MERCADOLIBRE INCMELI
MERCADOLIBRE INC Income Taxes Disclosure
INCOME TAXES
The components of income tax for the years ended December 31, 2025, 2024 and 2023 are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Income Tax: | |||||||||||||||||
| Current: | |||||||||||||||||
| U.S. | $ | 35 | $ | 64 | $ | 41 | |||||||||||
| Non-U.S. | 1,279 | 700 | 812 | ||||||||||||||
| 1,314 | 764 | 853 | |||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. | 71 | 17 | 36 | ||||||||||||||
| Non-U.S. | (540) | (260) | (320) | ||||||||||||||
| (469) | (243) | (284) | |||||||||||||||
| Income tax expense | $ | 845 | $ | 521 | $ | 569 | |||||||||||
The components of net income before tax expense and equity in earnings of unconsolidated entity for the years ended December 31, 2025, 2024 and 2023 are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| U.S. | $ | (7) | $ | 94 | $ | (362) | |||||||||||
| Non-U.S. | 2,849 | 2,338 | 1,915 | ||||||||||||||
| $ | 2,842 | $ | 2,432 | $ | 1,553 | ||||||||||||
The components of income tax cash paid for the years ended December 31, 2025, 2024 and 2023 are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| U.S. | $ | 33 | $ | 63 | $ | 39 | |||||||||||
| Brazil | 404 | 289 | 191 | ||||||||||||||
| Argentina | 237 | 339 | 305 | ||||||||||||||
| Mexico | 208 | 188 | 40 | ||||||||||||||
| Uruguay | 57 | 50 | 43 | ||||||||||||||
| Spain | 12 | 78 | — | ||||||||||||||
| Other | 62 | 45 | 33 | ||||||||||||||
| Income tax cash paid | $ | 1,013 | $ | 1,052 | $ | 651 | |||||||||||
The following is a reconciliation of the difference between the actual charge for income tax and the expected income tax expense computed by applying the statutory income tax rate for the years ended December 31, 2025, 2024 and 2023 to net income before income tax:
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| US federal statutory rate | $ | 597 | 21 | % | $ | 511 | 21 | % | $ | 326 | 21 | % | ||||||||||||||
| Foreign Tax effects | ||||||||||||||||||||||||||
| Argentina | ||||||||||||||||||||||||||
| Statutory tax rate difference between Argentina and United States | 256 | 9 | % | 91 | 4 | % | 159 | 10 | % | |||||||||||||||||
| Non - taxable income | (52) | (2) | % | (54) | (2) | % | (137) | (9) | % | |||||||||||||||||
| Tax Inflation Adjustments | (29) | (1) | % | (118) | (5) | % | (115) | (7) | % | |||||||||||||||||
| Currency translation | 58 | 2 | % | 56 | 2 | % | 337 | 22 | % | |||||||||||||||||
| Other | 15 | 1 | % | 8 | — | % | 7 | — | % | |||||||||||||||||
| Brazil | ||||||||||||||||||||||||||
| Statutory tax rate difference between Brazil and United States | (172) | (6) | % | (90) | (4) | % | (69) | (4) | % | |||||||||||||||||
| Non - taxable income | (64) | (2) | % | (42) | (2) | % | (24) | (2) | % | |||||||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | (27) | (1) | % | — | — | % | — | — | % | |||||||||||||||||
| Other | 5 | — | % | 2 | — | % | (4) | — | % | |||||||||||||||||
| Mexico | ||||||||||||||||||||||||||
| Statutory tax rate difference between Mexico and United States | 58 | 2 | % | 30 | 1 | % | 30 | 2 | % | |||||||||||||||||
| Changes in valuation allowances | (15) | (1) | % | (26) | (1) | % | (147) | (9) | % | |||||||||||||||||
| Other | (8) | — | % | (6) | — | % | 11 | 1 | % | |||||||||||||||||
| Spain | ||||||||||||||||||||||||||
| Tax on retained earnings | 75 | 3 | % | 86 | 4 | % | 40 | 3 | % | |||||||||||||||||
| Other | 3 | — | % | 3 | — | % | 10 | 1 | % | |||||||||||||||||
| Other foreign jurisdictions | ||||||||||||||||||||||||||
| Other | 40 | 1 | % | 8 | — | % | (9) | (1) | % | |||||||||||||||||
| Effect of cross - border tax laws | ||||||||||||||||||||||||||
| Tax on retained earnings | 102 | 4 | % | 61 | 2 | % | 64 | 4 | % | |||||||||||||||||
| Subpart F income, net of foreign tax credits | (159) | (6) | % | (210) | (9) | % | (142) | (9) | % | |||||||||||||||||
| Non - taxable income | — | — | % | (28) | (1) | % | — | — | % | |||||||||||||||||
| Nontaxable or nondeductible items | — | — | % | 2 | — | % | 80 | 5 | % | |||||||||||||||||
| Changes in valuation allowances | 167 | 6 | % | 239 | 10 | % | 143 | 9 | % | |||||||||||||||||
| Other Adjustments | (5) | — | % | $ | (2) | — | % | $ | 9 | 1 | % | |||||||||||||||
| Income tax expense | $ | 845 | 30 | % | $ | 521 | 21 | % | $ | 569 | 37 | % | ||||||||||||||
Income taxes are determined by each subsidiary on a standalone basis according to income tax law of each jurisdiction. The Company’s consolidated effective tax rate for year ended December 31, 2025 as compared to 2024, increased from 21.4% to 29.7% largely as a result of lower deductions related to tax inflation adjustments in Argentina.
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The following table summarizes the composition of deferred tax assets and liabilities for the years ended December 31, 2025 and 2024:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In millions) | |||||||||||
| Deferred tax assets | |||||||||||
| Allowance for doubtful accounts | $ | 790 | $ | 371 | |||||||
| Unrealized net losses | 17 | 4 | |||||||||
| Property and equipment, net | 122 | 79 | |||||||||
| Accounts payable and accrued expenses | 19 | 22 | |||||||||
| Payroll and social security payable | 60 | 48 | |||||||||
| Provisions | 475 | 309 | |||||||||
| U.S. foreign tax credit | 699 | 528 | |||||||||
| Tax loss carryforwards | 184 | 64 | |||||||||
| Inventories | 19 | 18 | |||||||||
| Total deferred tax assets | 2,385 | 1,443 | |||||||||
| Valuation allowance | (764) | (584) | |||||||||
| Total deferred tax assets, net | 1,621 | 859 | |||||||||
| Deferred tax liabilities | |||||||||||
| Property and equipment, net | (44) | (33) | |||||||||
| Unrealized net gains | (4) | (7) | |||||||||
| Goodwill | (4) | (3) | |||||||||
| Deferred revenue | (26) | (17) | |||||||||
| Payroll and social security payable | (3) | (1) | |||||||||
| Outside Basis Dividends | (371) | (200) | |||||||||
| Total deferred tax liabilities | (452) | (261) | |||||||||
| $ | 1,169 | $ | 598 | ||||||||
Valuation allowance on deferred tax assets
The following table summarizes the tax valuation allowance activity during the years ended December 31, 2025, 2024 and 2023:
| Year Ended December, 31 | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Tax valuation allowance | (In millions) | ||||||||||||||||
| Balance at beginning of year | $ | 584 | $ | 374 | $ | 360 | |||||||||||
| Charged to Net income | 163 | 220 | 4 | ||||||||||||||
| Charges Utilized/Currency translation adjustments and other adjustments | 17 | (10) | 10 | ||||||||||||||
| Balance at end of year | $ | 764 | $ | 584 | $ | 374 | |||||||||||
As of December 31, 2025, consolidated deferred tax asset on tax loss carryforwards for income tax purposes were $184 million. If not utilized, tax loss carryforwards will begin to expire as follows:
| 2029 | $ | 1 | |||
| 2030 | 12 | ||||
| Thereafter | 5 | ||||
| Without due dates | 166 | ||||
| Total | $ | 184 | |||
Based on Management’s assessment of available objective evidence, the Company maintained a valuation allowance on deferred tax assets of $764 million and $584 million as of December 31, 2025 and 2024, respectively. This valuation allowance includes $699 million and $528 million to fully reserve the outstanding U.S. foreign tax credits as of December 31, 2025 and 2024, respectively.
The valuation allowance increased as of December 31, 2025 compared to 2024, mainly related to the impairment of $171 million on U.S. foreign tax credit.
Knowledge-based economy promotional regime in Argentina
The Company recorded an income tax benefit related to the Knowledge-based economy promotional regime in Argentina (the “Regime”) of $64 million, $33 million and $42 million, during the years ended December 31, 2025, 2024 and 2023, respectively. The aggregate per share effect of the income tax benefit amounted to $1.26, $0.65 and $0.84 for the years ended December 31, 2025, 2024 and 2023, respectively. In addition, the Company recorded a social security benefit related to the Regime of $17 million, $24 million and $67 million for the years ended December 31, 2025, 2024 and 2023, respectively. Such promotional Regime is effective until December 31, 2029.
Brazilian Tax Reform - Income tax
In November 2025 the Brazilian National Congress approved Law N° 15,270/25, establishing a 10% withholding income tax over dividends and capitalized earnings for foreign shareholders. The 10% withholding tax will be applicable for earnings generated from January 1, 2026 onwards.
In addition, in December 2025 the Brazilian National Congress approved Complementary Law N° 224/2025, which increased the Social Contribution on Net Income (“CSLL”) tax rate from 9% to 12% effective April 1, 2026, and from 12% to 15% effective January 1, 2028, applicable to payment institutions, and from 15% to 17.5% effective April 1, 2026, and from 17.5% to 20% effective January 1, 2028, applicable to financial institutions. As a result, the Company recognized an increase in its deferred tax assets of $27 million for the year ended December 31, 2025.
One Big Beautiful Bill Act
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA permanently establishes key elements of the Tax Cuts and Jobs Act, and also introduces modifications to certain international tax provisions. These provisions have various effective dates, some of which extend into 2027. The Company has completed its assessment and has determined that the OBBBA will not have a material impact on the Company’s consolidated financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 14, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 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.