Zai Lab LtdZLAB
Zai Lab Ltd Income Taxes Disclosure
Income Tax
Cayman Islands
Zai Lab Limited, ZLIP Holding Limited, Zai Auto Immune Limited, and Zai Anti Infectives Limited are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, Zai Lab Limited, ZLIP Holding Limited, Zai Auto Immune Limited, and Zai Anti Infectives Limited are not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
British Virgin Islands Taxation
ZL Capital Limited is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, ZL Capital Limited is not subject to income tax.
Australia
Zai Lab (AUST) Pty. Ltd. is incorporated in Australia and is subject to corporate income tax at a rate of 30%. Zai Lab (AUST) Pty. Ltd. had no taxable income for the periods presented; therefore, no provision for income taxes is required.
United States
Zai Lab (US) LLC is incorporated in the United States and is subject to U.S. federal corporate income tax at a rate of 21%. Zai Lab (US) LLC is also subject to state income tax in Delaware. Zai Lab (US) LLC had no taxable income for the periods presented; therefore, no provision for income taxes is required.
Taiwan
Zai Lab (Taiwan) Limited is incorporated in Taiwan and is subject to corporate income tax at a rate of 20%. Zai Lab (Taiwan) Limited had no taxable income for the periods presented; therefore, no provision for income taxes is required.
Hong Kong
Zai Lab (Hong Kong) Limited, ZL China Holding Two Limited, Zai Auto Immune (Hong Kong) Limited, and Zai Anti Infectives (Hong Kong) Limited are incorporated in Hong Kong. Companies registered in Hong Kong are subject to Hong Kong profits tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. Under the two-tiered profits tax rates regime in Hong Kong, the first HK$2.0 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2.0 million will be taxed at 16.5%. In 2025, 2024, and 2023, Zai Lab (Hong Kong) Limited, ZL China Holding Two Limited, Zai Auto Immune (Hong Kong) Limited, and Zai Anti Infectives (Hong Kong) Limited did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong for any of the periods presented. Under the Hong Kong tax law, Zai Lab (Hong Kong) Limited, ZL China Holding Two Limited, Zai Auto Immune (Hong Kong) Limited, and Zai Anti Infectives (Hong Kong) Limited are exempted from income tax on its foreign-derived income, and there are no withholding taxes in Hong Kong on remittance of dividends.
People’s Republic of China
Under EIT Law, the statutory income tax rate is 25%, and the EIT rate will be reduced to 15% for state-encouraged High and New Technology Enterprises (“HNTE”). Zai Lab (Shanghai) Co., Ltd., first obtained an HNTE certificate in 2018 and began to enjoy the preferential tax rate of 15% from 2018 to 2020 and further extended the certificate effective for 2021 to 2026. Zai Lab International Trading (Shanghai) Co., Ltd., Zai Lab (Suzhou) Co., Ltd., Zai Biopharmaceutical
(Suzhou) Co., Ltd., Zai Lab Trading (Suzhou) Co., Ltd., and Zai Lab (Zhejiang) Co., Ltd. are subject to the statutory rate of 25%.
The following table presents loss (income) before income taxes ($ in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cayman Islands | (6,840) | (2,453) | (16,792) | ||||||||||||||
| British Virgin Islands | — | — | 0 | ||||||||||||||
| Mainland China | 80,192 | 146,725 | 253,274 | ||||||||||||||
| Hong Kong | (16,211) | 1,808 | 4,483 | ||||||||||||||
| United States | 120,859 | 110,422 | 92,869 | ||||||||||||||
| Australia | 15 | 19 | 14 | ||||||||||||||
| Taiwan | 449 | 582 | 772 | ||||||||||||||
| 178,464 | 257,103 | 334,620 | |||||||||||||||
The current and deferred components of the income tax benefit are as follows ($ in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current tax expense (benefit) | |||||||||||||||||
| Mainland China | 451 | — | — | ||||||||||||||
| Deferred tax expense (benefit) | |||||||||||||||||
| Mainland China | (3,378) | — | — | ||||||||||||||
Tax expense (benefit) | (2,927) | — | — | ||||||||||||||
The Company’s cash paid net of refunds received for income taxes in China are all nil for 2025, 2024, and 2023.
The Company’s statutory rate reconciliation is based on the PRC statutory income tax rate because the Cayman Islands does not impose corporate income tax and the PRC is the jurisdiction that primarily drives the Company’s income tax benefit.
The following table presents the reconciliations of the differences between the mainland China statutory income tax, and the Company’s effective income tax for 2025, following the prospective adoption of ASU No. 2023-09, Improvements to Income Tax Disclosures:
Year Ended December 31 | ||||||||||||||
2025 | ||||||||||||||
$ | % | |||||||||||||
PRC Statutory income tax benefit | (44,615) | 25.00 | % | |||||||||||
| Mainland China tax effects | ||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Share-based compensation | 5,049 | (2.83) | % | |||||||||||
| Expiration of deductible qualified donation | 8,447 | (4.73) | % | |||||||||||
| Others | 1,220 | (0.68) | % | |||||||||||
Other adjustments | ||||||||||||||
| Research and development super deduction (i) | (12,498) | 7.00 | % | |||||||||||
| Preferential tax rate (ii) | 6,022 | (3.37) | % | |||||||||||
| Intercompany inventory profit deferral (iii) | 3,205 | (1.80) | % | |||||||||||
| Others | 1,672 | (0.94) | % | |||||||||||
| Changes in valuation allowance | 3,953 | (2.21) | % | |||||||||||
| United States tax effects | ||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Share-based compensation tax effect | (5,153) | 2.89 | % | |||||||||||
| Non-deductible compensation | 2,543 | (1.43) | % | |||||||||||
Other adjustments | ||||||||||||||
| Effect of different tax rate of subsidiary operation | 4,834 | (2.71) | % | |||||||||||
| Others | 10 | (0.01) | % | |||||||||||
| Changes in valuation allowance | 27,980 | (15.68) | % | |||||||||||
| Hong Kong tax effects | ||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Offshore income (iv) | (6,649) | 3.73 | % | |||||||||||
| Others | 2,982 | (1.67) | % | |||||||||||
| Others adjustments | (241) | 0.13 | % | |||||||||||
| Cayman tax effects | (1,688) | 0.95 | % | |||||||||||
| Effective income tax benefit | (2,927) | 1.64 | % | |||||||||||
(i) In accordance PRC EIT law, certain PRC entities engaged in manufacturing and whose principal operating revenue exceeded 50% of total revenue were entitled to claim an additional tax deduction of 100% of the qualified R&D expenses.
(ii) Preferential tax rate reflects the reduced 15% PRC EIT rate applicable to qualified High and New Technology Enterprises, compared to the 25% statutory PRC tax rate.
(iii) Intercompany inventory profit deferral is related to the tax effect of unrealized intercompany profit on inventory that is eliminated in consolidation and allocated based on the underlying economic activity.
(iv) A certain Hong Kong entity generated income treated as offshore-sourced under Hong Kong’s territorial tax system. Accordingly, the related income is not taxable in Hong Kong.
The following table presents the reconciliations of the differences between the mainland China statutory income tax rate and the Company’s effective income tax rate for 2024 and 2023:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| % | % | ||||||||||
| PRC Statutory income tax rate | 25 | % | 25 | % | |||||||
| Tax-exempted income | 0.42 | % | 0.19 | % | |||||||
Share-based compensation | (3.52 | %) | (2.08 | %) | |||||||
Research and development super deduction | 5.28 | % | 7.11 | % | |||||||
| Non-deductible expenses | (0.77 | %) | (2.83 | %) | |||||||
| Prior year tax filing adjustment | (3.05 | %) | 1.32 | % | |||||||
Effect of different tax rate of subsidiary operation in other jurisdictions | (0.73 | %) | 0.02 | % | |||||||
| Preferential tax rate | (5.05 | %) | (7.12 | %) | |||||||
| Expiration of tax loss | (2.72 | %) | — | % | |||||||
| Expiration of deductible qualified donation | (0.78 | %) | 2.28 | % | |||||||
| Changes in valuation allowance | (14.08 | %) | (23.89 | %) | |||||||
| Effective income tax rate | — | % | — | % | |||||||
The following table presents the principal components of deferred tax assets and liabilities ($ in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
Depreciation of property and equipment | 193 | 171 | |||||||||
Research and experimental capitalization | 49,331 | 38,215 | |||||||||
Share-based compensation | 3,886 | 3,797 | |||||||||
Accrued expenses | 500 | 1,038 | |||||||||
| Government grants | — | 98 | |||||||||
| Deferred revenue | 3,225 | 3,442 | |||||||||
Qualified donation | 23,224 | 26,832 | |||||||||
| Lease liability | 3,662 | 3,885 | |||||||||
| Inventory write-down | 2,953 | — | |||||||||
| Net operating loss carry forwards | 349,118 | 321,068 | |||||||||
| Less: valuation allowance | (429,181) | (394,778) | |||||||||
Total Deferred tax assets | 6,911 | 3,768 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Right-of-use assets | (3,521) | (3,768) | |||||||||
| Deferred tax assets, net | 3,390 | — | |||||||||
ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. In assessing the need for any valuation allowance, the Company considered all available evidence both positive and negative, including potential for prudent and feasible tax planning strategies, recent losses, and forecasts of future profitability. The Company’s deferred tax assets, net were $3.4
million as of December 31, 2025, which was primarily related to its inventory write-down (see Note 5). The Company expects it is more likely than not to generate sufficient taxable income in the jurisdictions in which the inventory write-down occurred in the future to realize the tax benefit.
The following table presents that movement of the valuation allowance on deferred tax assets ($ in thousands):
| 2025 | 2024 | ||||||||||
| Balance as of January 1, | (394,778) | (357,956) | |||||||||
| Additions | (38,406) | (36,822) | |||||||||
| Reductions | 4,003 | — | |||||||||
| Balance as of December 31, | (429,181) | (394,778) | |||||||||
As of December 31, 2025 and 2024, the Company had net operating loss carry forwards of $2,121.7 million and $1,951.5 million, respectively. The following table presents the components of the Company’s net operating losses, net as of December 31, 2025 ($ in thousands):
December 31, 2025 | Expiration Date | ||||||||||
Mainland China | 66,299 | 2026 through 2030 | |||||||||
Mainland China (High-Tech) (i) | 1,611,373 | 2026 through 2035 | |||||||||
| Hong Kong | 60,420 | No expiration date | |||||||||
| Taiwan | 2,812 | 2026 through 2035 | |||||||||
| United States | 376,963 | No expiration date | |||||||||
| Australia | 3,811 | No expiration date | |||||||||
| Total | 2,121,678 | ||||||||||
(i) The EIT for Certain entity in mainland China is reduced to 15% for state-encouraged High and New Technology Enterprises.
Uncertainties exist with respect to how the current income tax law in mainland China applies to the Company’s overall operations, and more specifically, with regard to tax residency status. The EIT Law includes a provision specifying that legal entities organized outside of mainland China will be considered residents for Chinese income tax purposes if the place of effective management or control is within mainland China. The implementation rules to the EIT Law provide that non-resident legal entities will be considered Chinese residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, and properties occurs within mainland China. Despite the present uncertainties resulting from the limited Chinese tax guidance on the issue, the Company does not believe that the legal entities organized outside of mainland China within the Company should be treated as residents for EIT Law purposes. If the Chinese tax authorities subsequently determine that the Company and its subsidiaries registered outside of mainland China should be deemed resident enterprises, the Company and its subsidiaries registered outside of mainland China will be subject to Chinese income taxes, at a rate of 25%. The Company is not subject to any other uncertain tax position.
According to the PRC Tax Administration and Collection Law, the statute of limitation is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitation is extended to five years under special circumstances where the underpayment of taxes is more than RMB0.1 million. In the case of transfer pricing issues, the statute of limitation is 10 years. There is no statute of limitation in the case of tax evasion. The income tax returns of the Company’s PRC subsidiary for the years from 2016 to 2025 are open to examination by the PRC tax authorities.
For Hong Kong income tax purposes, the statute of limitations is six years after the relevant year of assessment. This can be extended to 10 years in the case of fraud or willful evasion of taxes. There are no provisions that govern the time limit for tax collection.
For U.S. federal income tax purposes, the statute of limitations is generally 3 years after the due date of the return, or 3 years after the date the return was actually filed, whichever is later. The statute of limitations does not apply to fraud or tax evasion. Also, the statute of limitations is indefinite if no tax return is filed. For state income tax purposes, the statute of limitations is generally 4 years from the return filing date or due date in states including California, Kentucky, and New Jersey, subject to certain exceptions (e.g., fraud, failure to file).
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
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.