NATURAL HEALTH TRENDS CORP Income Taxes Disclosure

7.     INCOME TAXES

 

The components of income (loss) before income taxes consist of the following (in thousands):

 

		Year Ended December 31,
		2025				2024
U.S.		$	(727	)		$	(993	)
Foreign			160				1,613
Income (loss) before income taxes		$	(567	)		$	620

 

The components of the income tax provision consist of the following (in thousands):

 

		Year Ended December 31,
		2025				2024
Current taxes:
U.S. federal		$	39			$	(24	)
U.S. state and local			13				11
Foreign			165				34
Total current tax expense		$	217			$	21
Deferred taxes:
U.S. federal		$	(100	)		$	(83	)
U.S. state and local			(1	)			1
Foreign			199				109
Total deferred tax expense		$	98			$	27
Total income tax expense:
U.S. federal		$	(61	)		$	(107	)
U.S. state and local			12				12
Foreign			364				143
Income tax provision		$	315			$	48

 

A reconciliation of the reported income tax provision to the provision that would result from applying the domestic federal statutory tax rate to pretax income (loss) is as follows (in thousands):

 

		Year Ended December 31, 2025								Year Ended December 31, 2024
		Amount				Percent				Amount				Percent
Income tax at U.S. federal statutory tax rate		$	(119	)			21.0	%		$	130				21.0	%
Domestic federal:
Nontaxable and nondeductible items
Section 162(m) limitation			—				—	%			58				9.4	%
Stock-based compensation			24				(4.2	)%			26				4.2	%
Other			3				(0.5	)%			3				0.5	%
Cross-border tax laws
Subpart F inclusion			78				(13.8	)%			43				6.9	%
U.S. foreign income inclusions			—				—	%			(18	)			(2.9	)%
Domestic state and local income taxes, net of federal effect			9				(1.6	)%			10				1.6	%
Foreign tax effects:
Cayman Islands			(143	)			25.2	%			(348	)			(56.1	)%
Hong Kong
Nontaxable and nondeductible items			4				(0.7	)%			(18	)			(2.9	)%
Rate differential			(43	)			7.6	%			(34	)			(5.5	)%
China
Rate differential			70				(12.3	)%			(5	)			(0.8	)%
Change in tax rate			89				(15.7	)%			—				—	%
Net operating loss expiration			86				(15.2	)%			—				—	%
Change in valuation allowance			45				(7.9	)%			5				0.8	%
Peru
Nontaxable and nondeductible items			28				(4.9	)%			73				11.8	%
Rate differential			(1	)			0.2	%			(9	)			(1.5	)%
Canada
Nontaxable and nondeductible items			93				(16.4	)%			113				18.2	%
Rate differential			(26	)			4.6	%			(37	)			(6.0	)%
Change in valuation allowance			(13	)			2.3	%			—				—	%
Japan			—				—	%			12				1.9	%
Italy			(18	)			3.2	%			(9	)			(1.5	)%
India
Rate differential			(13	)			2.3	%			(10	)			(1.6	)%
Change in valuation allowance			42				(7.4	)%			32				5.2	%
Colombia
Rate differential			(38	)			6.7	%			(8	)			(1.3	)%
Change in valuation allowance			95				(16.8	)%			30				4.8	%
Bolivia			(22	)			3.9	%			8				1.3	%
Russia			100				(17.6	)%			—				—	%
Other foreign jurisdictions			(15	)			2.6	%			1				0.2	%
Income tax provision		$	315				(55.6	)%		$	48				7.7	%

 

Income before income taxes and the statutory tax rate for each country that materially contributed to the foreign rate differential presented above is as follows (in thousands):

 

						Year Ended December 31,
		Statutory Tax Rate				2025				2024
Cayman Islands			—	%		$	759			$	1,535
Hong Kong			16.5	%			444				745
China			5.0	%			(439	)			(124	)

 

Deferred income taxes consist of the following (in thousands):

 

		December 31,
		2025				2024
Deferred tax assets:
Net operating losses		$	843			$	700
Operating lease liabilities			264				325
Other			73				82
Total deferred tax assets			1,180				1,107
Valuation allowance			(624	)			(391	)
Net deferred tax assets			556				716
Deferred tax liabilities:
Operating lease assets			(236	)			(297	)
Foreign deferreds			(180	)			(173	)
Prepaids			(31	)			(35	)
Other			—				(3	)
Total deferred tax liabilities			(447	)			(508	)
Net deferred tax assets		$	109			$	208

 

The effective income tax rate for the year ended December 31, 2025 is driven by foreign rate differentials and the increase in valuation allowance on the Company's foreign net operating losses. It also includes estimates for foreign income inclusions such as global intangible low-taxed income (“GILTI”) and Subpart F income, as well as prior year foreign return to provision true-ups. The effect of permanent differences in 2025 and 2024 is mainly due to compensation-related limitations under Internal Revenue Code Section 162(m) and stock-based compensation expense. As of December 31, 2025, the Company does not have a valuation allowance against its U.S. deferred tax assets. The Company analyzed all sources of available income and determined that it is more likely than not to realize the tax benefits of their deferred assets. As of December 31, 2025, the Company has a valuation allowance against deferred tax assets in the form of net operating loss carryforwards in certain foreign jurisdictions. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision.

 

As of December 31, 2025, the Company has $884,000 of U.S. federal net operating loss carryforwards. The Company has post-apportioned U.S. state net operating loss carryforwards of $467,000 that begin expiring in 2038. At December 31, 2025, the Company has foreign net operating loss carryforwards of approximately $3.2 million in various jurisdictions with various expirations.

 

In April 2025, the Company paid the final installment of $5.1 million for the repatriation tax on the deemed repatriation of deferred foreign income required by the U.S. Tax Cuts and Jobs Act (the “Tax Act”), enacted in 2017 by the U.S. government.

 

As a result of capital return activities, the Company determined that a portion of its current undistributed foreign earnings is no longer deemed reinvested indefinitely by its non-U.S. subsidiaries. For state income tax purposes, the Company will continue to periodically reassess the needs of its foreign subsidiaries and update its indefinite reinvestment assertion, as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable state corporate income tax rate(s). As of December 31, 2025, the Company has not recorded a state deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods because all earnings as of December 31, 2025 have already been repatriated. Due to the Tax Act, repatriation from foreign subsidiaries will be offset with a dividends received deduction, resulting in little to no impact on federal tax expense. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of December 31, 2025.

 

The Company and its subsidiaries file tax returns in the United States, California, New Jersey, Texas and various foreign jurisdictions. The Company is no longer subject to state income tax examinations for years prior to 2020. The Company is not aware of any jurisdictions that are currently examining any income tax returns of the Company.

 

Cash paid during the year for incomes taxes, net of refunds, were as follows (in thousands):

 

		Year Ended December 31,
		2025				2024
U.S. federal		$	4,954			$	3,799
U.S. state and local			12				8
Foreign			(45	)			151
Cash paid for income taxes, net		$	4,921			$	3,958