Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAXES

v3.26.3
INCOME TAXES
 12 Months Ended
Jun. 30, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 14 – INCOME TAXES

 

The Company is incorporated in the State of Nevada and registered to do business in the State of California. The following is a breakdown of income before the provision for income taxes:

 

Consolidated pre-tax income (loss) consists of the following:

 

    2026     2025  
    For the Years  
    Ended June 30,  
    2026     2025  
US operations   $ (669,670 )   $ 1,099,957  
Foreign operations     7,895,549       4,947,300  
Net income before income taxes    $ 7,225,879     $ 6,047,257  

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

June 30, 2026 and 2025

 

The components of the provision for income taxes are as follows:

 

    2026     2025  
    For the Years  
    Ended June 30,  
    2026     2025  
Current:                
Federal   $ -     $ -  
State and Local     24,552       1,600  
Foreign     1,653,965       1,411,601  
                 
Deferred:                
Federal     -       -  
State and Local     -       -  
Foreign     (48,141 )     63,137  
Provision for income taxes   $ 1,630,376     $ 1,476,338  

 

A reconciliation of taxes computed at the statutory federal income tax rate to income tax expense (benefit) is as follows:

 

    For the Year Ended        
    June 30, 2026        
Income tax (benefit) provision at statutory rate   $ 1,517,432       21.0 %
State income (benefit) taxes, net of federal tax benefit     2,636       0.0 %
Foreign tax effects                
Pakistan statutory rate differential     515,228       7.1 %
China statutory rate differential     (107,494 )     -1.5 %
United Arab Emirates statutory rate differential     (372,081 )     -5.1 %
Pakistan alternative tax regimes     (151,661 )     -2.1 %
Pakistan prior-period super tax     442,805       6.1 %
Other foreign tax effects     208,276       2.9 %
Changes in valuation allowances     387,154       5.4 %
Nontaxable or nondeductible items                
Pakistan tax-exempt income     (1,486,727 )     -20.6 %
Thailand nondeductible bad debt     526,377       7.3 %
Nondeductible executive compensation     135,822       1.9 %
Other nontaxable or nondeductible items     49,405       0.7 %
Other     (36,796 )     -0.5 %
Income tax expense (benefit)   $ 1,630,376       22.6 %

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

June 30, 2026 and 2025

 

Deferred income tax assets and liabilities as of June 30, 2026 and 2025 consist of tax effects of temporary differences related to the following:

 

    2026     2025  
    For the Years  
    Ended June 30,  
    2026     2025  
Net operating loss carry forwards   $ 12,003,107     $ 10,963,495  
Other     220,065       200,323  
Total deferred tax assets     12,223,172       11,163,818  
Valuation allowance for deferred tax assets     (12,097,786 )     (11,163,818 )
Deferred tax assets, net of valuation allowance     125,386       -  
Deferred tax liabilities     (119,787 )     (171,096 )
Net deferred tax asset (liability)   $ 5,599     $ (171,096 )

 

The following table presents income taxes paid, net of refunds received, disaggregated by federal, state and local, and foreign jurisdictions for the year ended June 30, 2026.

 

For the year the ended June 30, 2026  

Income taxes paid,

net of refunds received

  
U.S. federal   $ -  
State and local     24,552  
Foreign        
United Kingdom     562,528  
Pakistan     588,050  
Thailand     90,100  
UAE     249,835  
All other foreign jurisdictions     -  
Total foreign     1,490,513  
Total income taxes paid, net of refunds received   $ 1,515,065  

 

The Company maintains a valuation allowance against deferred tax assets when, based on the weight of available positive and negative evidence, management determines that it is more likely than not that such deferred tax assets will not be realized. The valuation allowance was $12,097,786 and $11,163,818 as of June 30, 2026 and 2025, respectively. The valuation allowance increased by $933,968 for the year ended June 30, 2026.

 

At June 30, 2026, federal and state net operating loss carryforwards in the United States of America were $30,182,032 and $8,947,835, respectively. Federal net operating loss carryforwards begin to expire in 2028, while state net operating loss carryforwards are expiring each year. Due to both historical and recent changes in the capitalization structure of the Company, the utilization of net operating losses may be limited pursuant to section 382 of the Internal Revenue Code. Net operating losses related to foreign entities were $19,820,304 at June 30, 2026.

 

As of June 30, 2026, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

 

The Company is subject to U.S. federal income tax, as well as various state and foreign jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending June 30, 2023 through 2026. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.

 

The cumulative amount of undistributed earnings of foreign subsidiaries that the Company intends to permanently invest and upon which no deferred US income taxes have been provided is $38,122,442 as of June 30, 2026. The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in part by foreign tax credits. The extent of this offset would depend on many factors, including the method of distribution, and specific earnings distributed. The Company determined that it is not practicable to determine unrecognized deferred tax liability associated with the unremitted earnings attributable to the foreign subsidiaries.

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

June 30, 2026 and 2025