NOTE 18 - Income Taxes 

U.S.

While the Company consolidates its entities under Aerkomm, a Nevada entity as described in Note 1, Organization, management has determined that U.S. represents the Company’s primary tax jurisdiction.

The statutory income tax rate in U.S. is 21.0%. The difference between the Company’s domestic statutory income tax rate and its income tax (expense) benefit is primarily attributable to the effect of tax rates in other jurisdictions in which the Company operates, as well as certain non-taxable income and non-deductible expenses.

Taiwan

The Company’s subsidiary incorporated in Taiwan is governed by the income tax laws of Taiwan, and the income tax provision related to operations in Taiwan is calculated at the applicable statutory tax rates on taxable income for the periods based on existing legislation, interpretations, and practices. The statutory corporate income tax rate in Taiwan is 20.0% and a tax on undistributed earnings at 5%, with additional local taxes, including enterprise tax and inhabitants’ tax, resulting in a higher effective tax rate that may vary depending on the level of taxable income and applicable local tax rates.

Japan

The Company’s subsidiary incorporated in Japan is governed by the income tax laws of Japan, and the income tax provision related to operations in Japan is calculated at the applicable statutory tax rates on taxable income for the periods based on existing legislation, interpretations, and practices. The statutory corporate income tax rate in Japan is 23.2%, with additional local taxes, including enterprise tax and inhabitants’ tax, resulting in a higher effective tax rate that may vary depending on the level of taxable income and applicable local tax rates.

As further described in Note 2, Recently Issued Accounting Standards, the Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table presented the loss before income taxes for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09:

Income tax expense for the year ended December 31, 2025 and 2024 consisted of the following:

The following table presents a reconciliation of the Company’s income tax at statutory tax rate and income tax at effective tax rate for the year ended December 31, 2024.

As further described in Note 2, Recently Issued Accounting Standards, the Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09:

Deferred tax assets as of December 31, 2025 and 2024 consist approximately of:

Management does not believe the deferred tax assets will be utilized in the near future; therefore, a full valuation allowance is provided. The net change in deferred tax assets valuation allowance was an increase of approximately $3.4 million for the year ended December 31, 2025.

As of December 31, 2025 and 2024, the Company had federal NOLs of approximately $8.2 million available to reduce future federal taxable income, expiring in 2037, and additional federal NOLs of approximately $46.4 million were generated and will be carried forward indefinitely to reduce future federal taxable income. As of December 31, 2025 and 2024, the Company had State NOLs of approximately $30.4 million, available to reduce future state taxable income, expiring in 2042.

As of December 31, 2025 and 2024, the Company has Japan NOLs of approximately $1.0 million and $1.1 million, respectively, available to reduce future Japan taxable income, expiring in 2031.

As of December 31, 2025 and 2024, the Company has Taiwan NOLs of approximately $6.9 million and $4.5 million, respectively, available to reduce future Taiwan taxable income, expiring in 2031.

As of December 31, 2025 and 2024, the Company had approximately $37,000 of federal research and development tax credit, available to offset future federal income tax. The credit begins to expire in 2034 if not utilized. As of December 31, 2025 and 2024, the Company had approximately $39,000 of California state research and development tax credit available to offset future California state income tax. The credit can be carried forward indefinitely.

The Company’s ability to utilize its federal and state NOLs to offset future income taxes is subject to restrictions resulting from its prior change in ownership as defined by Internal Revenue Code Section 382. The Company does not expect to incur the limitation on NOLs utilization in future annual usage.