GRID DYNAMICS HOLDINGS, INC.GDYN
GRID DYNAMICS HOLDINGS, INC. Income Taxes Disclosure
Income taxes
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Income/(loss) before provision for income taxes
The following table showed income/(loss) before provision for income taxes based on geographical location to which such income was attributable for the periods indicated:
| For the years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| United States | $ | (11,370) | $ | (13,393) | $ | (6,107) | |||||||||||
Foreign | 27,071 | 24,448 | 10,945 | ||||||||||||||
Total income/(loss) before provision for income taxes | $ | 15,701 | $ | 11,055 | $ | 4,838 | |||||||||||
Provision/(benefit) for income taxes
Provision/(benefit) for the income taxes consisted of the following components:
| For the years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 451 | $ | 4,900 | $ | 3,619 | |||||||||||
| State | 310 | 1,051 | 941 | ||||||||||||||
Foreign | 6,616 | 5,096 | 6,183 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 455 | (3,463) | (2,265) | ||||||||||||||
| State | (17) | (92) | (474) | ||||||||||||||
Foreign | (1,782) | (478) | (1,401) | ||||||||||||||
| Total tax expense | $ | 6,033 | $ | 7,014 | $ | 6,603 | |||||||||||
Deferred income taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2025 and 2024 were as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets | |||||||||||
| Stock-based compensation | $ | 4,331 | $ | 5,365 | |||||||
| R&D capitalization | 3,902 | 4,559 | |||||||||
Accrued compensation and benefits | 2,907 | 2,502 | |||||||||
| Operating lease liabilities | 794 | 577 | |||||||||
| Other | 818 | 285 | |||||||||
| Total deferred tax assets | $ | 12,752 | $ | 13,288 | |||||||
Valuation allowance | (491) | — | |||||||||
Total deferred tax assets, net of valuation allowance | $ | 12,261 | $ | 13,288 | |||||||
| Deferred tax liabilities | |||||||||||
| Intangible assets | $ | (10,777) | $ | (12,751) | |||||||
| Operating lease right-of-use assets | (746) | (546) | |||||||||
| Other | 207 | (131) | |||||||||
| Total deferred tax liabilities | (11,316) | (13,428) | |||||||||
| Net deferred taxes | $ | 945 | $ | (140) | |||||||
The Company assessed its ability to realize the benefits of its domestic deferred tax assets (“DTA”) by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, and (4) the length of net operating loss (“NOL”) carryforward periods. The Company determined it is in a cumulative taxable income position as of December 31, 2025, and expects to continue to be in a taxable income position in the long-term foreseeable future.
After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded it is more likely than not that sufficient future taxable income will be generated to realize the benefits of its DTAs prior to expiration, with the exception of its state NOL carryforwards due to state specific rules that limit the utilization of those NOLs. As a result, the Company determined that no domestic federal valuation allowance was needed and a valuation allowance on its state NOL carryforwards were warranted as of December 31, 2025.
Net operating losses and tax credit carryforwards as of December 31, 2025 were as follows:
| Amount | Expiration years | ||||||||||
| (in thousands) | |||||||||||
| Net operating losses, state | $ | 7,203 | 2040 | ||||||||
Effective tax rate reconciliation
A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s income tax expense and effective tax rate, presented in accordance with the prospectively adopted ASU 2023-09, for the year ended December 31, 2025 is as follows:
For the year ended December 31, 2025 | |||||||||||
Amount | Percent | ||||||||||
(in thousands, except percentages) | |||||||||||
| U.S. Federal statutory tax rate | $ | 3,297 | 21.0 | % | |||||||
State and local income tax, net of federal (national) income tax effect(1) | 310 | 2.0 | |||||||||
| Foreign tax effects | |||||||||||
| Argentina | |||||||||||
| Foreign tax rate differential | (8) | — | |||||||||
| Nontaxable or nondeductible items | 354 | 2.3 | |||||||||
| Armenia | |||||||||||
| Foreign tax rate differential | (62) | (0.4) | |||||||||
| Nontaxable or nondeductible items | (200) | (1.3) | |||||||||
| India | |||||||||||
| Foreign tax rate differential | 392 | 2.5 | |||||||||
| Nontaxable or nondeductible items | (292) | (1.9) | |||||||||
| Mexico | |||||||||||
| Foreign tax rate differential | 88 | 0.6 | |||||||||
| Nontaxable or nondeductible items | 221 | 1.4 | |||||||||
| Poland | |||||||||||
| Foreign tax rate differential | (202) | (1.3) | |||||||||
| Nontaxable or nondeductible items | (166) | (1.1) | |||||||||
R&D tax relief | (809) | (5.2) | |||||||||
| Switzerland | |||||||||||
| Foreign tax rate differential | (144) | (0.9) | |||||||||
| Nontaxable or nondeductible items | (56) | (0.4) | |||||||||
| Other foreign jurisdictions | 33 | 0.2 | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Stock-based compensation | (980) | (6.2) | |||||||||
| 162M limitation | 5,843 | 37.2 | |||||||||
Change in fair value of contingent consideration payable | (1,444) | (9.2) | |||||||||
| Changes in unrecognized tax benefits | (247) | (1.6) | |||||||||
Other adjustments | 105 | 0.7 | |||||||||
Total worldwide effective tax expense and rate | $ | 6,033 | 38.4 | % | |||||||
(1)State Taxes in California and Georgia made up the majority of tax effect in this category.
A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s effective tax rate, for the years ended December 31, 2024 and 2023 is as follows:
| For the years ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State and local income tax, net of federal (national) income tax effect | 8.4 | 10.1 | ||||||||||||
Nontaxable or nondeductible items | 1.7 | (9.9) | ||||||||||||
| Stock-based compensation | 7.2 | 39.3 | ||||||||||||
| Tax credits | (30.6) | (120.0) | ||||||||||||
| Foreign tax rate differential | (4.1) | 7.2 | ||||||||||||
| Foreign inclusion adjustments | 29.4 | 74.7 | ||||||||||||
| Foreign intangible amortization | 0.2 | 10.2 | ||||||||||||
| 162M limitation | 30.2 | 103.9 | ||||||||||||
Total worldwide effective tax rate | 63.4 | % | 136.5 | % | ||||||||||
Unrecognized tax benefits
As of December 31, 2025, the Company has approximately $1.1 million of unrecognized tax benefits. Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate. A reconciliation of beginning to ending amounts of unrecognized tax benefits is as follows:
| For the years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Unrecognized tax benefit as of January 1 | $ | 1,371 | $ | 1,162 | $ | 1,151 | |||||||||||
| Changes related to prior year tax positions | (311) | (35) | (101) | ||||||||||||||
| Changes related to current year tax positions | 53 | 244 | 112 | ||||||||||||||
| Unrecognized tax benefit as of December 31 | $ | 1,113 | $ | 1,371 | $ | 1,162 | |||||||||||
The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. There was no interest or penalties accrued as of December 31, 2025 and 2024.
The Company is subject to income taxes in U.S. federal and various state, local and foreign jurisdictions. For federal and states, tax years subsequent to 2022 remain open to examination. With respect to foreign jurisdictions, tax years 2018 and after remain open.
The Company's provision for income taxes does not include provisions for foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign subsidiaries that we intend to reinvest indefinitely in our foreign subsidiaries.
On July 4, 2025, the “One Big Beautiful Bill Act” (the “Act”) was enacted into law. The Act includes certain changes to the U.S. tax law applicable to Grid Dynamics. These changes include provisions allowing accelerated tax deductions for qualified property and research expenditures, including immediate expensing for qualifying domestic research expenditures. As of December 31, 2025, the Company expects to avail itself of immediate expensing for qualifying domestic research expenditures incurred during the year, which does not have a material effect on the Company’s financial results. The Company has evaluated the impact of the remaining provisions promulgated by the Act that take effect in future periods on its consolidated financial statements and does not anticipate them having a material effect.
Cash paid for income taxes
Cash paid for income taxes for the year ended December 31, 2025 was as follows:
For the year ended December 31, | |||||
| 2025 | |||||
| (in thousands) | |||||
Cash paid for income taxes, net of refunds | |||||
U.S. Federal | $ | 5,161 | |||
State and local | 948 | ||||
Foreign | |||||
United Kingdom | 1,552 | ||||
| India | 1,067 | ||||
| Poland | 930 | ||||
Netherlands | 649 | ||||
Aggregated foreign jurisdictions | 2,051 | ||||
Total | $ | 12,358 | |||
Cash paid for income taxes, net of refunds for the years ended December 31, 2024 and 2023 was $11.0 million and $12.4 million, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 3, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Mar 4, 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.