NOTE 25: INCOME TAXES

a.	Tax rates in the U.S:

The Company is subject to U.S. federal tax at the rate of 21%.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law making significant changes to U.S. income tax law. These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards and created new taxes on certain foreign-sourced earnings and certain related-party payments - the Global Intangible Low Taxed Income (“GILTI”). Furthermore, changes introduced by the Tax Act to Section 174 of the Internal Revenue Code, that came into effect on January 1, 2022, require taxpayers to amortize research and development expenditures over five years (if incurred in the U.S.) or fifteen years (if incurred outside the U.S.), thereby increasing taxable income and payable tax.

The Tax Act required the Company to pay U.S. income taxes on accumulated foreign subsidiaries earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. The total tax liability was calculated to approximately $8,500, which are paid over the eight-year period provided in the Tax Act (ended 2025).

b.	Corporate tax in Israel:

The taxable income of Israeli companies is subject to corporate tax at the rate of 23%. The Israeli Subsidiary is also eligible for tax benefits as further described in note 25k.

c.	Carryforward tax losses:

As of December 31, 2025, the Company has carryforward federal tax losses of $261,521 and carryforward state tax losses of $164,331. In addition, the foreign subsidiaries have carryforward tax losses of $2,056,156 (out of which an amount of $79,851 relates to carryforward capital losses of the Israeli Subsidiary). All carryforward tax losses do not have an expiration date.

d.	Deferred taxes:

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 31,
	2025			2024
Deferred tax assets, net:
Research and development carryforward expenses	$	19,698		$	15,857
Carryforward tax losses		341,977			219,341
Stock based compensation expenses		43,523			38,499
Deferred revenue		12,293			12,999
Lease liabilities		8,297			10,634
Inventory Impairment		9,012			10,833
Foreign currency translation		12,137			13,672
Property, plant and equipment		5,353			11,662
Allowance and other reserves		19,429			20,549
Total gross deferred tax assets		471,719			354,046
Less, valuation allowance		(455,884	)		(331,816	)
Total deferred tax assets, net		15,835			22,230
Deferred tax liabilities, net:
Intercompany transactions		-			(4,200	)
Right-of-use assets		(7,504	)		(11,066	)
Acquired intangible assets		(1,251	)		(3,149	)
Property, plant and equipment		(5,906	)		(4,377	)
Other		(1,359	)		(549	)
Total deferred tax liabilities	$	(16,020	)	$	(23,341	)
Recorded as:
Deferred tax liabilities, net¹	$	(185	)	$	(1,111	)

¹ Presented under other long-term liabilities

The Company’s Israeli Subsidiary’s tax-exempt profit from Benefited Enterprises (as defined in note 25k) is permanently reinvested, Therefore, deferred taxes have not been provided for such tax-exempt income.

The Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries. Such additional tax liability in respect of these subsidiaries has not been provided for in the Financial Statements as the Company’s management and the Board of Directors has determined that the Company intends to reinvest earnings of its subsidiaries indefinitely.

e.	Uncertain tax positions are comprised as follows:

	December 31,
	2025			2024		2023
Balance, at the beginning of the period	$	32,326		$	15,908	$	2,756
Decrease related to tax settlements		(24,845	)		-		-
Increases related to current year tax positions		-			-		1,502
Increase for tax positions related to prior years		3,373			16,418		11,778
Decrease related to prior year tax positions		(2,209	)		-		(128	)
Balance, at end of the period	$	8,645		$	32,326	$	15,908

The total amount of gross unrecognized tax benefits above would affect the Company's effective tax rate, if recognized.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes.

As of December 31, 2025 and 2024, the Company accrued $1,415 and $9,165, respectively.

f.	Income (loss) before income taxes are comprised as follows:

	Year ended December 31,
	2025			2024			2023
Domestic	$	181,819		$	(4,169	)	$	49,758
Foreign		(572,925	)		(1,704,142	)		31,341
Income (loss) before income taxes	$	(391,106	)	$	(1,708,311	)	$	81,099

g.	Income taxes are comprised as follows:

	Year ended December 31,
	2025			2024		2023
Current taxes:
Domestic	$	2,601		$	4,036	$	42,960
Foreign		11,542			12,905		46,531
Total current taxes		14,143			16,941		89,491
Deferred taxes:
Domestic		-			18,163		(2,244	)
Foreign		(761	)		61,046		(40,827	)
Total deferred taxes		(761	)		79,209		(43,071	)
Income taxes, net	$	13,382		$	96,150	$	46,420

h.	Reconciliation of theoretical tax expense to actual tax expense:

The differences between the statutory tax rate of the Company and the effective tax rate are result of a variety of factors, including different effective tax rates applicable to non-US subsidiaries that have tax rates different than the Company tax rate; valuation allowance on deferred tax assets related to losses and other deferred tax assets, where the Company does not foresee the realization of the same; and tax-exempt IRA credits.

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income (loss) before income taxes after the adoption of ASU 2023‑09 is as follows:

	Year Ended December 31, 2025
	Amount			Percent
US Federal statutory tax rate	$	(82,132	)		21.0	%
State and local income taxes, net of federal income tax effect:
State tax⁽¹⁾		2,593			(0.7	)%
Foreign Tax Effects:
Israel
Statutory tax rate difference between Israel and United States		(11,516	)		2.9	%
Changes in valuation allowances		68,509			(17.5	)%
Preferred enterprise		58,877			(15.1	)%
Other		5,225			(1.3	)%
Netherlands
Non‑taxable income resulting from reversal of bad debt		6,168			(1.6	)%
Other		(1,151	)		0.3	%
Changes in valuation allowances		12,610			(3.2	)%
Non-taxable or Non-deductible items:
Non-taxable and other (mainly government grants)		(73,734	)		19.0	%
Non-deductible capital loss		23,360			(6.0	)%
Changes in unrecognized tax benefits		4,573			(1.2	)%
	$	13,382			(3.4	)%

(1) The state that contributes to the majority (greater than 50%) of the tax effect in this category is California.

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income (loss) before income taxes for years prior to the adoption of ASU 2023‑09 is as follows:

	Year Ended December 31,
	2024			2023
Statutory tax rate		21.0	%		21.0	%
Effect of:
Income tax at rate other than the U.S. statutory tax rate		(0.64	)%		(37.3	)%
Losses and timing differences for which valuation allowance was provided		(26.09	)%		27.7	%
Prior year income taxes (benefit)		(0.03	)%		(1.0	)%
R&D Capitalization and other effects of TCJA		-	%		42.5	%
Non-deductible expenses		(2.85	)%		4.5	%
IRA tax benefits		2.85	%		-	%
Other individually immaterial income tax items, net		0.13	%		(0.2	)%
Effective tax rate		(5.63	)%		57.2	%

Tax paid:

Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

	Year Ended December 31, 2025
US Federal	$	(1,480	)
US State and local:
California		2,400
Other		(293	)
Total US		627
Foreign:
Israel		25,401
Korea		2,575
Other		3,185
Total tax paid	$	31,788

j.	Tax assessments:

The Company's Israeli Subsidiary reached a settlement with the Israeli Tax Authority for tax years 2016-2018.

As of December 31, 2025, the Company and certain of its subsidiaries filed U.S. federal and various state and foreign income tax returns. The statute of limitations relating to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2020.

The statute of limitations related to tax returns of the Company’s Israeli Subsidiary for all tax years up to and including 2020 has lapsed.

The statute of limitations related to tax returns of the Company’s other subsidiaries has lapsed for part of the tax years, which differs between the different subsidiaries.

k.	Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”):

The Israeli Subsidiary elected tax year 2012 as a "Year of Election" for “Benefited Enterprise” status under the Investments Law. According to the Investments Law, the Israeli Subsidiary elected to participate in the alternative benefits program which provides certain benefits, including tax exemptions and reduced tax rates (which depend on, inter alia, the geographic location in Israel). Income not eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate.

Upon meeting the requirements under the Investments Law, undistributed income derived from Benefited Enterprise from productive activity will be exempt from tax for two years from the year in which the Israeli Subsidiary first has taxable income (“exempt period”), provided that 12 years have not passed from the beginning of the year of election.

On October 24, 2018, the Company’s Israeli Subsidiary received an approval from the Israeli Tax Authorities confirming the applicability of the two-year tax exemption as provided in the Investments Law until December 31, 2018. The Company has determined that tax-exempt income earned by the Israeli Subsidiary “Benefited Enterprises” during the exemption period of 2017 - 2018 will not be distributed as dividends and intends to reinvest the amount of its tax-exempt income earned by the Israeli Subsidiary. Accordingly, no provision for deferred income taxes has been provided on income attributable to the Israeli Subsidiary “Benefited Enterprises” as such income is essentially permanently reinvested.

If the Israeli Subsidiary’s retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate which depends on the foreign ownership in each tax year.

Pursuant to amendment 73 to the Investments Law (“2017 Amendment"), a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).

The 2017 Amendment also prescribes special tax tracks for preferred technological enterprises (“PTE”), which are subject to rules that were issued by the Ministry of Finance.

On June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological Enterprise), 2017 (“Regulations”) were published.

The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime. According to these regulations, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to income generated during the company’s regular course of business and derived from the preferred intangible asset, excluding income derived from intangible assets used for marketing and income attributed to production activity.

A PTE, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property, or 6% if its annual revenues exceed NIS 10 billion ("Threshold"). The Israeli Subsidiary notified the ITA of its election to implement the PTE with effect from January 1, 2019, and its PTE income was subject to a 12% tax rate for the years 2019-2021, and in 2022-2023 to a 6% tax rate as the group surpassed the Threshold. In 2025 and 2024, the Company incurred losses for tax purposes.

Tax Benefits for Research and Development:

Israeli tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows a tax deduction for research and development expenses, including capital expenses, in the year in which they are paid. Such expenses must relate to scientific research in industry, agriculture, transportation or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research. Expenses incurred in scientific research that are not approved by the relevant government ministry are amortized over a three-year period starting from the tax year in which they are paid. The Company’s Israeli Subsidiary submitted a formal request to the relevant government ministry in order to obtain such approval for tax years 2019-2021 and intends to submit a similar request with respect to tax year 2023.

Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:

Some of the Company’s Israeli Subsidiaries claim tax benefits as ‘industrial companies’ under the Law for the Encouragement of Industry (Taxes), 1969, Such benefits consist mainly of accelerated depreciation and amortization of patents and certain other intangible property and the ability to file consolidated tax returns.

In July 2025, the OBBBA, or H.R.1 was enacted into law modifying clean energy tax credits contained in the IRA and imposing new eligibility criteria related thereto. The Company does not expect the H.R.1 to have a material effect on its financial position or results of operations. The Company will continue to monitor regulatory guidance and developments and will update its analysis as necessary. In addition, the H.R.1 makes permanent key elements of the Tax Cuts and Jobs Act, including 100 percent bonus depreciation, domestic research cost expensing, increases the AMIC credit rate to 35 percent from 25 percent for qualifying assets and makes modifications to the international tax framework. The H.R.1 includes multiple effective dates, with certain provisions effective in 2025 and others phased in through 2027. Given the Company’s current loss position for income tax purposes, the provisions of H.R.1 did not have an impact on the current period. The Company continues to evaluate the provisions of H.R.1 that become effective in future years.

On October 1, 2025, the Governor of California signed Senate Bill 302 (“SB 302”) into law. SB 302 provides a gross income exclusion for taxpayers that either elect to receive direct payments from the Internal Revenue Service or receive payment from transfer of certain federal tax credits beginning tax years on or after January 1, 2026, and before January 1, 2031. The Company is currently evaluating the impact of SB 302 will have on its results of operations in future years.

As members of the OECD (Organization for Economic Co-operation and Development) over 140 countries have agreed in principle to a global minimum tax of 15% of reported profits (Pillar 2). The OECD have published model rules on Pillar 2. Many countries have now incorporated Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2.

In January 2025, the U.S. issued an executive order announcing opposition to aspects of these rules. In June 2025, the G7 countries agreed that U.S. Multi-National Entities (MNEs) should be excluded from certain aspects of the Pillar 2 global minimum tax rules (the G7 Statement) in exchange for the U.S. not imposing retaliatory taxes. On January 5, 2026, the OECD/G20 announced the Side-by-Side (SbS) package, implemented as administrative guidance and modifying the operation of Pillar 2 rules. The package introduces simplifications and new safe harbors for U.S. and other multinational companies where domestic and international tax systems meet robust requirements to coexist with Pillar 2 which would fully exempt U.S.-parented groups from the application of two of the three Pillar 2 top up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting (CbCR) Safe Harbor by one year, through the end of fiscal year of 2027.

In Israel, a law was enacted in December 2025 to implement the Qualified Domestic Minimum Top-Up Tax (the Israeli QDMTT), aligning with the OECD's Pillar 2 framework for a global minimum tax. This law ensures that profits of companies within multinational groups subject to these rules are taxed in Israel at a minimum Effective Tax Rate. The Israeli QDMTT law will impose a local top-up tax as necessary, with the legislation taking effect on January 1, 2026, and applying to income generated from that date onward.

For companies benefiting from tax incentives under the Encouragement of Capital Investments Law, 5719-1959, the Israeli QDMTT framework may affect how these incentives are utilized and presented in financial statements.

According to the Group's Pillar 2 assessment, the Pillar 2 rules did not materially impact the Group’s consolidated financial statements for the year ended December 31, 2025.

We continue to refine the effective tax rate and cash tax impact for Pillar 2 in light of legislative changes in multiple countries.

Historical Timeline

Fiscal Year	Filed
2025	Feb 25, 2026	Showing above
2023	Feb 26, 2024

2021	Feb 22, 2022

2020	Feb 19, 2021

2019	Feb 27, 2020

2018	Feb 28, 2019

2017	Feb 20, 2018

2016	Aug 17, 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.

SOLAREDGE TECHNOLOGIES, INC. Income Taxes Disclosure

Historical Timeline

About Income Taxes Disclosures

Other Available Disclosures