12. INCOME TAXES

NESR is a holding company incorporated in the BVI, which imposes a zero percent statutory corporate income tax rate on income generated outside of the BVI. The subsidiaries operate in multiple tax jurisdictions throughout the MENA region where statutory tax rates generally vary from 0% to 35.0%.

 SCHEDULE OF INCOME BEFORE INCOME TAX DOMESTIC AND FOREIGN

Income tax expense / (benefit)

The components of the income tax expense / (benefit), all of which is foreign, are as follows (in US$ thousands):

 SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

Deferred taxes have been recognized for temporary differences and carryforwards that will have effects on income taxes payable or receivables in future years. The components of net deferred tax liabilities and assets are as follows (in US$ thousands):

 SCHEDULE OF DEFERRED INCOME TAX ASSETS (LIABILITIES)

The Company has $310.4 million of tax effective operating loss carryforwards made of $180.3 million reported in Saudi Arabia, which can be indefinitely carried forward, and $130.1 million reported in other countries that generally expire between 2026 and 2030.

Deferred tax assets are reduced by valuation allowances. As of December 31, 2025, and 2024, valuation allowances of $22.3 million and $9.7 million relate to deferred tax assets for net operating loss carryforwards. Changes in the Company’s estimates and assumptions used to determine the valuation allowance, including any changes in applicable tax laws or tax rates, may impact the Company’s ability to recognize the underlying deferred tax assets and could require future adjustments to the valuation allowances. For the year ended December 31, 2025, the net change in the valuation allowance was $12.6 million. Further, deferred tax assets as of December 31, 2025, and 2024 in the table above, for operating loss balances carried forward on the Company’s income tax returns, have been presented net of an unrecognized tax benefit for likely disallowances of $25.0 million and $28.9 million, respectively.

Deferred tax liabilities on Property, plant and equipment and other of $3.1 million and $3.8 million at December 31, 2025, and 2024, respectively.

The Company generally does not recognize deferred tax liabilities related to undistributed earnings of foreign subsidiaries because such earnings either would not be taxable when remitted or they are indefinitely reinvested. This position may change if the Company decides to distribute the earnings from its subsidiaries, which are subject to withholding taxes, or if there are any unfavorable changes in the tax laws in this regard. Accordingly, a determination of the amount of unrecognized deferred tax liability on such undistributed earnings is not practicable. Current tax expense will be incurred if/when the Company distributes earnings from its subsidiaries which are subject to withholding taxes. No taxable distribution of earnings have been made for the year ended December 31, 2025. Accordingly, no current tax expense, and $0.6 million, was recorded at December 31, 2025, and 2024, respectively.

Income Tax Rate Reconciliation

The difference between the reported amount of income tax expense and the amount that would result from applying the BVI statutory rate is shown in the table below (in thousands). In the BVI, the statutory rate is effectively 0% as income tax is not applied on extra territorial activity.

 SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

The foreign tax rate differential relates to differences between the income tax rates in effect in the foreign countries in which the Company operates, which can vary significantly, and the Company’s statutory tax rate of 0%. Income tax (benefit)/ expense for the years ended December 31, 2025, and 2024, include $2.5 million and $2.9 million, respectively, of penalties and interest associated with the Company’s uncertain tax positions.

Uncertain Tax Positions / Unrecognized Tax Benefits

The Company records estimated accrued interest and penalties related to an underpayment of income taxes in income tax expense. As of December 31, 2025, and 2024, the Company had $52.1 million and $65.0 million, respectively, of uncertain tax positions and unrecognized tax benefits, excluding estimated accrued interest and penalties of $3.6 million and $7.6 million, respectively, which are included in Other Long-Term Liabilities in the Consolidated Balance Sheet. There are no timing differences or other items that have indirect effects included in the uncertain tax positions and unrecognized tax benefits and as such all $55.7 million of the net uncertain tax positions and unrecognized tax benefits as of December 31, 2025, would affect the effective tax rate if recognized.

A summary of activity related to the net unrecognized tax benefits is as follows:

 SCHEDULE OF UNRECOGNIZED TAX BENEFITS

The Company does not anticipate the amount of the unrecognized tax benefits will change significantly over the next twelve months.

Unrecognized tax benefits may change from quarter-to-quarter based on various factors, including, but not limited to, favorable or unfavorable resolution of tax audits or disputes, expiration of relevant statutes of limitations, changes in tax laws or changes to the interpretation of existing tax laws due to new legislative guidance or court rulings, or new tax positions taken on recently filed tax returns. Although the Company has recorded unrecognized tax benefits for all tax positions which, in management’s judgment, are not more likely than not to be sustained if challenged by the relevant tax authorities in the future, the Company cannot provide assurance as to the final tax liability related to its tax positions as it is not possible to predict with certainty the ultimate outcome of any related tax disputes. Thus, it is reasonably possible that the ultimate tax liabilities related to such tax positions could substantially exceed recorded uncertain tax positions and unrecognized tax benefits related to such tax positions, resulting in a material adverse effect on the Company’s earnings and cash flows from operations.

The Company’s tax returns for year 2019 and subsequent years for all major jurisdictions remain subject to examination by tax authorities. The Company is currently subject to or expects to be subject to income tax examinations in various jurisdictions where the Company operates or has previously operated. If any tax authority successfully challenges the Company’s tax positions, including, but not limited to, tax positions related to the tax consequences of various intercompany transactions, the taxable presence of the Company’s subsidiaries in a given jurisdiction, the basis of taxation in a given jurisdiction (such as deemed profits versus net-filing basis), or the applicability of relevant double tax treaty benefits to certain transactions; or should the Company otherwise lose a material tax dispute in any jurisdiction, the Company’s income tax liability could increase substantially and the Company’s earnings and cash flows from operations could be materially adversely affected to the extent such amounts are in excess of existing provisions.

Income Taxes Paid

 SCHEDULE OF INCOME TAXES PAID

Impact of the GloBE Rules on the Company

The Company operates across multiple jurisdictions and is within the scope of the OECD Global Anti-Base Erosion (“GloBE”) Pillar Two Model Rules in certain territories in which it conducts business. The Pillar Two framework introduces a 15% global minimum effective tax rate on a jurisdictional basis for multinational enterprise (“MNE”) groups that meet the applicable revenue thresholds, implemented through a combination of Domestic Minimum Top-Up Taxes (“DMTT”), Income Inclusion Rules (“IIR”), and Undertaxed Payments Rules (“UTPR”).

Various jurisdictions in which the Company operates have enacted, or substantively enacted, legislation aligned with the Pillar Two Model Rules, mostly with the effective dates beginning on or after 1 January 2025. In certain jurisdictions of operations of the Company, Pillar Two has been implemented through domestic minimum top-up tax regimes, while other jurisdictions have enacted IIR or UTPR legislation. The Company has evaluated the enacted legislation applicable to its constituent entities and continues to monitor developments in jurisdictions that have not yet fully implemented Pillar Two.

The Company has assessed the impact of Pillar Two by considering, among other factors, the availability of transitional safe harbor rules, recently filed tax returns, country-by-country reporting data, and the financial information of its constituent entities. For jurisdictions in which Pillar Two legislation is effective, any resulting top-up taxes have been recognized as current income tax expense in the period in which they are incurred. The Company does not recognize deferred tax assets or deferred tax liabilities related to Pillar Two taxes.

The Company continues to monitor developments in Pillar Two legislation and related guidance.