred tax assets will be realized.
The Company has provided for any applicable income taxes associated with current year distributions, as well as any earnings that are expected to be distributed in the future, in the calculation of the income tax provision. No additional provision has been made for U.S. and non‑U.S. income taxes on the undistributed earnings of subsidiaries that are expected to be indefinitely reinvested. A liability could arise if the Company’s intention to indefinitely reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. The potential tax implications of unremitted earnings are driven by the facts at the time of the distribution. It is not practicable to estimate the additional income taxes related to indefinitely reinvested earnings or the basis differences related to investments in subsidiaries.
The following is a reconciliation of the changes in gross unrecognized tax benefits:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Gross unrecognized tax benefits, beginning of year | $ | — | $ | 466 | $ | 910 | |||||||||||
| Increases for tax positions of prior years | — | — | 12 | ||||||||||||||
| Decreases for tax positions of prior years | — | (26) | (9) | ||||||||||||||
| Increases for tax positions related to the current year | — | — | — | ||||||||||||||
| Decreases relating to settlements with taxing authorities | — | (382) | — | ||||||||||||||
| Reductions as a result of lapse of the statute of limitations | — | (58) | (447) | ||||||||||||||
| Gross unrecognized tax benefits, end of year | $ | — | $ | — | $ | 466 | |||||||||||
As of December 31, 2025, 2024, and 2023, the Company had total unrecognized tax benefits including interest and penalties of $0, $0, and $557, respectively, of which $0, $0, and $554, respectively, would impact the Company’s effective tax rate if recognized. Interest expense and penalties related to unrecognized tax benefits included in the (Provision) benefit for income taxes were $0, $91, $194 for the years ended December 31, 2025, 2024, and 2023, respectively. The cumulative accrued interest and penalties related to unrecognized tax benefits were $0, $0, and $91 as of December 31, 2025, 2024, and 2023, respectively.
The Company is subject to income tax in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax‑related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite its belief that the Company’s tax return positions are fully supportable. The tax benefit recognized is based on the largest amount that is greater than 50 percent likely of being realized upon ultimate settlement. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The (Provision) benefit for income taxes in the consolidated statements of operations includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company records accrued interest and/or penalties, where applicable, related to unrecognized tax benefits as part of the (Provision) benefit for income taxes in the consolidated statements of operations.
The Company is currently under audit in the U.K. for years 2018 through 2023, in Ireland for year 2023, and in Canada for years 2019 through 2024. In addition, the Company is under audit in various other foreign taxing jurisdictions that are not material to the consolidated financial statements. The Company’s U.S. consolidated federal income tax returns for years 2022 through 2025 may be subject to examination by the Internal Revenue Service. The Company also may be subject to examination by other significant jurisdictions, including the Inland Revenue Department for New Zealand Tax purposes for years 2020 through 2025.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) adopted model rules to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as “Pillar 2”). The OECD has continued to issue administrative guidance and interpretations regarding the Pillar 2 rules. A number of E.U. and G20 member nations, including locations where the Company currently has operations, are at various stages in the process of enacting tax legislation to incorporate aspects of the Pillar 2 rules. For countries that have adopted the model rules, certain aspects of the Pillar 2 rules became effective in 2024 and 2025, while other aspects are expected to become effective in 2026 and beyond. Due to the uncertainty regarding which countries will enact Pillar 2 legislation and in what form the legislation will be adopted, as well as uncertainty regarding the timing of individual country legislative action and the underlying complexity of the rules, the Company is still assessing the impact, if any, of the Pillar 2 legislation. Pillar 2 legislation did not have a material impact on the (Provision) benefit for income taxes in the consolidated statements for the years ended December 31, 2025 or 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 2, 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.