Microvast Holdings, Inc.MVST
Microvast Holdings, Inc. Income Taxes Disclosure
NOTE 18. INCOME TAXES
US
The Company is incorporated in the U.S. and is subject to the U.S. state and federal income tax. Net operating losses incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely but are subject to an 80% taxable income limitation.
PRC
Under the Enterprise Income Tax Law of the PRC (the “EIT Law”), PRC enterprise income tax is generally calculated at 25% of the Company’s subsidiaries located in the PRC as determined in accordance with the EIT Law, except for certain subsidiaries which have tax rates substantially lower than 25% due to incentive policies.
MPS was recognized as a “New and High Tech Enterprise” (“NHTE”) by the relevant PRC government authorities in 2021 and 2024. Therefore, MPS, as the NHTE, is entitled to an income tax rate of 15% for 2025, 2024, and 2023.
Huzhou Hongwei New Energy Automobile Co., Ltd. (“Hongwei”) was recognized as a NHTE by the relevant PRC government authorities in 2020 and 2023, and it is entitled to an income tax rate of 15% for 2025, 2024, and 2023.
The withholding tax rate of 10% under the EIT Law is imposed on dividends declared to foreign investors with respect to profit earned by PRC subsidiaries from January 1, 2008 onward. Deferred tax liability was not provided with respect to undistributed profits of relevant PRC subsidiaries for the years ended December 31, 2025, 2024, and 2023, as the Company concluded that profits generated by the relevant PRC subsidiaries are considered to be permanently reinvested, because the Company does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future and intends to retain all of its available funds and any future earnings for use in the operation and expansion of its business.
Germany
German enterprise income tax, which is a combination of corporate income tax and trade tax, is calculated at an average tax rate of 29.1%, 29.1%, and 29.9% for the years ended December 31, 2025, 2024, and 2023, respectively, for the Company’s subsidiary located in Germany in accordance with relevant tax rules and regulations in Germany.
The jurisdictional components of income (loss) before income taxes for the years ended December 31, 2025, 2024, and 2023 was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. federal | $ | (97,831) | $ | (227,937) | $ | (101,077) | |||||||||||
| International | 63,288 | 32,480 | (5,325) | ||||||||||||||
| Loss before provision for income tax | $ | (34,543) | $ | (195,457) | $ | (106,402) | |||||||||||
The current and deferred components of the income tax (benefit) expense in the consolidated statements of operations were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | 80 | $ | — | $ | — | |||||||||||
| State | 24 | — | — | ||||||||||||||
| International | — | — | 10 | ||||||||||||||
| Current tax expense | 104 | — | 10 | ||||||||||||||
| Deferred: | |||||||||||||||||
| International | (5,429) | — | — | ||||||||||||||
| Deferred tax benefit | (5,429) | — | — | ||||||||||||||
| Total (benefit from) provision for income taxes | $ | (5,325) | $ | — | $ | 10 | |||||||||||
The table below provides the updated requirements of ASU No. 2023-09 for 2025. See Note 2 - Summary of Significant Accounting Policies for additional details on the adoption of ASU No. 2023-09.
A reconciliation of the U.S. federal statutory income tax rate of 21% to the Company's effective income tax rate for the year ended December 31, 2025 is as follows:
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Amount | Percent | ||||||||||
| Income before provision for income tax | $ | (34,543) | |||||||||
| U.S. Federal Statutory Tax Rate | (7,254) | 21.00 | % | ||||||||
| State and Local Income Taxes, Net of Federal Income Tax Effect | (2,908) | 8.42 | |||||||||
| Foreign Tax Effects | |||||||||||
| People's Republic of China | |||||||||||
| Statutory tax rate difference between PRC and United States | (3,171) | 9.18 | |||||||||
| Changes in Valuation Allowance | (13,254) | 38.37 | |||||||||
| Additional deduction for R&D | (5,536) | 16.03 | |||||||||
| Other | (35) | 0.10 | |||||||||
| All others | |||||||||||
| Statutory tax rate difference between foreign country and United States | 68 | (0.20) | |||||||||
| Changes in Valuation Allowance | (262) | 0.76 | |||||||||
| Effect of Cross-Border Tax Laws | |||||||||||
| Global intangible low-taxed income | 9,879 | (28.60) | |||||||||
| Changes in Valuation Allowances | 16,840 | (48.75) | |||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Share-based payment awards | 268 | (0.78) | |||||||||
| Other | 151 | (0.44) | |||||||||
| Other Adjustments | |||||||||||
| Provision to return | 451 | (1.31) | |||||||||
| Income tax payable adjustment | (562) | 1.63 | |||||||||
| Effective Tax Rate | $ | (5,325) | 15.41 | % | |||||||
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, a reconciliation between the income tax expense computed by applying the U.S. federal statutory income tax rate of 21% to loss before income tax and income tax expense was as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Loss before provision for income tax | $ | (195,457) | $ | (106,402) | |||||||
Tax credit at the U.S. federal corporate income tax rate of 21% | (41,047) | (22,343) | |||||||||
| Tax effect of permanent differences – share-based compensation | 6,477 | 13,644 | |||||||||
| Tax effect of permanent differences – others | (2,292) | (220) | |||||||||
| Tax effect of income tax rate difference in other jurisdictions | (1,284) | (1,411) | |||||||||
| Changes in valuation allowance | 38,146 | 10,330 | |||||||||
| Others | — | 10 | |||||||||
| Income tax expense | $ | — | $ | 10 | |||||||
Significant components of the Company’s deferred tax assets and liabilities are as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carry-forwards | $ | 49,829 | $ | 64,949 | |||||||
| Changes in fair value of convertible loan | 29,947 | 16,744 | |||||||||
| Allowance for credit losses and inventory provision | 989 | 1,252 | |||||||||
| Product warranty | 4,978 | 4,917 | |||||||||
| Impairment of property, plant and equipment | 34,997 | 15,885 | |||||||||
| Deferred income | 920 | 814 | |||||||||
| Accrued expense | 1,307 | 1,475 | |||||||||
| Others | 294 | 615 | |||||||||
| Less: valuation allowance | (117,832) | (106,651) | |||||||||
| Net deferred tax assets | $ | 5,429 | $ | — | |||||||
The changes in valuation allowance for the years end December 31, 2025, 2024 and 2023 are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning of the year | $ | 106,651 | $ | 76,223 | $ | 66,853 | |||||||||||
| Additions | 20,910 | 41,706 | 12,725 | ||||||||||||||
| Reversal | (9,729) | (11,278) | (3,355) | ||||||||||||||
| Balance at end of the year | $ | 117,832 | $ | 106,651 | $ | 76,223 | |||||||||||
The Company evaluates the realizability of deferred tax assets on a jurisdiction-by-jurisdiction basis and considers available positive and negative evidence in estimating whether sufficient future taxable income will be generated to utilize existing deferred tax assets. The valuation allowance is primarily related to entities with net operating loss carry-forwards for which the Company does not believe realization is more likely than not.
NOL and tax credit carry-forwards
As of December 31, 2025, the Company had $320,438 operating loss carried forward. The operating loss carried forward for the Company’s PRC subsidiaries amounted to $193,775, which will expire on various dates from 2026 to 2035. The Company also had U.S. federal net operating loss carryforwards of $38,745, which may be carried forward indefinitely. In addition, the Company had U.S. state net operating loss carryforwards of $55,755, of which $20,440 may be carried forward indefinitely. The remaining state net operating loss carryforwards will begin to expire in 2026, with the majority expiring between 2033 and 2044, if not utilized. The Company also had German net operating loss carryforwards of $30,681 and U.K. net operating loss carryforwards of $1,482, each of which may be carried forward indefinitely under applicable tax law.
Tax Law Changes
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. The OBBBA reinstates immediate expensing of domestic research and experimental expenditures, modifies the calculation of the limitation on business interest expense under Section 163(j) and permanently restores 100% bonus depreciation for qualified property.
The Company evaluated the impact of the Act on its consolidated financial statements. Due to the existence of a full valuation allowance against its U.S. deferred tax assets, the enactment of the OBBBA did not have a material impact on the Company's consolidated balance sheets or income tax expense. However, the OBBBA reduced the Company's
current federal income tax payable for the year by accelerating certain deductions. The Company will continue to monitor additional guidance related to the Act.
The following is a supplemental schedule of cash paid for income taxes, net of refunds, for the year ended December 31, 2025:
| Year Ended December 31, | |||||
| 2025 | |||||
| U.S federal | $ | 1,817 | |||
| Total income taxes paid (net of refunds) | $ | 1,817 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 16, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Mar 29, 2022 | |
| 2020 | Mar 25, 2021 | |
| 2019 | Mar 13, 2020 | |
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.