ESTABLISHMENT LABS HOLDINGS INC.ESTA
ESTABLISHMENT LABS HOLDINGS INC. Income Taxes Disclosure
Income Taxes
Effective January 1, 2025, the Company adopted ASU 2023‑09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under the transition provisions, the amendments are applied prospectively for public business entities for annual periods beginning after December 15, 2024. Upon adoption, the Company is required to present an expanded, tabular effective tax rate reconciliation that includes both dollar amounts and percentage‑point effects and is disaggregated into specified categories, with any reconciling item equal to or exceeding 5% of expected tax presented separately by nature or jurisdiction. The Company is also required to disclose income taxes paid (net of refunds received), disaggregated into U.S. federal, U.S. state and local, and foreign amounts, with separate disclosure of any individual jurisdiction that represents 5% or more of total cash taxes paid. Consistent with the prospective transition guidance, these enhanced disclosures are presented for the year ended December 31, 2025 only, while prior periods continue to be presented under the income tax disclosure requirements that were in effect for those periods.
For the year ended December 31, loss before income tax consisted of the following:
2025 | |||||
| (in thousands) | |||||
| Costa Rica operations | $ | (24,542) | |||
U.S. operations | 2,792 | ||||
Other foreign operations | (36,272) | ||||
| Total loss before income taxes | $ | (58,022) | |||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Costa Rica operations | $ | (60,665) | $ | (13,556) | |||||||
| Non-Costa Rica operations | (23,963) | (65,027) | |||||||||
| Total loss before income taxes | $ | (84,628) | $ | (78,583) | |||||||
For the year ended December 31, the income tax benefit consisted of the following:
2025 | |||||
| (in thousands) | |||||
| Current: | |||||
| Costa Rica | $ | 112 | |||
United States | 270 | ||||
Other foreign | 2,095 | ||||
| Total current | 2,477 | ||||
| Deferred: | |||||
| Costa Rica | — | ||||
United States | (8,790) | ||||
Other foreign | (645) | ||||
| Total deferred | (9,435) | ||||
Total benefit for income taxes | $ | (6,958) | |||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Current: | |||||||||||
| Costa Rica | $ | 183 | $ | 297 | |||||||
| Non-Costa Rica | 1,963 | 3,328 | |||||||||
| Total current | 2,146 | 3,625 | |||||||||
| Deferred: | |||||||||||
| Costa Rica | — | — | |||||||||
| Non-Costa Rica | (2,178) | (3,706) | |||||||||
| Total deferred | (2,178) | (3,706) | |||||||||
| Total (benefit) provision for income taxes | $ | (32) | $ | (81) | |||||||
The items accounting for the difference between income taxes computed at the Costa Rica statutory income tax
rate and the income tax benefit consisted of the following for the year ended December 31:
Year Ended December 31, | |||||||||||
2025 | |||||||||||
| (in thousands) | |||||||||||
| Tax benefit at Costa Rica statutory rate | $ | (17,406) | 30.0 | % | |||||||
State and local income taxes, net of federal (national) tax effects | — | — | |||||||||
Foreign tax effects | |||||||||||
United States | |||||||||||
Valuation allowance release | (9,384) | 16.2 | |||||||||
Other | 27 | — | |||||||||
BVI | |||||||||||
Foreign tax rate differential | 12,283 | (21.2) | |||||||||
Other foreign jurisdictions | |||||||||||
| Other | 49 | (0.1) | |||||||||
Effect of change in tax law or rates (Costa Rica) | — | — | |||||||||
| Tax credits | — | — | |||||||||
Changes in valuation allowance | — | — | |||||||||
Nontaxable or nondeductible items | |||||||||||
Costa Rica tax holiday benefit | 7,473 | (12.9) | |||||||||
| Total benefit for income taxes | $ | (6,958) | 12.0 | % | |||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Tax benefit at Costa Rica statutory rate | $ | (25,388) | 30.0 | % | $ | (23,575) | 30.0 | % | |||||||||||||||
| Foreign tax rate differential | 7,166 | (8.5) | 18,070 | (22.9) | |||||||||||||||||||
| Tax rate changes | (446) | 0.5 | (7) | — | |||||||||||||||||||
| Return to provision adjustment | (561) | 0.7 | (539) | 0.7 | |||||||||||||||||||
| Tax credits | — | — | — | — | |||||||||||||||||||
| Change in valuation allowance | (14,157) | 16.7 | 438 | (0.6) | |||||||||||||||||||
| Tax holiday adjustment (benefit) | 18,373 | (21.7) | 4,386 | (5.6) | |||||||||||||||||||
| U.S. stock compensation | 227 | (0.3) | 984 | (1.3) | |||||||||||||||||||
Prior year true-up | 14,744 | (17.4) | — | — | |||||||||||||||||||
| Other | 10 | — | 162 | (0.2) | |||||||||||||||||||
| Total provision (benefit) for income taxes | $ | (32) | — | % | $ | (81) | 0.1 | % | |||||||||||||||
The Company’s tax holiday benefit was related to the Company’s subsidiary in Costa Rica which enjoyed a zero percent tax rate, with the exception of certain types of income, for the years ended December 31, 2025, 2024 and 2023. The zero percent tax holiday, as extended, is effective for a period of 12 years through the year 2030.
During 2025, the Company concluded that the U.S. deferred tax assets of Motiva USA LLC are
more‑likely‑than‑not realizable based on achieving a three‑year cumulative income position and updated forecasts of future taxable income. As a result, the Company released the full U.S. valuation allowance, generating a discrete deferred tax benefit of approximately $9.4 million, which is presented above as a separate reconciling item in accordance with ASU 2023‑09.
For the year ended December 31, income taxes paid consisted of the following:
2025 | |||||
| (in thousands) | |||||
| Costa Rica | 93 | ||||
Foreign – by jurisdiction ≥5%: | |||||
| U.S. federal | 78 | ||||
| U.S. state and local | — | ||||
| Spain | 83 | ||||
Sweden | 29 | ||||
| Germany | 57 | ||||
| France | 55 | ||||
| Italy | 21 | ||||
| Belgium | — | ||||
| Foreign – all other jurisdictions | 4 | ||||
Total cash paid for income taxes | $ | 420 | |||
As of December 31, the components of the Company’s deferred tax assets and liabilities are as follows:
2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Accruals and reserves | $ | 345 | $ | 563 | |||||||
Fixed assets | (1,284) | (1,036) | |||||||||
| Intangibles | 116 | 105 | |||||||||
| Stock compensation | 4,613 | 3,763 | |||||||||
| Net operating loss | 9,247 | 10,742 | |||||||||
| R&D credits | 325 | 325 | |||||||||
Allowance for credit losses | 1,653 | 593 | |||||||||
| Other | 97 | 56 | |||||||||
| Valuation allowance | — | (9,223) | |||||||||
| Total net deferred tax assets (included in “Other non-current assets”) | $ | 15,112 | $ | 5,888 | |||||||
As of December 31, 2025, the Company released the full valuation allowance previously recorded against the deferred tax assets of Motiva USA LLC. This determination was based on the subsidiary’s achievement of a three‑year cumulative pretax income position, sustained operating improvements, and management’s supportable forecast of future taxable income, which together provided sufficient positive evidence under ASC 740 to outweigh the negative evidence of historical losses. The release resulted in a non‑cash deferred tax benefit of
approximately $9.4 million, recognized as a discrete item within income tax expense and presented separately in the effective tax rate reconciliation. Following the release, the valuation allowance balance at December 31, 2025 was $0.
As of December 31, 2025, the Company had U.S. federal and California research and development credit carryforwards totaling approximately $0.5 million. Federal research credits begin to expire in 2037, while California research credits may be carried forward indefinitely. At December 31, 2025, the Company also had net operating loss carryforwards of approximately $21.4 million for U.S. federal purposes, $11.1 million for U.S. state purposes, $1.5 million in Argentina, and $10.6 million in Brazil. U.S. federal NOLs generated in tax years beginning after 2017 may be carried forward indefinitely, subject to an annual limitation on deductibility. Certain U.S. state NOLs generated prior to 2018 will begin to expire in 2030. Brazil NOLs may be carried forward indefinitely, subject to annual deductibility limits.
During the year ended December 31, 2024, the Company recorded an $80 million intercompany true‑up adjustment related to transfer‑pricing corrections for prior years, which reduced the U.S. federal NOL position and increased taxable income in Costa Rica. This adjustment was offset by the valuation allowance and therefore did not affect the 2024 income tax provision. Because Motiva USA had no sales prior to 2024 and therefore negligible state apportionment in most jurisdictions, the state income tax impact of this adjustment was minimal.
The utilization of U.S. federal and state NOLs and credit carryforwards may be limited under Internal Revenue Code Sections 382 and 383 in the event of an “ownership change.” An ownership change generally occurs when the percentage of the Company’s stock owned by one or more “five‑percent shareholders” increases by more than 50 percentage points over a rolling three‑year testing period. Based on the Company’s evaluation to date, management does not believe an ownership change has occurred that would materially limit the Company’s ability to utilize its tax attributes; however, the Company has not completed a formal Section 382/383 analysis. Future changes in ownership, some of which may be outside the Company’s control, could result in such limitations, and the Company cannot provide assurance that all existing tax attributes will be fully available for use.
The Company continues to benefit from a tax holiday in Costa Rica, under which qualifying income is taxed at a 0% rate through December 31, 2030, subject to ongoing compliance with the regime’s requirements. As a result of the tax holiday, income that would otherwise have been taxed at the Costa Rica statutory rate generates no current tax expense. The tax holiday reduced income tax expense by approximately $7.5 million in 2025 and $18.4 million in 2024. If the Company fails to maintain eligibility, income generated in Costa Rica could become subject to the statutory rate, which could materially increase the Company’s tax expense.
The Company operates in multiple jurisdictions and is subject to examination by U.S. and foreign tax authorities. Tax authorities may challenge the Company’s tax positions, including the characterization of intercompany transactions, transfer‑pricing policies, and other positions involving judgment under applicable tax laws. An adverse resolution of any examination could result in additional tax liabilities, interest and penalties, and could materially affect the Company’s results of operations. The Company’s determination of its worldwide provision for income taxes requires significant judgment, and the ultimate tax determination for many transactions may be uncertain.
Accounting for Uncertainty in Income Taxes
The Company recognizes uncertain tax positions in accordance with ASC 740‑10. As of December 31, 2025 and 2024, the Company had no unrecognized tax benefits. No interest or penalties were accrued or recognized during the periods presented, and no material changes to unrecognized tax positions are expected within the next 12 months.
As of December 31, 2025, the Company is subject to taxation in Costa Rica, Belgium, France, Brazil, the United Kingdom, Sweden, Italy, Germany, Austria, Spain, Argentina, Switzerland, the Netherlands, and the United States. Fiscal years 2019 through 2025 remain open to examination in these jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Mar 4, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 15, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 20, 2019 | |
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.