Gain Therapeutics, Inc. Income Taxes Disclosure

16. Income Taxes

The Company is subject to taxation in the U.S., Switzerland, Spain and Australia. Taxes are recorded on an accrual basis and represent the allowances for taxes paid or to be paid for the year, calculated according to the current enacted rates and applicable laws. The Company has accumulated net tax losses since inception in Switzerland and in the U.S. The Company reports a provision for income taxes due to the Spanish and Australian tax authorities pertaining to our subsidiaries Gain Therapeutics Sucursal en España and Gain Therapeutics Australia PTY LTD, respectively.

For financial reporting purposes, loss before income tax provision includes the following components:

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The following is the breakdown of the components of income tax expense provision for the years ended December 31, 2025 and 2024:

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The breakdown of domestic and foreign net operating losses (“NOLs”) and related deferred tax assets are reported in the following table:

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Foreign NOLs refer to the Company’s Swiss subsidiary and according to Swiss tax law such NOLs can be carried forward for seven years and will begin to expire commencing from 2026 for the NOLs generated in 2018.

According to the U.S. Tax Cuts and Jobs Act (“TCJA”) that was signed into law on December 22, 2017, federal NOLs incurred after December 31, 2017 can be carried forward indefinitely and are limited to 80% of taxable income in any tax period. The NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOLs and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state provisions. 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 value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not done an analysis to determine whether or not ownership changes have occurred since inception.

On July 4, 2025, the One Big Beautiful Act ("OBBBA") was signed into law, enacting changes in the wide array of policy areas, including federal tax law. The impacts of OBBBA are included in the financial statements for the year ended December 31, 2025 and have not been material.

Deferred tax assets require an assessment of both positive and negative evidence when determining whether it is more likely than not that they can be recovered. Such assessment is made on a jurisdiction-by-jurisdiction basis. The Company’s assessment includes an evaluation of cumulative losses, future sources of taxable income and risks and uncertainties related to our business. As of December 31, 2025 and 2024, the Company has determined that there is not sufficient evidence that the Company will be able to realize the benefits of the domestic and foreign deferred tax assets. Accordingly, due to uncertainty regarding their realization, the Company continues to maintain a full valuation allowance on the Company’s domestic and foreign deferred tax assets as of December 31, 2025 and 2024 and until sufficient positive evidence will exist to support the reversal of the valuation allowance.

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09, which has been applied prospectively, is as follows:

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Provision to return mainly relates to temporary differences associated with capitalized research and development activities which are fully covered by a corresponding valuation allowance, with no impact to the Consolidated Statements of Operations.

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for the year prior to the adoption of ASU 2023-09 is as follows:

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As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s Consolidated Statements of Operations.

The Company files income tax returns in the U.S., Switzerland, Spain and Australia. Tax returns from fiscal year 2017 and onwards remain subject to examination by the taxing jurisdictions. The NOL and tax carryforwards remain subject to review until utilized. The Company is currently not under examination by any tax authorities.

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As of December 31, 2025, the Company has not provided any deferred taxes with respect with respect to the unremitted earnings of its non-U.S. subsidiaries as the Company considers those earnings to be indefinitely reinvested.

It is not practicable for the Company to determine the amount of unrecognized tax expense on these reinvested international earnings.

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The Company paid $48 thousand in foreign taxes in Spain for the year ended December 31, 2025.