RAPID MICRO BIOSYSTEMS, INC.RPID
RAPID MICRO BIOSYSTEMS, INC. Income Taxes Disclosure
Income taxes
The components of the Company’s loss before income tax expense (benefit) are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| United States | $ | (46,872) | $ | (52,455) | |||||||
| Foreign | 5 | 19 | |||||||||
| Loss before income tax provision | $ | (46,867) | $ | (52,436) | |||||||
The components of income tax expense (benefit) are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Current income tax provision: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | — | — | |||||||||
| Foreign | 22 | 31 | |||||||||
| Total current income tax expense | 22 | 31 | |||||||||
| Deferred income tax provision: | |||||||||||
| Federal | (9,846) | (11,177) | |||||||||
| State | (1,648) | (1,241) | |||||||||
| Foreign | — | — | |||||||||
| Total deferred income tax provision | (11,494) | (12,418) | |||||||||
| Change in deferred tax asset valuation allowance | 11,494 | 12,418 | |||||||||
| Total expense for income taxes | $ | 22 | $ | 31 | |||||||
During the years ended December 31, 2024 and 2023, the Company did not record income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each year, due to its uncertainty of realizing a benefit from those items. The only income tax provision was generated from operations in Germany and Switzerland. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net of federal benefit | 2.8 | 1.9 | |||||||||
| Foreign tax differential | (0.1) | — | |||||||||
| Federal and state research and development tax credits | 1.3 | 1.3 | |||||||||
| Change in valuation allowance | (23.8) | (23.2) | |||||||||
| Permanent differences | (1.0) | (1.1) | |||||||||
| Other differences | (0.3) | — | |||||||||
| Effective income tax rate | (0.1) | % | (0.1) | % | |||||||
Net deferred tax assets consisted of the following (in thousands):
| December 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 65,302 | $ | 55,761 | |||||||
| Research and development credit carryforwards | 6,042 | 5,361 | |||||||||
| Research and development capitalized costs | 8,297 | 7,100 | |||||||||
| Inventories | 326 | 343 | |||||||||
| Lease liability | 1,413 | 1,656 | |||||||||
| Accrued expenses | 1,244 | 1,352 | |||||||||
| Unrealized loss | — | 24 | |||||||||
| Other | 1,500 | 1,281 | |||||||||
| Total deferred tax assets | 84,124 | 72,878 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Right-of-use assets | (1,188) | (1,405) | |||||||||
| Unrealized gain | (9) | — | |||||||||
| Depreciation | (353) | (359) | |||||||||
| Total deferred tax liabilities | (1,550) | (1,764) | |||||||||
| Valuation allowance | (82,574) | (71,114) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
As of December 31, 2024, the Company had U.S. federal and state net operating loss (“NOL”) carryforwards of $268.4 million and $114.8 million, respectively, which may be available to offset future taxable income and begin to expire at various dates beginning in 2038 and 2032, respectively. Additionally, the Company had U.S. federal NOLs of $255.6 million generated since 2018 that will not expire.
As of December 31, 2024, the Company also had U.S. federal and state research and development tax credit carryforwards of $2.8 million and $3.2 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2038 and 2025, respectively.
Utilization of the U.S. federal and state NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has completed a Section 382 study through July 31, 2020 to assess whether one or multiple ownership changes(s) occurred. According to the results from the study, the Company has four ownership changes prior to July 31, 2020 which occurred on July 1, 2009, April 3, 2014, July 25, 2017, and April 12, 2018, as defined by Section 382. These ownership changes materially limit the NOL carryforwards and research and development tax credits available to offset future tax liabilities generated prior to July 31, 2020. The Section 382 study concluded that $121.5 million of U.S. federal NOL carryforwards, $58.4 million of state NOL carryforwards, and $2.4 million of federal research and development tax credits will expire unutilized due to these ownership changes. These expirations and unutilized NOL carryforwards and research and development tax credits have been reflected in the amounts of NOL carryforwards, research and development tax credits, and deferred tax assets disclosed above. The Company has not completed a Section 382 study for any transactions subsequent to July 31, 2020 which could create an additional limitation although materially all of the current federal NOL carryforwards can be carried forward indefinitely.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. The Company considered its history of cumulative net operating losses incurred since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance of $82.6 million and $71.1 million has been established against the net deferred tax assets as of December 31, 2024 and 2023, respectively. The Company reevaluates the positive and negative evidence at each reporting
period. The valuation allowance increased $11.5 million during the year ended December 31, 2024 primarily due to net operating losses generated, capitalized research and development expenses, and research and development tax credits.
The Company recognizes interest and penalties related to unrecognized tax benefits in U.S. federal, state, and foreign income tax expense. For the years ended December 31, 2024, and 2023, the Company recognized zero in interest and penalties. The Company had zero of interest and penalties accrued as of December 31, 2024 and 2023, respectively.
The Company files U.S. income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations in the U.S. The Company has not received notice of examination by any jurisdictions in the U.S.
In recent years, the Organization for Economic Co-operation and Development (“OECD”) and member countries have been focused on taxation issues relating to multi-national companies. In October 2021, more than 130 countries agreed to implement Pillar 2, a plan introduced by the OECD providing for a global minimum tax rate of 15% (calculated on a country-by-country basis) for those companies having consolidated revenue of at least €750 million; with any shortfall of the 15% minimum tax resulting in a related tax assessment ("Top-Up Tax"). The implementation of the Pillar 2 global minimum tax rules is intended to apply for tax years beginning in 2024. The main purpose of such rules is to minimize tax base erosion and profit shifting from higher tax jurisdictions to lower tax jurisdictions by multi-national companies. On February 2, 2023, the OECD issued various administrative guidance including transitional safe harbor rules available in conjunction with the implementation of the Pillar 2 global minimum tax. Based upon the current OECD rules and administrative guidance, the Company does not anticipate being subject to material Top-Up Taxes as various tax jurisdictions begin enacting such legislation. The Company is continuing to monitor the potential impact of the Pillar 2 proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules.
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.