FIRST SOLAR, INC.FSLR

FIRST SOLAR, INC. Income Taxes Disclosure

10-KFiled Feb 24, 20269 min read
18. Income Taxes

In July 2025, the U.S. President signed the budget reconciliation legislation (House of Representatives 1, or “H.R.1”) into law, commonly referred to as the “One Big Beautiful Bill.” H.R.1 includes significant provisions, such as (i) the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, (ii) modifications to the international tax framework, and (iii) the restoration of favorable tax treatment for certain business provisions. H.R.1 has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The enactment of H.R.1. did not have a material impact on our consolidated financial statements.

The Inflation Reduction Act. In August 2022, the previous U.S. President signed into law the IRA, which revised U.S. tax law by, among other things, including a new CAMT of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing various incentives, including the introduction of the advanced manufacturing production credit under Section 45X of the IRC. The provisions of the IRA are generally effective for tax years beginning after 2022.

Pillar Two. In December 2021, the OECD released model rules for a new global minimum tax framework (“Pillar Two”). Certain governments in countries in which we operate have enacted local Pillar Two legislation, with effective dates between January 1, 2024 and January 1, 2025; such local legislation may also include qualified domestic minimum top-up tax and undertaxed profits rules. As these legislative changes develop and expand, we expect to continue to monitor the changes and evaluate their potential impact to our results of operations.

The U.S. and non-U.S. components of our income or loss before income taxes for the years ended December 31, 2025, 2024, and 2023 were as follows (in thousands):
 202520242023
U.S. income
$1,758,802 $1,217,274 $787,598 
Non-U.S. (loss) income
(177,889)189,064 103,692 
Income before taxes$1,580,913 $1,406,338 $891,290 

The components of our income tax expense or benefit for the years ended December 31, 2025, 2024, and 2023 were as follows (in thousands):
 202520242023
Current expense (benefit):
   
Federal$4,871 $64,108 $44,693 
State17,543 48,255 8,285 
Foreign(7,738)21,834 20,767 
Total current expense
14,676 134,197 73,745 
Deferred expense (benefit):
   
Federal24,240 (16,840)(23,390)
State6,081 (17,505)(1,413)
Foreign7,687 14,442 11,571 
Total deferred expense (benefit)
38,008 (19,903)(13,232)
Total income tax expense
$52,684 $114,294 $60,513 

Our Malaysian subsidiary has been granted a long-term tax holiday that expires in 2027. The tax holiday, which generally provides for a full exemption from Malaysian income tax, is conditional upon our continued compliance with certain employment and investment thresholds. We are currently in compliance with such thresholds.
Our Vietnamese subsidiary has been granted a long-term tax incentive that generally provides a full exemption from Vietnamese income tax through 2023, followed by reduced annual tax rates of 5% through 2032 and 10% through 2036. Such long-term tax incentive is conditional upon our continued compliance with certain revenue and R&D spending thresholds. We are currently in compliance with such thresholds.

During the year ended December 31, 2025, we incurred losses in Malaysia and Vietnam. As a result, we did not benefit from the tax holiday and tax incentive in this year.

The following table presents the differences between the provision for income taxes and the amounts computed at the federal statutory tax rate, by amount and percent, for the year ended December 31, 2025 (in thousands) after the adoption of ASU 2023-09:
 2025
 TaxPercent
U.S. federal statutory tax rate$331,992 21.0 %
State and local income taxes (1)18,356 1.2 %
Foreign tax effects
Malaysia
Effect of tax holidays23,595 1.5 %
Other615 — %
India
Changes in valuation allowance19,729 1.2 %
Other11,673 0.8 %
Other foreign jurisdictions4,243 0.3 %
Effect of cross-border tax laws3,035 0.2 %
Tax credits
Section 45X production credit(335,881)(21.2)%
U.S. foreign tax credits(20,493)(1.3)%
Other(9,795)(0.6)%
Changes in valuation allowance(4,071)(0.3)%
Non-taxable or non-deductible items1,982 0.1 %
Changes in unrecognized tax benefits5,485 0.3 %
Other adjustments2,219 0.1 %
Income tax expense$52,684 3.3 %
——————————
(1)Primarily includes income taxes for the State of California.
The following table presents the differences between the provision for income taxes and the amounts computed at the federal statutory tax rate, by amount and percent, for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 (in thousands):
 20242023
 TaxPercentTaxPercent
Statutory income tax expense$295,331 21.0 %$187,171 21.0 %
Changes in valuation allowance22,680 1.6 %10,873 1.2 %
GILTI inclusion16,174 1.2 %— — %
State tax, net of federal benefit14,850 1.1 %5,468 0.6 %
Change in tax contingency12,110 0.9 %9 — %
Non-deductible expenses (1)8,373 0.6 %20,283 2.3 %
OECD Pillar Two global minimum tax8,319 0.6 %— — %
Foreign dividend income4,774 0.3 %9,115 1.0 %
Foreign tax rate differential4,141 0.3 %1,018 0.1 %
Share-based compensation(5,760)(0.4)%(11,955)(1.4)%
Return to provision adjustments(6,804)(0.5)%(3,972)(0.4)%
Tax credits(21,909)(1.6)%(9,337)(1.0)%
Effect of tax holidays(29,180)(2.1)%(11,501)(1.3)%
Section 45X production credit(209,510)(14.9)%(138,546)(15.5)%
Other705 — %1,887 0.2 %
Reported income tax expense$114,294 8.1 %$60,513 6.8 %
——————————
(1)Includes, among other things, excess compensation for executive officers that is not deductible for tax purposes pursuant to Section 162(m) of the IRC.

The following table presents income taxes paid, net of refunds received, by jurisdiction for the year ended December 31, 2025 (in thousands):
 2025
U.S. federal$23,042 
U.S. state and local
California4,854 
Texas2,739 
South Carolina2,459 
Illinois2,458 
Other(521)
Total U.S. state and local11,989 
Foreign
     Vietnam12,647 
     Singapore(6,958)
     Other2,441 
Total foreign8,130 
Total income taxes paid, net$43,161 

During the years ended December 31, 2024 and 2023, we made net tax payments of $94.2 million and $90.9 million, respectively.
The following table reflects the effect of temporary differences that gave rise to the components of net deferred tax assets as of December 31, 2025 and 2024 (in thousands):
 20252024
Deferred tax assets:
Long-term contracts$325,721 $351,260 
Net operating losses304,853 163,408 
Capitalized research and development65,513 110,262 
Tax credits45,573 22,783 
Accrued expenses39,856 38,161 
Inventory31,388 50,283 
Compensation18,745 12,006 
Equity in earnings4,071 4,052 
Deferred expenses1,726 1,544 
Other40,956 31,650 
Deferred tax assets, gross878,402 785,409 
Valuation allowance(173,460)(167,866)
Deferred tax assets, net of valuation allowance704,942 617,543 
Deferred tax liabilities:
Property, plant and equipment(546,196)(439,545)
Investment in foreign subsidiaries(12,239)(9,799)
Acquisition accounting / basis difference(4,200)(4,170)
Restricted marketable securities and derivatives(2,370)(1,983)
Capitalized interest(1,363)(1,357)
Other(13,593)(6,577)
Deferred tax liabilities$(579,961)$(463,431)
Net deferred tax assets$124,981 $154,112 

We use the deferral method of accounting for investment tax credits under which the credits are recognized as reductions in the carrying value of the related assets. The use of the deferral method also results in a basis difference from the recognition of a deferred tax asset and an immediate income tax benefit for the future tax depreciation of the related assets. Such basis differences are accounted for pursuant to the income statement method.

The following table shows changes in the valuation allowance against our deferred tax assets during the years ended December 31, 2025, 2024, and 2023 (in thousands):
 202520242023
Valuation allowance, beginning of year$167,866 $149,424 $135,763 
Additions18,430 24,445 15,109 
Reversals(12,836)(6,003)(1,448)
Valuation allowance, end of year$173,460 $167,866 $149,424 

We maintained a valuation allowance of $173.5 million and $167.9 million as of December 31, 2025 and 2024, respectively, against certain of our deferred tax assets, as it is more likely than not that such amounts will not be fully realized. During the year ended December 31, 2025, the valuation allowance increased by $5.6 million primarily due to current year operating losses in certain jurisdictions, partially offset by the partial release of the valuation allowance in jurisdictions with current year operating income.
As of December 31, 2025, we had gross federal and gross aggregate state net operating loss carryforwards of $587.9 million and $752.5 million, respectively. As of December 31, 2024, we had gross federal and gross aggregate state net operating loss carryforwards of $6.2 million and $143.0 million, respectively. If not used, the federal net operating loss carryforwards incurred prior to 2018 will begin to expire in 2030, and the state net operating loss carryforwards will begin to expire in 2029. Federal net operating losses arising in tax years beginning in 2018 may be carried forward indefinitely, and the associated deduction is limited to 80% of taxable income. The utilization of our net operating loss carryforwards is also subject to an annual limitation under Section 382 of the IRC due to changes in ownership. Based on our analysis, we do not believe such limitation will impact our realization of the net operating loss carryforwards as we anticipate utilizing them prior to expiration.

As of December 31, 2025, we had U.S. foreign tax credit carryforwards of $38.8 million, and federal research and development credit carryforwards of $6.8 million. If not used, these credit carryforwards will begin to expire in 2035 and 2045, respectively.

The following table shows a reconciliation of the beginning and ending amounts of liabilities associated with uncertain tax positions for the years ended December 31, 2025, 2024, and 2023 (in thousands):
 202520242023
Unrecognized tax benefits, beginning of year$23,872 $16,723 $14,493 
Increases related to prior year tax positions573 1,007 2,516 
Decreases related to prior year tax positions(7,947)(651)(437)
Decreases relating to settlements with authorities
— (4,237)(2,122)
Increases related to current tax positions15,580 11,030 2,273 
Unrecognized tax benefits, end of year$32,078 $23,872 $16,723 

If recognized, $29.7 million of unrecognized tax benefits, excluding interest and penalties, would reduce our annual effective tax rate. Due to the uncertain and complex application of tax laws and regulations, it is possible that the ultimate resolution of uncertain tax positions may result in liabilities that could be materially different from these estimates. In such an event, we will record additional tax expense or benefit in the period in which such resolution occurs. Our policy is to recognize any interest and penalties that we may incur related to our tax positions as a component of income tax expense or benefit. During the year ended December 31, 2025, we recognized interest income of $2.7 million related to unrecognized tax benefits. During the years ended December 31, 2024 and 2023, we recognized interest and penalties of $0.3 million and $0.4 million, respectively, related to unrecognized tax benefits.

We are subject to audit by federal, state, local, and foreign tax authorities. We are currently under examination in India, Chile, the United States, and the States of Tennessee and Texas. We believe that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed by our tax examinations are not resolved in a manner consistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.

The following table summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the most significant jurisdictions in which we operate:
 Tax Years
Vietnam2015 - 2024
United States
2016 - 2018; 2020, 2022 - 2024
India
2017 - 2024
Singapore2020 - 2024
Malaysia2021 - 2024
In certain of the jurisdictions noted above, we operate through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, tax years are not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.
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Historical Timeline

Fiscal YearFiled
2025Feb 24, 2026Showing above
2024Feb 25, 2025
2023Feb 27, 2024
2022Feb 28, 2023
2021Mar 1, 2022
2020Feb 26, 2021
2019Feb 21, 2020
2018Feb 22, 2019
2017Feb 23, 2018
2016Feb 22, 2017
2015Feb 24, 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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