Wave Life Sciences Ltd. Income Taxes Disclosure

11. INCOME TAXES

During the years ended December 31, 2025 and 2024, the Company recorded no income tax benefit or provision. During the year ended December 31, 2023, the Company recorded an income tax benefit of $0.7 million. The income tax benefit for the year ended December 31, 2023 was due to a change in estimate in connection with U.S. tax guidance relating to the capitalization of research and development expenditures.

As of December 31, 2025, the Company had federal net operating loss carryforwards in the United States of $501.3 million, of which $500.5 million may be available to offset future U.S. federal taxable income indefinitely, while $0.8 million of the carryforwards may offset future U.S. federal taxable income through 2037. As of December 31, 2025, the Company had U.S. state net operating loss carryforwards of $150.1 million available to offset future U.S. state taxable income that will begin to expire in 2038. As of December 31, 2025 and 2024, the Company had U.S. federal research and development tax credit carryforwards of $15.1 million and $11.2 million, respectively, available to offset future U.S. federal income taxes and will begin to expire in 2042. As of December 31, 2025 and 2024, the Company had U.S. state research and development tax credit carryforwards of $7.0 million and $4.8 million, respectively, available to offset future U.S. state income taxes and will begin to expire in 2037. As of December 31, 2025 and 2024, the Company had a U.S. orphan drug credit carryforward of $3.7 million and $0.8 million, respectively, available to offset future U.S. federal income taxes that will begin to expire in 2042.

As of December 31, 2025 and 2024, the Company had net operating loss carryforwards in Japan of $0.1 million and $0.7 million, respectively, which may be available to offset future Japan taxable income and begin to expire in 2027.

As of December 31, 2025 and 2024, the Company had net operating loss carryforwards in Singapore of $144.8 million and $132.7 million, respectively, which may be available to offset future Singapore taxable income and can be carried forward indefinitely.

As of December 31, 2025 and 2024, the Company had net operating loss carryforwards in the United Kingdom (“UK”) of $414.7 million and $339.5 million, respectively, which may be available to offset future UK taxable income and can be carried forward indefinitely.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets. As of December 31, 2025, management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales 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 in all jurisdictions. Accordingly, a full valuation allowance has been established against the Company's deferred tax assets as of December 31, 2025.

The valuation allowance increased by $54.4 million in 2025. The increase in the valuation allowance for 2025 was primarily a result of operating losses generated with no corresponding financial statement benefit. The Company may release this valuation allowance when management determines that it is more-likely-than-not that the deferred tax assets will be realized. Any release of valuation allowance will be recorded as a tax benefit either increasing net income or decreasing net loss.

The Company’s reserves related to income taxes and its accounting for uncertain tax positions are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more-likely-than-not to be realized following resolution of any potential contingencies present related to the tax benefit.

As of December 31, 2025 and 2024, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was $21.4 million and $20.8 million, respectively. At December 31, 2025, none of the net unrecognized tax benefits would affect the Company’s effective tax rate due to the Company's full valuation allowance.

The Company files 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 various tax authorities in the United States, Japan, Singapore and the United Kingdom. Tax years from 2022 to the present are still open to examination in the United States, from 2020 to the present in Japan, from 2021 to the present in Singapore and from 2024 to the present in the United Kingdom. To the extent that the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the tax authorities to the extent utilized in a future period.

As of December 31, 2025 and 2024, $44.4 million and $37.8 million, respectively, of cash and cash equivalents were held by the Company’s subsidiaries outside of Singapore. The Company does not provide for Singapore income tax or withholding taxes on the outside basis differences, including foreign unremitted earnings of its subsidiaries as they are permanently reinvested. If the Company decides to change its indefinite reversal assertion in the future, the Company may be required to record deferred taxes. Because of the complexity of Singapore and the rest-of-the-world tax rules applicable to the method of recovery of the investment in its subsidiaries, including distribution of earnings from its subsidiaries to Singapore, the determination of the unrecognized deferred tax liability is not practicable.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards in the United States may be subject to a substantial annual limitation under Section 382 and Section 383 of the Code, 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 and tax. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the shares of a corporation by more than 50% over a three-year period. The Company previously completed Section 382 studies to assess whether there have been ownership changes since its formation through 2022. The results of the studies indicated that the Company experienced ownership changes as defined by Section 382 of the Code, and, as such, the Company adjusted its net operating losses and research and development credit carryforwards to reflect the limitations as a result of such ownership changes. The Company updated its Section 382 study to assess whether there have been ownership changes since December 31, 2022 through 2024 and the Company did not experience any additional ownership changes. Should one or more ownership changes occur in the future, the Company’s ability to utilize its net operating losses and research and development credit carryforwards may be further limited.