NOTE 10 - INCOME TAX:

 The Company is taxed under Israel and the United States of America tax laws:

a.

Tax rates:

1)

Income from Israel was taxed at the corporate tax rate of 26.5% in 2015, 25% in 2016, and 24% in 2017. Capital gains are subject to capital gain tax, which equals to 25%.

In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, the law also included a temporary provision setting the corporate tax rate in 2017 at 24%. As a result, the corporate tax rate in 2017 was 24% and in 2018 and thereafter reduced to 23%.

2)

Income of the subsidiary is taxed according to the federal tax laws in the US and the relevant state laws. The relevant U.S. statutory tax rates for 2017, 2016 and 2015 were 35%, 35% and 30%, respectively. The relevant state tax rate for 2017, 2016 and 2015 was 9%.

The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively.

b.

Tax assessments

Foamix has tax assessments that are considered to be final through tax year 2012.

 

c.

Tax benefits under the Law for Encouragement of Industry (Taxation), 1969

Foamix believes that it currently qualifies as an "Industrial Company" under the above law. As such it is entitled to certain tax benefits, mainly the right to deduct share issuance costs over three years for tax purposes in the event of a public offering.

 

Foamix utilizes this tax benefit.

 

d.

Losses for tax purposes carried forward to future years

As of December 31, 2017, Foamix had approximately $88.6 million of net carry forward tax losses in Israel, which are available to reduce future taxable income with no limited period of use.

 

e.

Subsidiary tax liability

During 2017, 2016 and 2015, the US subsidiary incurred a tax expense in the amount of $1,164, $387 and $39, respectively.

 

f.

Deferred income taxes:

 

		December 31,
		2017				2016
In respect of:
Net operating loss carry forward		$	20,385			$	11,512
Research and development			9,856				4,147
Other			608				332
Less - valuation allowance			(30,849	)			(15,991	)
Net deferred tax assets		$	-			$	-

Realization of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporary differences and carry forward losses are expected to be available to reduce taxable income. As the achievement of required future taxable income is not likely, the Company recorded a full valuation allowance.

 

Deferred tax has not been provided on taxes that would apply in the event of disposal of the investments in the subsidiary, as it is the Company’s intention to hold this investment and not to realize it.

 

Foamix may incur an additional tax liability in the event of an inter-company dividend distribution from its subsidiary; no additional deferred taxes have been provided, since it is the Company’s policy not to distribute in the foreseeable future, dividends which would result in additional tax liability.

 

Following is a reconciliation of the theoretical tax benefit, assuming all income is taxed at the statutory corporate tax rate applicable to Israeli corporations, and the actual tax expense:

 

		Year ended December 31
		2017				2016				2015
Loss before income taxes		$	64,551			$	28,949			$	16,478
Theoretical tax benefit on the above amount			(15,492	)			(7,237	)			(4,367	)
Decrease (increase) in tax refund resulting from:
Reduction and different corporate tax rates			711				1,965				-
Non-deductible expenses and other permanent differences, mainly share based compensation expenses and issuance costs			80				(491	)			(585	)
Uncertain tax position			988				-				-
Net change in valuation allowance			14,858				5,777				3,973
Other			19				373				1,018
Actual tax expense		$	1,164			$	387			$	39

 

g.

ASC No. 740, Income Taxes, requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect the operating results of the Company.

The following table summarizes the activity of the Company unrecognized tax benefits:

 

		Year ended December 31,
		2017
Balance at January 1, 2017		$	-
Increase in uncertain tax positions for the current year			988
Balance at December 31, 2017		$	988

 

The Company does not expect unrecognized tax expenses to change significantly over the next 12 months. 

 

h.

Roll forward of valuation allowance:

Balance at January 1, 2015		$	6,241
Additions			3,973
Balance at December 31, 2015		$	10,214
Additions			5,777
Balance at December 31, 2016		$	15,991
Additions			14,858
Balance at December 31, 2017		$	30,849