BeyondSpring Inc. Income Taxes Disclosure

6.	Income taxes

 

Cayman Islands

 

The Company is incorporated in the Cayman Islands and is not subject to income tax under the current laws of the Cayman Islands.

 

BVI

 

BeyondSpring Ltd., SEED Technology, BVI Biotech, SEED, and SEED LH Inc. are all incorporated in the BVI and are not subject to income tax under the current laws of the BVI.

 

U.S.

 

BeyondSpring US, SEED US, and SEED LH MG Inc. are incorporated in Delaware, the U.S. They are subject to statutory U.S. Federal corporate income tax at a rate of 21% for all years presented

 

Hong Kong

 

BeyondSpring HK is incorporated in Hong Kong. Companies registered in Hong Kong are subject to Hong Kong Profits Tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. BeyondSpring HK had no taxable income for all years presented and therefore, no provision for income taxes is required.

 

PRC

 

Wanchun Dalian, Wanchunbulin, Beijing Wanchun, and Wanchun Hongji are subject to the statutory tax rate of 25% in accordance with the PRC Enterprise Income Tax Law (“EIT Law”), which was effective since January 1, 2008. In accordance with the implementation rules of EIT Law, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years. An entity must file required supporting documents with the tax authority and ensure fulfillment of the relevant HNTE criteria before using the preferential rate. An entity could re-apply for the HNTE certificate when the prior certificate expires. Starting from 2022, Wanchunbulin is designated as the qualified HNTE and is subject to the preferential statutory tax rate of 15% for 3 years. In 2025, the tax rate of Wanchunbulin is 25%.

 

The components of loss (income) before income tax of continuing operations are as follows:

 

		2024				2025
		$				$
Cayman Islands			3,613				2,129
U.S.			2,023				3,023
PRC			975				596
BVI			2,158				2,877
Loss before income tax		$	8,769			$	8,625

 

Income tax expenses of continuing operations for the years ended December 31, 2024and 2025 are as follows:

 

		2024				2025
		$				$
Current income tax			(96	)			(90	)
Deferred income tax			-				-
Income tax expense			(96	)			(90	)

 

A reconciliation of the differences between income tax expenses and the amount computed by applying the U.S. Federal corporate income tax rate of 21% for the years of 2024 and 2025 are as follows. The U.S. statutory tax rate is being used as this is the jurisdiction of the primary operations:

 

		2024
		Amount $				Percent of Pretax Income
Loss before income tax			8,769
Expected income tax benefit		$	1,841				21.0	%
Tax rate differential			(1,138	)			-13.0	%
Non-deductible expenses			(20	)			-0.2	%
Research tax credits			(79	)			-0.9	%
Preferential rate			(166	)			-1.9	%
Current and deferred tax rate differences			147				1.7	%
Stock compensation expense-windfall			(44	)			-0.5	%
Research and development super-deduction			424				4.8	%
UTP - interest expense			(525	)			-6.0	%
Others			41				0.5	%
Changes in valuation allowance			(577	)			-6.6	%
Income tax expense			(96	)			-1.1	%

 

Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 2, Summary of Significant Accounting Policies, the reconciliation of the differences between income tax expenses and the amount computed by applying the U.S. Federal corporate income tax rate of 21% for the year ended December 31, 2025 was as follows:

 

		2025
		Amount				Percent of Pretax
		$				Income
Loss before income tax			8,625
Expected income tax benefit		$	1,811				21.0	%
Foreign tax effects
Cayman
Statutory tax rate difference between Cayman and United States			(447	)			-5.2	%
BVI
Statutory tax rate difference between BVI and United States			(604	)			-7.0	%
PRC
Statutory tax rate difference between PRC and United States			165				1.9	%
Statutory GAAP prior year adjustment			310				3.6	%
Research and development			442				5.1	%
Change in valuation allowance			(1,033	)			-12.0	%
Other			(9	)			-0.1	%
Nontaxable or non-deductible items
Stock Compensation Expense			(34	)			-0.4	%
Other			(9	)			0.1	%
Tax Credits
Research and development tax credits			86				1.0	%
Change in unrecognized tax benefits			(2,318	)			-26.9	%
Changes in valuation allowance			1,551				18.0	%
Income tax expense			(90	)			-1.0	%

 

Net deferred tax assets as of December 31, 2024 and 2025 consisted of the following:

 

		December 31, 2025
		2024				2025
		$				$
Deferred tax assets:
Net operating loss carryforward			28,181				29,675
Capitalization of R&D expense under PRC tax			6,729				6,749
Section 174 mandatory R&E capitalization			2,870				2,152
Share-based compensation			1,695				756
Deferred incentive compensation			15				19
Research tax credits			5,403				5,489
Lease liability obligation			124				71
Deferred revenue			6,075				5,652
Accruals and reserves			48				76
Deferred tax assets from discontinued operations			7,855				10,682
Total deferred tax assets			58,995				61,321
Deferred tax liabilities:
Depreciation			(29	)			(20	)
Unrealized gain/loss			(41	)			(68	)
Right of use lease assets			(108	)			(62	)
Deferred tax liabilities from discontinued operations			(1,005	)			(909	)
Total deferred tax liabilities			(1,183	)			(1,059	)
Total gross deferred tax assets			57,812				60,262
Less: valuation allowance			(57,812	)			(60,262	)
Net deferred tax assets			-				-

 

The Company operates through several subsidiaries and valuation allowances are considered for each of the subsidiaries on an individual basis. The Company recorded a valuation allowance against deferred tax assets of those subsidiaries that are individually in a three-year cumulative loss, or in a cumulative loss and not forecasting profits in the foreseeable future as of December 31, 2024 and 2025. As of December 31, 2025, the Company continues to assert indefinite reinvestment on the excess of the financial reporting bases over tax bases in the Company’s investments in foreign subsidiaries. A deferred tax liability of nil has not been established for the approximately nil of cumulative undistributed foreign earnings that may be subject to withholding taxes.

 

As of December 31, 2024 and 2025, the Company had gross net operating loss carryforwards of approximately $133,383 and $149,963, respectively. As of December 31, 2025, the Company had U.S. and PRC tax loss carryforwards of approximately $128,309 and $21,654, respectively. For losses incurred in the U.S. in years after December 31, 2017, the Tax Cuts and Jobs Act included a limitation on the deduction for net operating losses to 80% of current year taxable income and a provision where such losses can be carried forward indefinitely. $18,347 of loss carryforwards generated prior to 2018 are not limited in their current usage and can be carried forward for 20 years after the year they were generated and begin to expire in 2035. The Company has $5,489 R&D credits which begin to expire in 2040.

 

NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code (“IRC”). This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change. As a result of ownership changes in the Company from its inception through December 31, 2024, the Company’s NOL and tax credit carryforwards allocable to the periods preceding each such ownership change could be subject to limitations under IRC Section 382, however the Company has not yet completed an IRC Section 382 study.

 

As of December 31, 2024 and 2025, the Company had unrecognized tax benefits of $3,053 and $10,460, respectively. The gross unrecognized tax benefits for the years ended December 31, 2024 and 2025 were as follows:

 

		Year Ended December 31,
		2024				2025
			$				$
Beginning balance, as of January 1			3,194				3,053
Additions based on tax positions related to prior tax years			197				7,842
Reductions based on tax positions related to prior tax years			(434	)			(435	)
Additions based on tax positions related to current tax year			96				-
Ending balance, as of December 31
			3,053				10,460

 

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expenses. For the year ended December 31, 2021, the Company did not recognize interest and penalties accrued related to unrecognized tax benefits in income tax expenses. For the years end December 31, 2024 and 2025, the Company recognized $96 interest accrued and $193 reversal of interest expense related to unrecognized tax benefits in income tax expense. The Company had approximately $1,566 and $1,373 in accumulated accrued interest and penalties recorded in other current liabilities as of December 31, 2024 and 2025, respectively.

 

The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly change within the next 12 months, and the fluctuation in deferred taxes would essentially be offset by a valuation allowance. The Company’s subsidiaries in the U.S. and PRC filed income tax returns in the U.S. and PRC, respectively. For the entities in the U.S., the tax returns are subject to U.S. federal and state income tax examination by tax authorities for tax years beginning in 2022. For entities in the PRC, the tax returns for tax years after 2020 are open to examination by the PRC tax authorities.

 

The Company is currently under federal audit for the 2023 tax year for BeyondSpring US. The Company believes no material adjustments will result from this examination.