NETSOL TECHNOLOGIES INC Income Taxes Disclosure
NOTE 13 – INCOME TAXES
The Company is incorporated in the State of Nevada and registered to do business in the State of California. The following is a breakdown of income before the provision for income taxes:
Consolidated pre-tax income (loss) consists of the following:
| Years Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| US operations | $ | 1,099,957 | $ | (1,719,058 | ) | |||
| Foreign operations | 4,947,300 | 4,942,505 | ||||||
| $ | 6,047,257 | $ | 3,223,447 | |||||
NETSOL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
June 30, 2025 and 2024
The components of the provision for income taxes are as follows:
| Years Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State and Local | 1,600 | 1,600 | ||||||
| Foreign | 1,411,601 | 1,143,918 | ||||||
| Deferred: | ||||||||
| Federal | ||||||||
| State and Local | ||||||||
| Foreign | 63,137 | |||||||
| Provision for income taxes | $ | 1,476,338 | $ | 1,145,518 | ||||
A reconciliation of taxes computed at the statutory federal income tax rate to income tax expense (benefit) is as follows:
| Years Ended June 30, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Income tax (benefit) provision at statutory rate | $ | 1,269,924 | 21.0 | % | $ | 676,924 | 21.0 | % | ||||||||
| State income (benefit) taxes, net of federal tax benefit | 422,099 | 7.0 | % | 224,997 | 7.0 | % | ||||||||||
| Foreign earnings taxed at different rates | 90,483 | 1.5 | % | (238,995 | ) | -7.4 | % | |||||||||
| Change in valuation allowance for deferred tax assets | (179,699 | ) | -3.0 | % | 351,633 | 10.9 | % | |||||||||
| Other | (126,469 | ) | -2.1 | % | 130,959 | 4.1 | % | |||||||||
| Provision for income taxes | $ | 1,476,338 | 24.4 | % | $ | 1,145,518 | 35.5 | % | ||||||||
Deferred income tax assets and liabilities as of June 30, 2025 and 2024 consist of tax effects of temporary differences related to the following:
| Years Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Net operating loss carry forwards | $ | 10,963,495 | $ | 11,190,703 | ||||
| Other | 200,323 | 152,814 | ||||||
| Net deferred tax assets | 11,163,818 | 11,343,517 | ||||||
| Valuation allowance for deferred tax assets | (11,163,818 | ) | (11,343,517 | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
The Company has established a full valuation allowance as management believes it is more likely than not that these assets will not be realized in the future. The valuation allowance decreased by $179,699 for the year ended June 30, 2025.
At June 30, 2025, federal and state net operating loss carry forwards in the United States of America were $29,570,036 and $8,736,297, respectively. Federal net operating loss carry forwards begin to expire in 2028, while state net operating loss carry forwards are expiring each year. Due to both historical and recent changes in the capitalization structure of the Company, the utilization of net operating losses may be limited pursuant to section 382 of the Internal Revenue Code. Net operating losses related to foreign entities were $16,546,754 at June 30, 2025.
NETSOL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
June 30, 2025 and 2024
As of June 30, 2025, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.
The Company is subject to U.S. federal income tax, as well as various state and foreign jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending June 30, 2022 through 2024. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The cumulative amount of undistributed earnings of foreign subsidiaries that the Company intends to permanently invest and upon which no deferred US income taxes have been provided is $29,879,503 as of June 30, 2025. The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in part by foreign tax credits. The extent of this offset would depend on many factors, including the method of distribution, and specific earnings distributed. The Company determined that it is not practicable to determine unrecognized deferred tax liability associated with the unremitted earnings attributable to the foreign subsidiaries.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Sep 29, 2025 | Showing above |
| 2024 | Sep 30, 2024 | |
| 2022 | Sep 27, 2022 | |
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.