EVERTEC, Inc.EVTC

EVERTEC, Inc. Income Taxes Disclosure

10-KFiled Mar 2, 202610 min read
Income Tax
EVERTEC Group and Holdings are Puerto Rico limited liability companies that are treated as partnerships that are pass-through entities for Puerto Rico tax purposes, therefore, taxable income flows through to EVERTEC, Inc. (the "Parent Company"). EVERTEC, Inc. is a Puerto Rico corporation for income tax purposes.

EVERTEC Group, Holdings and EVERTEC, Inc. entered into a Tax Payment Agreement pursuant to which EVERTEC Group is required to make certain payments to Holdings or EVERTEC, Inc. for taxable periods or portions thereof occurring on or after April 17, 2012 (the “Effective Date”). Under the Tax Payment Agreement, EVERTEC Group will make payments with respect to any and all taxes (including estimated taxes) imposed under the laws of Puerto Rico, the United States of America and any other jurisdiction or any political (including municipal) subdivision or authority or agency in Puerto Rico, the United States of America or such other jurisdiction, that would have been imposed on EVERTEC Group if EVERTEC Group had been a corporation for tax purposes of that jurisdiction, together with all interest and penalties with respect thereto (“Taxes”), reduced by taking into account any applicable net operating losses or other tax attributes of Holdings or EVERTEC, Inc. that reduce Holdings’ or EVERTEC, Inc.’s taxes in such period. The Tax Payment Agreement provides that the payments thereunder shall not exceed the net amount of Taxes that Holdings and EVERTEC, Inc. owe to the appropriate taxing authority for a taxable period. Further, the Tax Payment Agreement provides that if Holdings or EVERTEC, Inc. receives a tax refund attributable to any taxable period or portion thereof occurring on or after the Effective Date, EVERTEC, Inc. shall be required to recalculate the payment for such period required to be made by EVERTEC Group to Holdings or EVERTEC, Inc. If the payment, as recalculated, is less than the amount of the payment EVERTEC Group already made to Holdings or EVERTEC, Inc. in respect of such period, Holdings or EVERTEC, Inc. shall promptly make a payment to EVERTEC Group in the amount of such difference.
The components of income tax expense consisted of the following:
 Years ended December 31,
(In thousands)202520242023
Current tax provision $33,968 $31,573 $21,621 
Deferred tax benefit(24,153)(26,726)(16,144)
Income tax expense$9,815 $4,847 $5,477 
  
The Company conducts operations in Puerto Rico and certain countries in Latin America. As a result, the income tax expense includes the effect of taxes paid to the government of Puerto Rico as well as foreign jurisdictions. The following table presents the components of income tax expense and its segregation based on location of operations:
 Years ended December 31,
(In thousands)202520242023
Income before income tax provision
Puerto Rico$107,559 $94,287 $64,096 
United States6,732 683 627 
Foreign countries40,084 24,656 20,630 
Total income before income tax provision$154,375 $119,626 $85,353 
Current tax provision
Puerto Rico$5,515 $6,055 $3,187 
United States1,762 270 141 
Foreign countries26,691 25,248 18,293 
Total current tax provision$33,968 $31,573 $21,621 
Deferred tax (benefit) provision
Puerto Rico$(10,518)$(13,775)$(9,991)
United States(230)33 54 
Foreign countries(13,405)(12,984)(6,207)
Total deferred tax benefit$(24,153)$(26,726)$(16,144)

Taxes payable to foreign countries by EVERTEC’s subsidiaries will be paid by such subsidiary and the corresponding liability and expense are presented in EVERTEC’s consolidated financial statements.
As of December 31, 2025 and 2024, the Company had $205.8 million and $165.2 million of unremitted earnings from foreign subsidiaries, respectively. The Company has not recognized a deferred tax liability on undistributed earnings for the Company’s foreign subsidiaries because these earnings are intended to be indefinitely reinvested. The amount of the unrecognized deferred tax liability depends on judgment required to analyze the withholding tax due, the applicable tax law and factual circumstances in effect at the time of any such distributions. EVERTEC believes it is not practicable at this time to reliably determine the amount of unrecognized deferred tax liability related to the Company’s undistributed earnings. If circumstances change and it becomes apparent that some or all of the undistributed earnings of a subsidiary will be remitted, and income taxes have not been recognized by the parent entity, the parent entity shall accrue as an expense of the current period income taxes attributable to that remittance.

On October 19, 2012, EVERTEC Group was granted a tax exemption under the Tax Incentive Act No. 73 of 2008. Under this grant, EVERTEC Group will benefit from a preferential income tax rate on industrial development income, as well as from tax exemptions with respect to its municipal and property tax obligations for certain activities derived from its data processing operations in Puerto Rico. The grant has a term of 15 years effective as of January 1, 2012 with respect to income tax obligations and January 1, 2013 with respect to municipal and property tax obligations. Industrial development income under this grant is subject to a preferential rate of 4%.

The grant contains customary commitments, conditions, and representations that EVERTEC Group will be required to comply with in order to maintain the grant. The more significant commitments include: (i) maintaining at least 700 employees in EVERTEC Group's Puerto Rico data processing operations, (ii) investing at least $200.0 million in building, machinery, equipment or computer programs to be used in Puerto Rico during the effective term of the grant (to be made over four-year capital investment cycles in $50.0 million increments); and (iii) 80% of EVERTEC Group employees must be residents of Puerto Rico. Failure to meet the requirements could result, among other things, in reductions of the benefits of the grant or revocation of the grant in its entirety, which could result in EVERTEC, Inc. paying additional taxes or other payments relative to what would be required to pay to other municipal agencies if the full benefits of the grant are not available.

On October 11, 2011, Evertec Group was granted a tax exemption under Tax Incentive Law No. 73 of 2008, retroactively to December 1, 2009. Under this grant, activities derived from consulting and data processing services provided outside Puerto Rico are subject to a preferred rate that declines gradually from 7% to 4% by December 1, 2013. After this date, the rate remains at 4% until its expiration on November 30, 2024. In November 2024, prior to the expiration of the grant, EVERTEC submitted a request for renovation of the tax exemption decree under the current Puerto Rico Incentives Code, Act 60. The successful approval of the renewal request is expected to be received during 2026 retroactively to December 1, 2024.

In addition, in August 2018, the Puerto Rico Industrial Development Company approved the requested extension of a grant under Tax Incentive Law No. 135 of 1997 for EVERTEC Group. Under this grant, activities derived from certain development and installation service in excess of a determined income are subject to a fixed tax rate of 10% for a 10-year period from January 1, 2018.
The following table presents the components of the Company’s deferred tax assets and liabilities:
 December 31,
(In thousands)20252024
Deferred tax assets (“DTA”)
Allowance for doubtful accounts$509 $201 
Unearned income4,992 8,628 
Lease liability3,307 1,324 
Share-based compensation2,895 2,785 
Accrued liabilities12,583 9,419 
Derivative liability1,806 — 
Net operation losses66,102 43,219 
Other8,958 8,713 
Total gross deferred tax assets101,152 74,289 
Valuation allowance(4,705)(5,274)
Total deferred tax assets, net96,447 69,015 
Deferred tax liabilities (“DTL”)
Capitalized salaries2,551 2,486 
Difference between the assigned values and the tax basis of assets and liabilities recognized in business combinations120,188 67,298 
Right of use asset3,361 1,290 
Amortization of tax goodwill on business combination(8,646)5,193 
Other4,963 3,682 
Total gross deferred tax liabilities122,417 79,949 
Deferred tax liability, net$(25,970)$(10,934)

Pursuant to the provision of the PR Code, net operating losses (“NOL”) can be carried forward for a period of seven, ten or twelve taxable years, depending on the taxable year generated. Act 72 of May 29, 2015, limited the amount of NOLs deduction to 80% for regular tax and 70% for alternative minimum tax (“AMT”) for taxable years commencing after December 31, 2014. However, Act 257 of 2018 limits the deduction of NOLs to 90% for regular tax for tax years commencing after December 31, 2018. In the case of a partner's distributive share of partnership loss, including capital loss, it is limited to the adjusted basis of their interest in the partnership at the end of the partnership year in which the loss occurred. If a partner's share of the loss exceeds their adjusted basis, the excess loss is not deductible in the current year. Instead, this excess loss can be carried forward indefinitely and deducted in future years when the partner's adjusted basis increases, typically through additional contributions to the partnership or through partnership income.

At December 31, 2025, the Company has $95.3 million, $81.1 million and $9.8 million in NOL carryforwards related to Puerto Rico industrial development income, Brazil and other foreign countries, respectively, available to offset future eligible income. The NOL balance as of December 31, 2025 expires as follows:
(In thousands)
2027$531 
20281,489 
2030112 
20311,575 
2032255 
2033202 
20343,143 
2035513 
2036319 
20371,020 
Indefinitely177,095 

The Company recognizes the benefit of uncertain tax positions (“UTPs”) only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The following is a tabular reconciliation of the total amounts of UTPs:
 Years ended December 31,
(In thousands)202520242023
Balance, beginning of year$2,854 $5,902 $1,480 
Gross increases—tax positions in prior period1,207 — 70 
Gross decreases—tax positions in prior period— (758)— 
Gross increases—tax positions in current period— — 4,996 
Lapse of statute of limitations(1,111)(2,290)(644)
Balance, end of year$2,950 $2,854 $5,902 

As of December 31, 2025, 2024 and 2023, approximately $3.0 million, $2.9 million and $5.9 million, respectively, would have affected the Company’s effective income tax rate, if recognized.

The Company recognizes interest and penalties related to UTB as part of income tax expense. During the years ended December 31, 2025, 2024 and 2023, the Company recognized an income tax expense of $1.7 million, $0.7 million and $0.8 million, respectively, related to interest and penalties. The amount accrued for interest and penalties at December 31, 2025 and 2024 was $3.2 million and $2.9 million, respectively.

In connection with tax return examinations, contingencies can arise that generally result from different interpretations of tax laws and regulations as they pertain to the amount, timing or inclusion of revenues and expenses in taxable income, or the ability to utilize tax credits to reduce income taxes payable. While it is probable, based on the potential outcome of the Company’s Puerto Rico and foreign tax examinations or the statute of limitations for specific jurisdictions, that the liability for UTBs may increase or decrease within the next twelve months, the Company does not expect any such change would have a material effect on our financial condition, results of operations or cash flow.

The Company and its subsidiaries are subject to Puerto Rico income tax as well as income tax of multiple foreign jurisdictions. A significant majority of the income tax is from Puerto Rico, Costa Rica and Chile, while certain entities in Brazil have tax benefits resulting from the amortization of goodwill and other intangible assets for tax purposes. The income tax returns for 2021, 2022, 2023, and 2024 are currently open for examination for these jurisdictions, while 2018, 2019 and 2020 are also open for examination for Puerto Rico, and 2020 for Brazil.
A reconciliation of the provision for income taxes to the amount computed by applying the Puerto Rico statutory income tax rate of 37.5% to the income before income taxes after adoption of the ASU 2023-09 is as follows. The Company has elected to adopt ASU 2023-09 on a prospective basis.

Year ended December 31,
2025
(In thousands)Percentage
Puerto Rico statutory tax rate$57,891 37.50 %
Foreign tax effects
   Uruguay3,649 2.36 %
   Costa Rica3,168 2.05 %
   Brazil
      Permanent differences(3,528)(2.29)%
      Other(2,358)(1.53)%
   Other foreign jurisdictions(2,096)(1.36)%
Effect of changes in tax laws or rates enacted in the current period— — 
Effect of cross-border tax laws
   Withholding taxes— — %
Tax credits(624)(0.40)%
Changes in valuation allowances76 0.05 %
Nontaxable or nondeductible items
   Effect of income subject to tax-exemption grant(48,206)(31.23)%
   Other nontaxable or nondeductible items1,145 0.74 %
Changes in unrecognized tax benefits(1,573)(1.02)%
Other2,271 1.48 %
Total effective tax rate9,815 6.35 %

A reconciliation of the provision for income taxes to the amount computed by applying the Puerto Rico statutory income tax rate of 37.5% to the income before income taxes for years prior to the adoption of the ASU 2023-09 is as follows:
 Years ended December 31,
(In thousands)20242023
Computed income tax at statutory rates$44,859 $32,007 
Differences in tax rates due to multiple jurisdictions4,823 4,038 
Excess tax benefits on share-based compensation(502)(81)
Effect of income subject to tax-exemption grant(43,808)(30,123)
Unrecognized tax (benefit) expense (3,492)(1,083)
Tax credits for research and development activities— (884)
Valuation allowance— 2,194 
Other, net2,967 (591)
Income tax expense$4,847 $5,477 
The amounts of cash income taxes paid by the Company were as follows:
Year ended December 31,
2025
(In thousands)
Puerto Rico$6,114 
Foreign
   Brazil3,051 
    Chile10,461 
    Costa Rica8,143 
    Honduras2,227 
    Panama2,138 
    Other foreign jurisdictions4,769 
Total cash income taxes paid, net of amounts refunded$36,903 

The Company made cash income tax payments, net of refunds, of $24.6 million and $36.2 million during 2024, and 2023 respectively.

Historical Timeline

Fiscal YearFiled
2025Mar 2, 2026Showing above
2024Mar 3, 2025
2023Feb 29, 2024
2022Feb 24, 2023
2021Feb 25, 2022
2020Mar 1, 2021
2019Feb 27, 2020
2018Feb 26, 2019
2017Feb 28, 2018
2016Feb 24, 2017
2015May 26, 2016

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.

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