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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
14. INCOME TAXES
Income Tax Provision
The income (loss) before taxes for Cayman and
Non-Cayman
entities is as follows:
 
    
Year Ended December 31
  
    
2019
     
2020
     
2021
  
    
US$
     
US$
     
US$
  
Cayman
      (3,911 )       (17,067 )       (22,847 ) 
Non-Cayman
      75,985        102,625        270,111  
    
 
 
     
 
 
     
 
 
  
Income before taxes
      72,074        85,558        247,264  
    
 
 
     
 
 
     
 
 
  
The components of income tax provision (benefit) are as follows:
 
    
Year Ended December 31
  
    
2019
    
2020
    
2021
  
    
US$
    
US$
    
US$
  
Current
      6,558       6,479       49,005  
Deferred
      1,118       (667 )      (1,743 ) 
    
 
 
    
 
 
    
 
 
  
Income tax expense
      7,676       5,812       47,262  
    
 
 
    
 
 
    
 
 
  
       
Effective tax rate
      10.7 %      6.8 %      19.1 % 
The Company’s
business operations are primarily located in China, Hong Kong, Macau, Taiwan and the US, where statutory and effective tax rates in each jurisdiction are different, and our consolidated effective tax rate could change from
period-to-period
due to changing statutory tax rates, availability of tax benefits and proportional income earned in each jurisdiction. The statutory tax rates in these jurisdictions range from 12 to 21
%. For the year ended
 
December 2020, the Company’s effective tax rate
was 6.8%, lower than 10.7% and 19.1% in 2019 and 2021 due to changes in proportional income earned by operations in key jurisdictions. Recent changes in tax policies will result in higher effective tax rates for the Company beginning in 2021. Effective tax rates in each jurisdiction are generally lower than statutory rates due to tax credits for research and development and other tax incentive programs and are determined by different government policies in each of the jurisdictions where the Company operates.
The Company consists of a Cayman parent holding company with U.S. and other
non-Cayman
operations. The applicable Cayman statutory rate is zero for the Company for 2019, 2020, and 2021. A reconciliation of its income tax expense at the statutory rate and provision for income tax is shown below:
 
    
Year Ended December 31
  
    
2019
     
2020
     
2021
  
    
US$
     
US$
     
US$
  
Tax expense at Cayman statutory rate
      —          —          —    
Differences between Cayman and other statutory tax rates
      846        5,286        48,322  
Permanent differences
      4,109        1,441        (10,625 ) 
Temporary differences
      638        (129 )       (400 ) 
Alternative minimum tax
      1        1        1  
Income tax on undistributed earnings
      575        1,196        3,609  
Net changes in income tax credit
      3,917        20        1,261  
Net changes in valuation allowance of deferred income tax assets
      (1,820 )       2,439        1,066  
Net operating loss carryforwards
      (294 )       (1,180 )       180  
Liabilities related to unrealized tax benefits
      (171 )       (3,066 )       5,877  
Adjustment of prior years’ taxes and others
      (125 )       (196 )       (2,029 ) 
    
 
 
     
 
 
     
 
 
  
Income tax expense
      7,676        5,812        47,262  
    
 
 
     
 
 
     
 
 
  
Deferred and Current Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.
Significant components of our deferred tax assets (liabilities) at the end of each period are as follows:
 
    
December 31
  
    
2020
     
2021
  
    
US$
     
US$
  
Stock-based compensation
      1,339        2,138  
Allowance for sales return
      324        365  
Inventory reserve
      1,925        1,918  
Foreign currency translation
      47        24  
Property and equipment
      (483 )       (343 ) 
Investment tax credits
      4,512        3,251  
Net operating loss carryforwards
      16,754        18,654  
Others
      1,013        2,158  
Valuation allowance
      (20,816 )       (21,807 ) 
    
 
 
     
 
 
  
Net deferred tax assets
      4,615        6,358  
    
 
 
     
 
 
  
The valuation allowance shown in the table above relates to net operating loss carryforwards, tax credits and temporary differences for which the Company believes that realization is uncertain. Valuation allowance increased by US$2,708 thousand for the year ended December 31, 2020 and increased by US$991 thousand for
 
the year ended December 31, 2021, respectively. The increase in valuation allowance in 2020 and 2021 was primarily due to the uncertainty in generating sufficient taxable income in the future and utilization of operating loss carryforwards before they expire.
As of December 31, 2021, the Company’s U.S. federal net operating loss carryforwards for federal income tax purposes were approximately US$36,823 thousand as of December 31, 2021, expiring at various times starting from 2022 through 2037 for federal losses generated through December 31, 2017, if not utilized. As a result of the U.S. Tax Cuts and Jobs Act (TCJA), all federal net operating losses of US$11,612 thousand that are generated beginning January 1, 2018 and beyond will carryforward indefinitely.
As of December 31, 2021, the Company’s U.S. federal and state research and development tax credit carryforwards for federal and state income tax purposes were approximately US$1,948 thousand and US$1,304 thousand, respectively. If not utilized, the federal tax credit carryforwards will expire starting in 2041, while the state tax credit carryforward has no expiration date in California.
Current U.S. federal and California state laws include substantial restrictions on the utilization of net operating losses and credits in the event of an “ownership change” of a corporation. Accordingly, the Company’s ability to utilize net operating loss and tax credit carryforwards may be limited as a result of such “ownership change”. Such a limitation could result in the expiration of carryforwards before they are utilized.
As of December 31, 2021, the Company had accumulated undistributed earnings from a foreign subsidiary of US$448 million. No deferred tax liability was recorded in respect of those amounts as these earnings are considered indefinitely reinvested. It is not practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings.
Unrecognized Tax Benefit
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
 
    
Year Ended December 31
  
    
2019
    
2020
    
2021
  
    
US$
    
US$
    
US$
  
Balance, beginning of year
      18,707       20,655       19,001  
Increases in tax positions taken in current year
      6,890       5,029       8,750  
Decrease in tax position taken in prior year primarily related to the resolution of tax audit
      (4,942 )      (6,683 )      (1,434 ) 
    
 
 
    
 
 
    
 
 
  
Balance, end of year
      20,655       19,001       26,317  
    
 
 
    
 
 
    
 
 
  
At December 31, 2021, the Company had US$26,317 thousand of unrecognized tax benefits that if recognized would affect the effective tax rate. For the years ended December 31, 2019, 2020 and 2021, the total amount of interest expense and penalties related to uncertain tax positions recorded in the provision for income tax expense was approximately US$319 thousand, US$430 thousand and US$1,040 thousand, respectively. The total amount of accrued interest and penalties recognized as of December 31, 2020 and 2021 was US$5,179 thousand and US$6,368 thousand, respectively. The Company does not expect uncertain tax positions to change in the next twelve months, except in the case of settlements with tax authorities, the likelihood and timing of which are difficult to estimate.
 
The Company files income tax returns in the U.S. and foreign jurisdictions. The following table summarizes the Company’s major jurisdictions and tax year that remain subject to examination by tax authorities as of December 31, 2021:
 
Tax Jurisdiction
   
Tax Years
China
   
2018 and onward
Hong Kong
   
2018 and onward
Taiwan
   
2016 and onward
United States
   
2016 onward