CEVA INC Income Taxes Disclosure

NOTE 14: TAXES ON INCOME

 

a. U.S. tax reform

 

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including but not limited to: a federal corporate rate reduction from 35% to 21%; creation of the base erosion anti-abuse tax (“BEAT”), introduction of the Global Intangible Low Taxed Income (“GILTI”) provisions; the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system; modifications to the allowance of net business interest expense deductions; modification of net operating loss provisions; changes to 162(m) limitation rules and bonus depreciation provisions. The change to a modified territorial tax system resulted in a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”), with future dividend distributions not subject to U.S. federal income tax when repatriated. A majority of the provisions in the Tax Act became effective January 1, 2018.

 

The Tax Act added a new code section 951A, which requires a U.S. shareholder of a Controlled Foreign Corporation (“CFC”) to include in current taxable income, its GILTI in a manner similar to Subpart F income. The statutory language also allows a deduction for corporate shareholders equal to 50% of the GILTI inclusion, which would be reduced to 37.5% starting in 2026. In general, GILTI imposes a tax on the net income of foreign corporate subsidiaries in excess of a deemed return on their tangible assets. The Company is subject to GILTI for 2018 and future periods. The Company is electing to account for the income tax effects of GILTI as a “period cost,” an income tax expenses in the year the tax is incurred.

 

For the fiscal year ended 2025, the Company operated at net losses before the GILTI inclusion and a taxable income position after and utilized deductions under Section 250 of the U.S. Internal Revenue Code and foreign tax credits to offset the tax liability, and did not pay additional U.S. federal cash taxes. GILTI is not expected to cause the company to be in a tax paying position for the current and future years.

 

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (“OBBBA”). For the year ending December 31, 2025, the OBBBA the law brought a return to 100% bonus depreciation, full expensing of domestic R&E costs, and modified Section 163(j) rules previously enacted by the TCJA. The law also brought changes related to the GILTI regime, which will now be called Net CFC Tested Income, a reduction of the Section 250 deduction from 50% to 40%, and the increase in allowable foreign tax credits. The non-domestic changes generally result in a slight increase in effective tax rate on certain foreign income, and take place for years ending after December 31, 2025. Ceva has implemented the domestic changes applicable to the year ending December 31, 2025, and will continue to analyze the impact on foreign changes for the year ending December 31, 2026. The adoption of the OBBBA did not have a material impact on the Company’s consolidated financial statements or related deferred tax balances.

 

b. A number of the Company’s operating subsidiaries are taxed at rates lower than U.S. rates.

 

1. Irish Subsidiaries

 

The Irish operating subsidiaries qualified for a 12.5% tax rate on its trade. Interest income earned by the Irish subsidiaries is taxed at a rate of 25%. As of December 31, 2025, the open tax years, subject to review by the applicable taxing authorities for the Irish subsidiaries, are 2020 and subsequent years.

 

2. Israeli Subsidiary

 

The company’s Israeli subsidiary has previously benefited from various Israeli tax incentives, including reduced corporate tax rates and, in some instances, exemptions on undistributed profits.

 

Management has determined that the tax‑exempt earnings of the Israeli subsidiary will be permanently reinvested, as there is currently no intention to distribute dividends. Therefore, deferred taxes have not been provided for such tax-exempt income. The Company intends to continue to reinvest these profits and does not currently foresee a need to distribute dividends out of such tax-exempt income.

 

 

 

In light of the Company's decision not to distribute a dividend in the coming year, no tax expenses were recognized in the tax year.

 

The balance of accumulated income that has not yet been thawed as of December 31, 2025 is 118,512 NIS (approximately $32,496). In addition, due to a lack of intention to distribute a dividend in a subsidiary that has imprisoned profits, the Company did not recognize as of December 31, 2025 a deferred tax liability against recognition of deferred tax expenses.

 

In 2023, 2024 and 2025, the standard rate of corporate income tax was 23%.

 

The Israeli subsidiary elected to compute taxable income in accordance with Income Tax Regulations (Rules for Accounting for Foreign Investors Companies and Certain Partnerships and Setting their Taxable Income), 1986. Accordingly, the taxable income or loss is calculated in U.S. dollars. Applying these regulations reduces the effect of the foreign exchange rate (of NIS against the U.S. dollar) on the Company’s Israeli taxable income.

 

As of December 31, 2025, the open tax years, subject to review by the applicable taxing authorities for the Israeli subsidiary, are 2021 and subsequent years.

 

3. French Subsidiary

 

The Company’s French subsidiary is entitled to a tax benefit of 10% applied to specific revenues under the French IP Box regime. The French IP Box regime applies to net income derived from the licensing, sublicensing or sale of several IP rights such as patents and copyrighted software, including royalty revenues. This elective regime requires a direct link between the income benefiting from the preferential treatment and the R&D expenditures incurred and contributing to that income. Qualifying income may be taxed at a favorable 10% CIT rate (plus social surtax, hence 10.3% in total).

 

Income not eligible for a tax benefit under the French IP Box regime is taxed at a regular rate, which was 25% in 2023, 2024 and 2025.

 

As of December 31, 2025, the open tax years subject to review by the applicable taxing authorities for the French subsidiary are 2023 and subsequent years.

 

c. Taxes on income comprised of:

 

		Year ended December 31,
		2023				2024				2025
Domestic taxes:*)
Current		$	(1,229	)		$	43			$	—
Deferred			4,429				—				—
Foreign taxes:
Current			7,668				6,057				4,893
Deferred			(636	)			(69	)			1,055
		$	10,232			$	6,031			$	5,948
Loss before taxes on income:
Domestic		$	(14,136	)		$	(11,081	)		$	(20,704	)
Foreign			5,931				8,326				16,014
		$	(8,205	)		$	(2,755	)		$	(4,690	)

 

*) Current taxes for the years ended December 31, 2023 and 2024 included federal taxes of $(1,108) and $33, respectively, and state taxes of $(121) and $10, respectively. The entire amount of deferred taxes for the year ended December 31, 2023 was related to federal taxes.

 

 

d. Reconciliation between the Company’s effective tax rate and the U.S. statutory rate.

 

The company adopted ASU 2023-09 for the year ended December 31, 2025, on a prospective basis. A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense as reported in the consolidated statements of loss is as follows (in thousands, except for percentages):

 

		Year ended December 31, 2025
		Amount				Percent
US federal statutory tax rate		$	(985	)			21	%
State and local income taxes, net of federal income tax effect *)			5				(0.1	)%
Foreign tax effects:
Israel
Statutory tax rate difference between Israel and the United States			(160	)			3.4	%
Foreign Tax Credit			(2,852	)			60.8	%
Changes in Valuation Allowances			4,332				(92.4	)%
Stock-based payments awards			370				(7.9	)%
Other adjustments			(509	)			10.9	%
France
Statutory tax rate difference between France and the United States			891				(19.0	)%
Intellectual Property "IP" Tax Regime			(2,189	)			46.7	%
Foreign Tax Credit			(1,984	)			42.3	%
Changes in Valuation Allowance			2,058				(43.9	)%
Foreign currencies financial expenses			(1,491	)			31.8	%
Research and development tax credits			(802	)			17.1	%
Other adjustments			(67	)			1.4	%
China
Statutory tax rate difference between China and the United States			193				(4.1	)%
Withholding Tax			4,298				(91.7	)%
South Korea
Withholding Tax			357				(7.6	)%
Taiwan
Withholding Tax			101				(2.2	)%
Japan
Withholding Tax			79				(1.7	)%
Other			44				(0.9	)%
Other Foreign Jurisdictions			63				(1.3	)%
Tax Credits:
Foreign Tax Credits			(501	)			10.7	%
Changes in Valuation Allowances:			714				(15.2	)%
Non-taxable or non-deductible items:
Stock-based payments awards			477				(10.2	)%
Effect of cross-border tax laws:
Global intangible low-taxed income inclusion			2,897				(61.8	)%
Subpart F Income			737				(15.7	)%
Other adjustments			44				(0.9	)%
Changes in unrecognized tax benefits			(172	)			3.7	%
Income tax expense		$	5,948				(126.8	)%

 

*) State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category

 

Reconciliation between the Company’s effective tax rate and the U.S. statutory rate prior to the adoption of ASU 2023-09:

 

		Year ended December 31,
		2023				2024
Loss before taxes on income		$	(8,205	)		$	(2,755	)
Theoretical tax at U.S. statutory rate			(1,723	)			(579	)
Foreign income taxes at rates other than U.S. rate			(3,313	)			(1,152	)
Subpart F			795				853
Non-deductible items			195				392
Non-taxable items			(527	)			(280	)
Taxes for prior years			(371	)			132
Stock-based compensation expense			1,131				609
Impacts of GILTI			1,877				1,877
Foreign withholding taxes			—				3,567
Changes in valuation allowance			13,034				(65	)
Other, net			(866	)			677
Taxes on income		$	10,232			$	6,031

 

e. Deferred taxes on income:

 

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

 

		As of December 31,
		2024				2025
Deferred tax assets
Carry forward losses		$	18,933			$	20,890
Accrued expenses and deferred revenues			2,285				2,166
Temporary differences related to R&D expenses			10,542				9,828
Equity-based compensation			7,609				9,574
Operating leases liabilities			1,163				3,570
Intangible assets			262				—
Carry forward credits			18,663				18,234
Other			882				1,236
Total gross deferred tax assets			60,339				65,498
Valuation allowance			(57,741	)			(61,685	)
Net deferred tax assets		$	2,598			$	3,813
Deferred tax liabilities
Intangible assets		$	—			$	(22	)
Operating leases right-of-use assets			(1,142	)			(3,534	)
Total deferred tax liabilities		$	(1,142	)		$	(3,556	)
Net deferred tax assets (*)		$	1,456			$	257

 

(*)	Net deferred taxes for the years ended December 31, 2024 and 2025 are all from foreign jurisdictions.

 

Changes in valuation allowances on deferred tax assets result from management's assessment of the Company's ability to utilize certain future tax deductions, operating losses and tax credit carryforwards prior to expiration. Valuation allowances were recorded to reduce deferred tax assets to an amount that will, more likely than not, be realized in the future.

 

During the year ended December 31, 2025, the Company recorded a valuation allowance for certain deferred tax assets of its French subsidiary. The Company concluded that, based on the weight of available positive and negative evidence, it was more likely than not that the deferred tax assets would not be recoverable due to uncertainty regarding the French subsidiary future taxable income. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included the Company’s current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences, as well as projections for future annual results. Accordingly, the Company recorded a charge of $1,016 for the year ended December 31, 2025, as a reserve against its deferred tax assets.

 

f. Uncertain tax positions:

 

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits based on the provisions of FASB ASC No. 740 is as follows:

 

		Year ended December 31,
		2024				2025
Beginning of year		$	462			$	462
Additions for current year tax positions			—				134
Reductions for prior year’s tax positions			—				(306	)
Balance at December 31		$	462			$	290

 

As of December 31, 2024 and 2025, there were $462 and $290, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The Company accrued interest in the amount of $85 and $0 relating to unrecognized tax benefits in its provision for income taxes during the year ended December 31, 2024 and 2025, respectively. Accrued penalties were immaterial for the years ended December 31, 2025, 2024 and 2023.

 

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. The Company does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which are difficult to estimate.

 

g. Tax loss carryforwards:

 

As of December 31, 2025, Ceva and its subsidiaries had no remaining net operating loss carryforwards for federal income tax purposes. As of December 31, 2025, Ceva and its subsidiaries had net operating loss carryforwards for various state income tax purposes of approximately $3,150 which are available to offset taxable income. Such loss carryforwards have an indefinite life.

 

As of December 31, 2025, Ceva’s Irish subsidiary had foreign operating losses of approximately $47,897, which are available to offset future taxable income indefinitely.

 

As of December 31, 2025, Ceva’s Israeli subsidiary had foreign operating losses of approximately $43,498, which are available to offset future taxable income indefinitely.

 

h. Tax returns:

 

Ceva files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. With few exceptions, Ceva is no longer subject to U.S. federal income tax examinations by tax authorities, and state and local income tax examinations, for the years prior to 2022.

 

 

i. Income tax payment:

 

Pursuant to the disclosure requirements of ASU 2023-09, below is a summary of income taxes paid, net of refunds received, by jurisdiction for the year ended December 31,2025:

 

		Year ended December 31,
		2025
Cash taxes paid (refunds received)
Federal income taxes		$	—
State and local income taxes			(98	)
Foreign income taxes:
China			4,557
France			(1,241	)
Ireland			252
South Korea			356
Other foreign jurisdictions			356
Total cash paid for income taxes, net of refunds		$	4,182