v3.25.4
Income taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
Income/(loss) before provision for income taxes
The following table showed income/(loss) before provision for income taxes based on geographical location to which such income was attributable for the periods indicated:
For the years ended December 31,
202520242023
(in thousands)
United States$(11,370)$(13,393)$(6,107)
Foreign
27,071 24,448 10,945 
Total income/(loss) before provision for income taxes
$15,701 $11,055 $4,838 
Provision/(benefit) for income taxes
Provision/(benefit) for the income taxes consisted of the following components:
For the years ended December 31,
202520242023
(in thousands)
Current
Federal$451 $4,900 $3,619 
State310 1,051 941 
Foreign
6,616 5,096 6,183 
Deferred
Federal455 (3,463)(2,265)
State(17)(92)(474)
Foreign
(1,782)(478)(1,401)
Total tax expense$6,033 $7,014 $6,603 
Deferred income taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2025 and 2024 were as follows:
As of December 31,
20252024
(in thousands)
Deferred tax assets
Stock-based compensation$4,331 $5,365 
R&D capitalization3,902 4,559 
Accrued compensation and benefits
2,907 2,502 
Operating lease liabilities794 577 
Other818 285 
Total deferred tax assets$12,752 $13,288 
Valuation allowance
(491)— 
Total deferred tax assets, net of valuation allowance
$12,261 $13,288 
Deferred tax liabilities
Intangible assets$(10,777)$(12,751)
Operating lease right-of-use assets(746)(546)
Other207 (131)
Total deferred tax liabilities(11,316)(13,428)
Net deferred taxes$945 $(140)
The Company assessed its ability to realize the benefits of its domestic deferred tax assets (“DTA”) by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, and (4) the length of net operating loss (“NOL”) carryforward periods. The Company determined it is in a cumulative taxable income position as of December 31, 2025, and expects to continue to be in a taxable income position in the long-term foreseeable future.
After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded it is more likely than not that sufficient future taxable income will be generated to realize the benefits of its DTAs prior to expiration, with the exception of its state NOL carryforwards due to state specific rules that limit the utilization of those NOLs. As a result, the Company determined that no domestic federal valuation allowance was needed and a valuation allowance on its state NOL carryforwards were warranted as of December 31, 2025.
Net operating losses and tax credit carryforwards as of December 31, 2025 were as follows:
AmountExpiration years
(in thousands)
Net operating losses, state$7,203 2040
Effective tax rate reconciliation
A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s income tax expense and effective tax rate, presented in accordance with the prospectively adopted ASU 2023-09, for the year ended December 31, 2025 is as follows:
For the year ended
December 31, 2025
Amount
Percent
(in thousands, except percentages)
U.S. Federal statutory tax rate$3,297 21.0 %
State and local income tax, net of federal (national) income tax effect(1)
310 2.0 
Foreign tax effects
Argentina
Foreign tax rate differential(8)— 
Nontaxable or nondeductible items354 2.3 
Armenia
Foreign tax rate differential(62)(0.4)
Nontaxable or nondeductible items(200)(1.3)
India
Foreign tax rate differential392 2.5 
Nontaxable or nondeductible items(292)(1.9)
Mexico
Foreign tax rate differential88 0.6 
Nontaxable or nondeductible items221 1.4 
Poland
Foreign tax rate differential(202)(1.3)
Nontaxable or nondeductible items(166)(1.1)
R&D tax relief
(809)(5.2)
Switzerland
Foreign tax rate differential(144)(0.9)
Nontaxable or nondeductible items(56)(0.4)
Other foreign jurisdictions33 0.2 
Nontaxable or nondeductible items
Stock-based compensation(980)(6.2)
162M limitation5,843 37.2 
Change in fair value of contingent consideration payable
(1,444)(9.2)
Changes in unrecognized tax benefits(247)(1.6)
Other adjustments
105 0.7 
Total worldwide effective tax expense and rate
$6,033 38.4 %
__________________________
(1)State Taxes in California and Georgia made up the majority of tax effect in this category.
A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s effective tax rate, for the years ended December 31, 2024 and 2023 is as follows:
For the years ended December 31,
20242023
U.S. federal statutory rate21.0 %21.0 %
State and local income tax, net of federal (national) income tax effect8.4 10.1 
Nontaxable or nondeductible items
1.7 (9.9)
Stock-based compensation7.2 39.3 
Tax credits(30.6)(120.0)
Foreign tax rate differential(4.1)7.2 
Foreign inclusion adjustments29.4 74.7 
Foreign intangible amortization0.2 10.2 
162M limitation30.2 103.9 
Total worldwide effective tax rate
63.4 %136.5 %
Unrecognized tax benefits
As of December 31, 2025, the Company has approximately $1.1 million of unrecognized tax benefits. Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate. A reconciliation of beginning to ending amounts of unrecognized tax benefits is as follows:
For the years ended December 31,
202520242023
(in thousands)
Unrecognized tax benefit as of January 1$1,371 $1,162 $1,151 
Changes related to prior year tax positions(311)(35)(101)
Changes related to current year tax positions53 244 112 
Unrecognized tax benefit as of December 31$1,113 $1,371 $1,162 
The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. There was no interest or penalties accrued as of December 31, 2025 and 2024.
The Company is subject to income taxes in U.S. federal and various state, local and foreign jurisdictions. For federal and states, tax years subsequent to 2022 remain open to examination. With respect to foreign jurisdictions, tax years 2018 and after remain open.
The Company's provision for income taxes does not include provisions for foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign subsidiaries that we intend to reinvest indefinitely in our foreign subsidiaries.
On July 4, 2025, the “One Big Beautiful Bill Act” (the “Act”) was enacted into law. The Act includes certain changes to the U.S. tax law applicable to Grid Dynamics. These changes include provisions allowing accelerated tax deductions for qualified property and research expenditures, including immediate expensing for qualifying domestic research expenditures. As of December 31, 2025, the Company expects to avail itself of immediate expensing for qualifying domestic research expenditures incurred during the year, which does not have a material effect on the Company’s financial results. The Company has evaluated the impact of the remaining provisions promulgated by the Act that take effect in future periods on its consolidated financial statements and does not anticipate them having a material effect.
Cash paid for income taxes
Cash paid for income taxes for the year ended December 31, 2025 was as follows:
For the year ended December 31,
2025
(in thousands)
Cash paid for income taxes, net of refunds
U.S. Federal
$5,161 
State and local
948 
Foreign
United Kingdom
1,552 
India1,067 
Poland930 
Netherlands
649 
Aggregated foreign jurisdictions
2,051 
Total
$12,358 
Cash paid for income taxes, net of refunds for the years ended December 31, 2024 and 2023 was $11.0 million and $12.4 million, respectively.