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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The components of income tax for the years ended December 31, 2024, 2023 and 2022 are as follows:
Year Ended December 31,
202420232022
(In millions)
Income Tax:
Current:
U.S.$64 $41 $12 
Non-U.S.700 812 383 
764 853 395 
Deferred:   
U.S.17 36 55 
Non-U.S.(260)(320)(152)
(243)(284)(97)
Income tax expense$521 $569 $298 
The components of net income before tax expense and equity in earnings of unconsolidated entity for the years ended December 31, 2024, 2023 and 2022 are as follows:
Year Ended December 31,
202420232022
(In millions)
U.S.$94 $(362)$(207)
Non-U.S.2,338 1,915 987 
$2,432 $1,553 $780 
The following is a reconciliation of the difference between the actual charge for income tax and the expected income tax expense computed by applying the statutory income tax rate for the years ended December 31, 2024, 2023 and 2022 to net income before income tax:
Year Ended December 31,
202420232022
(In millions)
Net income before income tax expense and equity in earnings of unconsolidated entity$2,432 $1,553 $780 
Income tax rate21 %21 %21 %
Expected income tax expense$511 $326 $164 
Permanent differences:   
Transfer pricing adjustments5 11 3 
Non-deductible tax— 7 1 
Non-deductible expenses27 107 54 
Tax on retained earnings147 105 55 
Foreign Tax effects(206)(137)(43)
Non-taxable income(134)(167)(62)
Effect of rates different than statutory34 117 37 
Currency translation56 335 48 
Change in valuation allowance220 4 92 
Tax Inflation Adjustments(130)(136)(35)
True up(9)(3)(16)
Income tax expense$521 $569 $298 
Income taxes are determined by each subsidiary on a standalone basis according to income tax law of each jurisdiction. The Company’s consolidated effective tax rate for year ended December 31, 2024 as compared to 2023, decreased from 36.6% to 21.4% largely as a result of i) no foreign exchange losses recognition during the year related to the acquisition of Company's common stock in the Argentine market, which was considered as a non-deductible expense (please see Note 24 – Share repurchase program for further information); and (ii) lower taxable foreign exchange gains accounted for in Argentina for local tax purposes that are not recorded for accounting purposes since, under U.S. GAAP, the Argentine operations’ functional currency is the U.S. dollar due to the highly inflationary status of the country. This decrease was partially offset by lower reversal of the valuation allowance in the year 2024 as compared to 2023.
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The following table summarizes the composition of deferred tax assets and liabilities for the years ended December 31, 2024 and 2023:
December 31,
20242023
(In millions)
Deferred tax assets  
Allowance for doubtful accounts $371 $234 
Unrealized net losses4 3 
Property and equipment, net79 58 
Accounts payable and accrued expenses22 8 
Payroll and social security payable48 42 
Provisions309 275 
U.S. foreign tax credit528 304 
Tax loss carryforwards64 177 
Inventories18 14 
Total deferred tax assets1,443 1,115 
Valuation allowance (584)(374)
Total deferred tax assets, net859 741 
Deferred tax liabilities  
Property and equipment, net(33)(21)
Unrealized net gains(7)(4)
Goodwill(3)(4)
Accounts payable and accrued expenses— (2)
Payroll and social security payable(1)— 
Outside Basis Dividends(200)(182)
Others(17)(1)
Total deferred tax liabilities$(261)$(214)
$598 $527 
Valuation allowance on deferred tax assets
The following table summarizes the tax valuation allowance activity during the years ended December 31, 2024, 2023 and 2022:
Year Ended December, 31
202420232022
Tax valuation allowance(In millions)
Balance at beginning of year$374 $360 $262 
Charged to Net income220 4 92 
Charges Utilized/Currency translation adjustments and other adjustments(10)10 6 
Balance at end of year$584 $374 $360 
As of December 31, 2024, consolidated deferred tax asset on tax loss carryforwards for income tax purposes were $64 million. If not utilized, tax loss carryforwards will begin to expire as follows:
2027$1 
20294 
20303 
203125 
20327 
Thereafter2 
Without due dates22 
Total$64 
Based on Management’s assessment of available objective evidence, the Company maintained a valuation allowance on deferred tax assets of $584 million and $374 million as of December 31, 2024 and 2023, respectively. This valuation allowance includes $528 million and $304 million to fully reserve the outstanding U.S. foreign tax credits as of December 31, 2024 and 2023, respectively.
The valuation allowance increased as of December 31, 2024 compared to 2023, mainly related to the impairment of $224 million on U.S. foreign tax credit, offset by the utilization of loss carryforwards impaired through the valuation allowance on its Mexican operation by $26 million.
Knowledge-based economy promotional regime in Argentina
In August 2021, the Under Secretariat of Knowledge Economy issued the Disposition 316/2021 approving MercadoLibre S.R.L.’s application for eligibility under the knowledge-based economy promotional regime, established by the Law No. 27,506 and complemented by Argentina’s Executive Power Decree No. 1034/2020, Argentina’s Ministry of Productive Development’s Resolution No. 4/2021 and the Under Secretariat of Knowledge Economy’s Disposition No. 11/2021.
Based on the promotional regime, companies that meet specified criteria shall be entitled to: i) a reduction of the income tax burden over the promoted activities for each fiscal year, ii) stability of the benefits established by the knowledge-based economy promotional regime, and iii) a tax credit bond on the Company’s contribution to the social security regime of every employee whose job is related to the promoted activities.
On September 13, 2024, Argentina´s Secretariat of Entrepreneurs and Small and Medium Enterprises and Knowledge-Based Economy issued Resolution 267/2024, reducing the aggregate cap on base salaries used to calculate the tax credit bond to which companies that qualify for the regime are entitled from 40 million Argentine pesos to 5 million Argentine pesos; the tax credit bond represents 70% of the Company´s social security contributions for those employees whose jobs are related to the promoted activities, with a salary cap which has been reduced to the indicated limit. MercadoLibre S.R.L uses the tax credit bond to offset federal taxes.
As a result, the Company recorded an income tax benefit of $33 million, $42 million and $27 million, during the years ended December 31, 2024, 2023 and 2022, respectively. The aggregate per share effect of the income tax benefit amounted to $0.65, $0.84 and $0.54 for the years ended December 31, 2024, 2023 and 2022, respectively. Furthermore, the Company recorded a social security benefit of $24 million, $67 million and $54 million for the years ended December 31, 2024, 2023 and 2022, respectively.