Zymeworks Inc.ZYME
Zymeworks Inc. Income Taxes Disclosure
Income Taxes
Loss before provision for income taxes was as follows:
| Year Ended December 31, | |||||
| 2025 | |||||
United States | $ | (16,809) | |||
Foreign | (62,945) | ||||
Loss before income taxes | $ | (79,754) | |||
Income tax expense is comprised of the following:
| Year Ended December 31, | |||||
| 2025 | |||||
Current tax provision: | |||||
| Federal | 482 | ||||
| State | (15) | ||||
| Foreign | (898) | ||||
| Total current tax expense | (431) | ||||
Deferred tax provision: | |||||
| Federal | (845) | ||||
| State | — | ||||
| Foreign | (100) | ||||
Total deferred tax expense | (945) | ||||
Provision for income taxes | $ | (1,376) | |||
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Current income tax expense | $ | (5,393) | $ | (189) | |||||||
| Deferred income tax (expense) recovery | (691) | 757 | |||||||||
| Income tax (expense) recovery | $ | (6,084) | $ | 568 | |||||||
Current income tax expense for the years ended December 31, 2025, 2024 and 2023 arose from the operations of the Company and its wholly owned subsidiaries in Canada, in the United States, in Ireland and in Singapore, as well as withholding taxes paid by the Company abroad in 2025, 2024 and 2023.
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 before income taxes after the adoption of ASU 2023-09 is as follows:
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| $ | Percent | ||||||||||
| U.S. Federal statutory income tax rate | 16,748 | 21.0 | % | ||||||||
State & local income tax, net of federal income tax effect (1) | (15) | — | % | ||||||||
| Foreign tax effects | |||||||||||
| Canada | |||||||||||
| Tax rate differential | (3,980) | (5.0) | % | ||||||||
Provincial tax rate differential | 7,642 | 9.6 | % | ||||||||
| Changes in valuation allowance | (15,682) | (19.7) | % | ||||||||
| Effect of cross-border laws | (1,921) | (2.4) | % | ||||||||
| SR&ED Tax Credits | 2,971 | 3.7 | % | ||||||||
| Stock Based Compensation | (4,065) | (5.1) | % | ||||||||
| Other | 91 | 0.1 | % | ||||||||
| United Kingdom | |||||||||||
| Stock Based Compensation | 1,047 | 1.3 | % | ||||||||
| Other | (16) | — | % | ||||||||
| Other foreign jurisdictions | (208) | (0.2) | % | ||||||||
| Enactment of new tax laws | — | — | % | ||||||||
| Effect of cross-border laws | |||||||||||
| Foreign Base Company Income | (2,006) | (2.5) | % | ||||||||
| Other | — | — | % | ||||||||
| Tax Credits | 635 | 0.8 | % | ||||||||
| Changes in valuation allowance | (3,237) | (4.1) | % | ||||||||
| Non-taxable or non-deductible items | (122) | (0.2) | % | ||||||||
| Changes in unrecognized tax benefits | (97) | (0.1) | % | ||||||||
| Other | 839 | 1.1 | % | ||||||||
| Effective Income Tax Rate | (1,376) | (1.7) | % | ||||||||
(1) State taxes in New York, New Jersey, and Texas made up the majority of the tax effect in this category for the year ended December, 31 2025.
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 before income taxes for years prior to the adoption of ASU 2023-09 is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Computed taxes at United States statutory income tax rate | $ | 24,466 | $ | 25,041 | |||||||
| Non-deductible expenses | (10,508) | (2,696) | |||||||||
| Difference between domestic and foreign tax rate | 5,360 | 5,976 | |||||||||
| Adjustments to prior year | 524 | 48,724 | |||||||||
| Change in valuation allowance | (28,882) | (78,668) | |||||||||
Change in recognition and measurement of tax positions | (38) | (14) | |||||||||
| Changes due to SR&ED and research credits | 3,102 | 2,661 | |||||||||
| Other | (108) | (456) | |||||||||
| Income tax (expense) recovery | $ | (6,084) | $ | 568 | |||||||
Deferred income tax assets and liabilities result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the deferred income tax assets and liabilities are as follows:
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Non-capital losses carried forward | $ | 199,946 | $ | 177,660 | |||||||
| Deferred revenue | 4,596 | 10,852 | |||||||||
Share issuance costs | 666 | 1,360 | |||||||||
| Property and equipment | — | 71 | |||||||||
| Intangible assets | 5,271 | 4,539 | |||||||||
| Research and development deductions and credits | 57,097 | 50,415 | |||||||||
| Stock options | 7,724 | 8,388 | |||||||||
| Operating lease liability | 4,657 | 4,761 | |||||||||
| Other | 42 | 202 | |||||||||
| $ | 279,999 | $ | 258,248 | ||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | (243) | (174) | |||||||||
| Operating lease right-of-use assets | (4,024) | (4,294) | |||||||||
| Outside basis difference in foreign subsidiary | (2,414) | (2,429) | |||||||||
Stock options | — | (2,333) | |||||||||
Other | (182) | (176) | |||||||||
| $ | (6,863) | $ | (9,406) | ||||||||
| 273,136 | 248,842 | ||||||||||
| Less: valuation allowance | (274,457) | (249,218) | |||||||||
| Net deferred tax (liabilities) assets | $ | (1,321) | $ | (376) | |||||||
| Deferred tax assets | $ | 4,707 | $ | 4,385 | |||||||
| Deferred tax liabilities | (6,028) | (4,761) | |||||||||
| Net deferred tax (liabilities) assets | $ | (1,321) | $ | (376) | |||||||
In evaluating the ability to realize the net deferred tax assets, all available positive and negative evidence was considered, including the Company's past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The change in the valuation allowance from December 31, 2024 to December 31, 2025 primarily relates to loss carryforward attributes sustained in the current reporting period that are not more-likely-than-not to be realized.
At December 31, 2025, the Company has net operating losses carried forward for tax purposes in Canada, which are available to reduce taxable income of future years of approximately $737.0 million (December 31, 2024: $658.0 million) expiring commencing 2035 through 2045.
At December 31, 2025, the Company also has unclaimed tax deductions for scientific research and experimental development expenditures of approximately $121.0 million (December 31, 2024: $108.6 million) available to reduce taxable income of future years in Canada, with no expiry. At December 31, 2025, the Company has approximately $28.0 million (December 31, 2024: $25.0 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2039 through 2045, and has approximately $1.1 million (December 31, 2024: $0.9 million) of research tax credits available to offset U.S. federal taxes payable expiring commencing in 2042 through 2045.
A reconciliation of total unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023 are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance, beginning of year | $ | 3,115 | $ | 3,077 | $ | 3,063 | |||||||||||
| Gross increases related to prior year tax positions | 2,364 | — | — | ||||||||||||||
| Gross decreases to tax positions in prior periods | — | — | — | ||||||||||||||
| Gross increases to current period tax positions | 97 | 38 | 14 | ||||||||||||||
| Gross decreases due to settlements with taxing authorities | — | — | — | ||||||||||||||
| Gross decreases due to statute of limitations lapse | — | — | — | ||||||||||||||
| Balance, end of year | $ | 5,576 | $ | 3,115 | $ | 3,077 | |||||||||||
Included in the balance of unrecognized tax benefits at December 31, 2025, 2024 and 2023 are potential benefits of nil that, if recognized, would affect the effective tax rate on income from continuing operations. Recognition of these potential benefits would result in a deferred tax asset in the form of net operating loss carry-forward, which would be subject to a valuation allowance based on conditions existing at the reporting date.
The Company recognizes interest expense and penalties related to unrecognized tax benefits within the provision for income tax expense on the consolidated statements of loss and comprehensive loss.
The Company currently files income tax returns in Canada, the United States, the United Kingdom, Ireland and Singapore, the jurisdictions in which the Company believes that it is subject to tax. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, management is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2006 to 2025 remain subject to Canadian income tax examinations. Tax years ranging from 2022 to 2025 remain subject to U.S. income tax examinations. Tax years ranging from 2022 to 2025 remain subject to United Kingdom income tax examinations. Tax years 2023 to 2025 remains subject to Ireland and Singapore income tax examinations.
The amounts of cash income taxes paid by the Company were as follows:
| Year Ended December 31, | |||||
| 2025 | |||||
| Federal | $ | 213 | |||
| State | 17 | ||||
| Foreign | |||||
| Ireland | 72 | ||||
| United Kingdom | 1,030 | ||||
| All other foreign | 18 | ||||
| Income taxes, net of amounts refunded | $ | 1,350 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Mar 5, 2025 | |
| 2023 | Mar 6, 2024 | |
| 2022 | Mar 7, 2023 | |
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.