ORMAT TECHNOLOGIES, INC.ORA

ORMAT TECHNOLOGIES, INC. Income Taxes Disclosure

10-KFiled Feb 26, 202612 min read
INCOME TAXES
 U.S. and foreign components of income from continuing operations, before income taxes and equity in income (losses) of investees consisted of:
 
Year Ended December 31,
202520242023
(Dollars in thousands)
U.S $17,634 $36,984 $53,984 
Non-U.S. (foreign) 88,114 78,393 85,101 
Total income from continuing operations, before income taxes and equity in losses
$105,748 $115,377 $139,085 
The components of the provision (benefit) for income taxes, net are as follows:
 
Year Ended December 31,
202520242023
(Dollars in thousands)
Current:
Federal $769 $961 $672 
State 666 1,478 (1,806)
Foreign 21,435 22,075 35,379 
Total current income tax expense $22,870 $24,514 $34,245 
Deferred:
Federal (50,505)(44,992)(12,780)
State (4,174)(5,893)6,041 
Foreign 11,527 10,082 (21,523)
Total deferred tax provision (benefit) (43,152)(40,803)(28,262)
Total income provision (benefit)
$(20,282)$(16,289)$5,983 
 The following table is a reconciliation of the income tax provision and the U.S. federal statutory tax rate to the Company’s effective income tax rate (Dollars in thousands):
Year Ended December 31,
202520242023
US federal statutory tax rate$22,224 21.0 %$24,228 21.0 %$29,207 21.0 %
Domestic federal:
Cross-border tax laws:
Global intangible low-taxed income
(864)(0.8)1,696 1.5 392 0.3 
Other
(2,194)(2.1)(731)(0.6)46 — 
Tax credits:
Investment tax credits
(47,671)(45.0)(49,440)(42.7)(19,425)(14.0)
Nontaxable or nondeductible items:
Transferable tax credit sales
(3,680)(3.5)(4,921)(4.3)(2,394)(1.7)
Noncontrolling interest
(549)(0.5)(1,411)(1.2)(1,341)(1.0)
Other
(1,387)(1.3)(374)(0.3)122 0.1 
  Other Adjustments:
513 0.4 (456)(0.4)415 0.3 
State and local taxes, net of federal income tax effect (a)
(1,836)(1.7)(844)(0.7)3,345 2.4 
Foreign tax effects:
Cayman:
Other
1,428 1.3 1,416 1.2 1,574 1.1 
Dominica:
Foreign rate differential(4,200)(4.0)275 0.2 — — 
  Guatemala:
Foreign rate differential
(2,045)(1.9)(2,153)(1.9)(1,847)(1.3)
Other
(256)(0.2)(552)(0.5)(195)(0.1)
Israel:
Nondeductible stock compensation
1,356 1.3 1,890 1.6 1,024 0.7 
Deferred income
— — 1,559 1.4 (1,559)(1.1)
Exchange rate differential
1,018 1.0 — — — — 
Intra-entity transfers
— — (1,162)(1.0)(669)(0.5)
Tax rate change
— — — — (558)(0.4)
Withholding tax
4,113 3.9 — — — — 
Other
(379)(0.4)(986)(0.9)27 — 
Kenya:
Foreign rate differential
6,295 5.9 6,121 5.3 10,755 7.8 
Exchange rate differential
— — 11,101 9.6 (8,398)(6.0)
Nondeductible items
1,300 1.2 (889)(0.8)570 0.4 
Tax rate change
— — — — (7,417)(5.3)
Other
818 0.8 886 0.8 1,391 1.0 
New Zealand:
Pillar two
1,622 1.5 — — — — 
Other
69 0.1 (450)(0.4)8 — 
Other foreign jurisdictions:
(83)(0.1)(1,691)(1.5)(1,205)(0.9)
Change in unrecognized tax benefits4,106 3.9 599 0.5 2,115 1.5 
Income tax provision/(benefit) and effective tax rate$(20,282)(19.2)%$(16,289)(14.1)%$5,983 4.3 %
(a) During the tax years ended December 31, 2025, 2024 and 2023, state taxes in California comprised more than 50% of the total state and local taxes, net of federal income tax effect.
The net deferred tax assets and liabilities consist of the following:
December 31,
20252024
(Dollars in thousands)
Deferred tax assets (liabilities):
Net foreign deferred taxes, primarily depreciation $(42,336)$(36,955)
Depreciation 24,313 (38,831)
Intangible drilling costs (25,903)(19,307)
Net operating loss carryforward - U.S. 21,875 22,760 
Tax monetization transaction (62,200)(53,950)
Right-of-use assets(8,063)(7,317)
Lease liabilities6,918 5,949 
Production and investment tax credits
107,774 118,461 
Foreign tax credits 6,030 30,919 
Withholding tax (16,276)(19,308)
Basis difference in partnership interest (13,157)(13,586)
Excess business interest1,723 18,122 
Sale and leaseback transaction52,478 54,480 
Other assets11,202 14,512 
Accrued liabilities and other 8,484 12,071 
Total72,862 88,020 
Less - valuation allowance (2,620)(2,700)
Total, net$70,242 $85,320 
The following table presents income taxes paid, net of refunds:
Year Ended December 31,
202520242023
(Dollars in thousands)
U.S. federal:
$850 $(38)$1,000 
California
1,890 425 310 
Other U.S. state and local
91 (776)1,328 
Foreign:
Israel
(876)2,525 (3,462)
Kenya
6,681 22,801 23,550 
Guadeloupe
305 326 2,637 
Other
905 920 887 
Total income taxes paid, net of refunds
$9,846 $26,183 $26,250 
 The following table presents a reconciliation of the beginning and ending valuation allowance:
 
Year Ended December 31,
20252024
(Dollars in thousands)
Balance at beginning of the year $2,700 $2,870 
Additions to valuation allowance 0 0 
Release of valuation allowance (80)(170)
Balance at end of the year $2,620 $2,700 
 At December 31, 2025, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $30.4 million, all of which was generated before 2018 and expires by 2038.
At December 31, 2025, the Company had PTCs in the amount of $107.8 million. These PTCs are available for a 20-year period and begin to expire in 2027. At December 31, 2025, the Company had no remaining ITCs. At December 31, 2025, the Company had U.S. foreign tax credits (“FTCs”) in the amount of $6.0 million. These FTCs are available for a 10-year period, and begin to expire in 2028.
At December 31, 2025, the Company had state NOL carryforwards of approximately $238.3 million, $233.7 million which expire between 2026 and 2045 and $4.6 million are available to be carried forward for an indefinite period.
The Company has recorded deferred tax assets for net operating losses, foreign tax credits, and production tax credits.  Realization of the deferred tax assets and tax credits is dependent on generating sufficient taxable income in appropriate jurisdictions prior to expiration of the NOL carryforwards and tax credits. Based upon available evidence of the Company’s ability to generate additional taxable income in the future and historical losses in prior years, a valuation allowance in the amount of $2.6 million and $2.7 million is recorded against the U.S. deferred tax assets as of December 31, 2025 and 2024, respectively, as it is more likely than not that the deferred tax assets will not be realized. The overall decrease in the valuation allowance of $0.1 million is due to the ability to utilize attributes that previously have been fully valued. The Company is maintaining a valuation allowance of $2.6 million against a portion of its state NOLs and capital loss carryforward that are expected to expire before they can be utilized in future periods.
  On April 24, 2018, the Company acquired 100% of stock of USG for approximately $110 million. Under the acquisition method of accounting, the Company recorded a net deferred tax asset of $1.7 million comprised primarily of federal and state NOLs netted against deferred tax liabilities for partnership basis differences and fixed assets. The total amount of acquired federal and state NOLs, which are subject to limitations under Section 382, were $113.9 million and $49.9 million, respectively.  A valuation allowance of $1.8 million has been recorded against such acquired state NOLs, as it is more likely than not that the deferred tax asset will not be realized.
The FASB released guidance Staff Q&A, Topic 740, No. 5, that states a company can make an accounting policy election to either recognize deferred taxes related to GILTI or to provide for the GILTI tax expense in the year the tax is incurred as a period cost.  The Company has elected to treat any GILTI inclusions as a period cost. We have elected and applied the tax law ordering approach when considering GILTI as part of our valuation allowance.
 The Company uses the flow-through method to account for investment tax credit earned on eligible battery storage projects. Under this method, the investment tax credits are recognized as a reduction to income tax expense in the year they are earned rather than a reduction in the asset basis.
The following table presents the deferred taxes on the balance sheet as of the dates indicated: 
Year Ended December 31,
20252024
(Dollars in thousands)
Non-current deferred tax assets $138,903 $153,936 
Non-current deferred tax liabilities (68,661)(68,616)
Non-current deferred tax assets, net 70,242 85,320 
Uncertain tax benefit offset (1)
(95)(95)
$70,147 $85,225 
 (1) The non-current deferred tax asset has been reduced by the uncertain tax benefit of $0.1 million in accordance with ASU 2013-11, Income Taxes.
 At December 31, 2025, the Company is no longer indefinitely reinvested with respect to the earnings of its foreign subsidiaries due to forecasted changes in cash needs and the impact of U.S. tax reform. The Company has accrued withholding taxes that would be owed upon future distributions of such earnings. Accordingly, as of December 31, 2025, the Company has accrued $12.6 million of foreign withholding taxes on future distributions of foreign earnings.
Uncertain Tax Positions
 The Company is subject to income taxes in the United States (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite evidence supporting the position. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve positions and changes to reserves that are considered probable.
 At December 31, 2025 and 2024, there are $10.4 million and $6.3 million of unrecognized tax benefits, respectively, that if recognized would reduce the effective tax rate. Interest and penalties assessed by taxing authorities on an underpayment of income taxes are included as a component of income tax provision in the consolidated statements of operations and comprehensive income.
 A reconciliation of the Company's unrecognized tax benefits is as follows:
Year Ended December 31,
20252024
(Dollars in thousands)
Balance at beginning of year $4,657 $6,930 
Additions based on tax positions taken in prior years 3,348 1,260 
Additions based on tax positions taken in the current year 3,873 431 
Reduction based on tax positions taken in prior years (3,176)(3,964)
Reduction based on tax positions taken in the current year (265)— 
Balance at end of year $8,437 $4,657 
The Company and its U.S. subsidiaries file consolidated income tax returns for federal and state (where applicable) purposes. As of December 31, 2025, the Company has not been subject to U.S. federal or state income tax examinations.
The Company remains open to examination by the Internal Revenue Service for the years 2007-2024 and by local state jurisdictions for the years 2010-2024. These examinations may lead to ordinary course adjustments or proposed adjustments to the Company's taxes or the Company's net operating losses with respect to years under examination as well as subsequent periods.
 The Company’s foreign subsidiaries remain open to examination by the local income tax authorities in the following countries for the years indicated:
Israel
2023
–
2025
Kenya
2020
–
2025
Guatemala
2021
–
2025
Honduras
2019
–
2025
Guadeloupe
2025
–
2025
 Management believes that the liability for unrecognized tax benefits is adequate for all open tax years based on its assessment of many factors, including among others, past experience and interpretations of local income tax regulations. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. As a result, it is possible that federal, state and foreign tax examinations will result in assessments in future periods. To the extent any such assessments occur, the Company will adjust its liability for unrecognized tax benefits. The Company is not able to reasonably estimate the amount of unrecognized tax benefits that will be reduced within the next twelve months.
 Tax Benefits in the United States
 On August 16, 2022, the Inflation Reduction Act was signed into law in the United States. The Company believes that the construction and operations of its geothermal power plants, recovered energy-based power plants, battery energy storage systems and solar PV will benefit in the future from the IRA and enhance the economic feasibility of projects in the United States. PTCs can be generated from 3.00 cents per kWh, once the Wages & Apprenticeship rules are met, and if bonus credit requirements are met the credit could rise up to 3.63 cents per kWh. ITCs can be earned on investments from 30.0%, once the Wages & Apprenticeship rules are met, and if bonus credit requirements are met the credit could rise up to 50.0%. Battery Energy Storage Systems are eligible for ITC for projects placed-in-service after December 31, 2022. In addition, the Company can now monetize PTCs and ITCs earned by transferring the credits to a third-party without having to enter into a tax equity transaction.
On July 4, 2025, the OBBBA was enacted into law in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017 and numerous changes to the energy tax credits initially introduced and expanded under the IRA. The OBBBA allows for geothermal and battery storage to qualify for 100% PTC or ITC related to projects that start construction by the end of December 2033, 75% PTC or ITC by the end of December 2034 and 50% PTC or ITC by the end of December 2035. In order to qualify for 100% energy credit, solar projects must start construction by July 4, 2026 and be placed-in-service within four years, or start construction after July 3, 2026 and be placed-in-service by December 31, 2027. The law seeks to limit content from foreign entities of concern (“FEOC”) used in energy related projects that start construction after December 31, 2025. Under the new FEOC rules, a U.S. energy project can only receive specific tax credits if the project’s equipment from certain FEOC- related entities does not exceed set amounts, and the rules disqualify other credits from applying to US-made products that contain too many inputs from certain FEOC- related entities. The rules also prevent a company from receiving specific tax credits if it relies too much on investment or material assistance from certain FEOC- related entities, including in circumstances where a contract, license, or other arrangement gives an FEOC- related entity effective control over the company or its projects or products.
The Organization for Economic Co-operation and Development (“OECD”) issued a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2). Certain aspects of Pillar 2 became effective January 1, 2024, and other aspects became effective January 1, 2025. Effective January 1, 2025, the Company met the revenue threshold requirements and is now subject to Pillar 2. The impact of Pillar 2 resulted in an income tax expense of $1.9 million for the twelve months ended December 31, 2025.
In January 2026, the OECD released a “side-by-side” package introducing new safe harbors and providing an exemption for U.S. based multi-national companies from parts of the global minimum corporate tax. The updated model rules will need to be incorporated into local tax legislation to be effective. The Company will continue to evaluate the impact of the proposed legislative changes as new guidance becomes available.
Income Taxes Related to Foreign Operations
Dominica – On June 25, 2025, the Company received a letter from the Dominica Ministry of Finance stating that during the construction phase of our BOT project in Dominica, the Company would enjoy a 0% income tax rate. Once this project reaches commercial operation, the Company will enjoy a 10% preferential income tax rate granted to the Company by the Dominica government.
Guadeloupe — The Company’s operations in Guadeloupe are taxed at a maximum rate of 26.5% in 2021, and 25% in 2022 and beyond.
Guatemala — The enacted tax rate is 25%. Orzunil, a wholly owned subsidiary, was granted a benefit under a law which promotes development of renewable power sources. The law allows Orzunil to reduce the investment made in its geothermal power plant from income tax payable, which currently reduces the effective tax rate to zero. Ortitlan pays income tax of 7% on its Electricity revenues.
Honduras — The Company’s operations in Honduras are exempt from income taxes for the first ten years starting at the commercial operation date of the power plant, which was in September 2017.
Israel — The Company’s operations in Israel through its wholly owned Israeli subsidiary, Ormat Systems Ltd. (“Ormat Systems”), are taxed at a reduced corporate tax rate under the “Benefited Enterprise” tax regime of the Encouragement of Capital Investments Law, 1959 (the “Investment Law”), with respect to two of its investment programs. In January 2011, new legislation amending the Investment Law by adding, inter alia, the Preferred Enterprise Regime was enacted. Under the Preferred Enterprise Regime, a uniform reduced corporate tax rate would apply to all qualified income of certain industrial companies, as opposed to the Investment Law incentives that are limited to income from a “Benefited Enterprise” during their benefits period. According to the amendment, the uniform tax rate applicable to the zone where the production facilities of Ormat Systems are located is 16% for qualifying income.
Kenya — In June 2023, the President of Kenya signed into law the 2023 Finance Act ("Finance Act"). The Finance Act, among several other changes, reduced the statutory corporate income tax rate for Branches from 37.5% to 30%, introduced a Branch Profits tax based on the change in Net Assets and limits interest deductions to 30% of EBITDA. The Finance Act also reduced the corporate tax rate on Branches from 37.5% to 30.0%. The Company implemented this change and recorded an associated benefit during 2023.

Historical Timeline

Fiscal YearFiled
2025Feb 26, 2026Showing above
2024Feb 27, 2025
2023Feb 23, 2024
2022Feb 24, 2023
2021Feb 25, 2022
2020Feb 26, 2021
2019Mar 2, 2020
2018Mar 1, 2019
2017Mar 16, 2018
2016Mar 1, 2017
2015Feb 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.

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