11. Income taxes

Cayman Islands

The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to income tax.

Hong Kong

BeiGene HK is incorporated in Hong Kong. Companies registered in Hong Kong are subject to Hong Kong Profits Tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong for any of the periods presented. Under the Hong Kong tax law, BeiGene (Hong Kong) Co., Limited is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

China

BeiGene Beijing, BeiGene Suzhou, BeiGene Shanghai, BeiGene Biologics, BeiGene Guangzhou Factory, BeiGene Guangzhou and BeiGene Pharmaceutical (Shanghai) are subject to the statutory tax rate of 25% in accordance with the EIT Law, which was effective since January 1, 2008. Under the EIT Law, all enterprises are subject to the 25% enterprise income tax rate, except for certain entities that enjoyed the tax holidays or preferential tax treatments. Under the EIT Law and its relevant regulations, dividends paid by China enterprises out of profits earned post-2007 to non-China tax resident investors are subject to China withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaty with certain jurisdictions.

Australia

BeiGene AUS Pty Ltd., incorporated in Australia is subject to corporate income tax at a rate of 30%. BeiGene AUS Pty Ltd. has no taxable income for all periods presented and therefore, no provision for income taxes is required.

United States

BeiGene (USA), which was incorporated in Delaware, United States on July 8, 2015, is subject to statutory U.S. Federal corporate income tax at a rate of 35% for the years ended December 31, 2017, 2016 and 2015. BeiGene (USA) is also subject to the state income tax in New Jersey, California and Massachusetts, at a rate of 9.0%,  8.8% and 8.0%, respectively, for the year ended December 31, 2017.

Switzerland

BeiGene Switzerland, incorporated in Switzerland on September 1, 2017, is subject to corporate income tax at a rate of 10.0%. BeiGene Switzerland had no taxable income for year ended December 31, 2017, and therefore, no provision for income taxes is required.

The components of income  (loss) before income taxes are as follows:

 

The current and deferred components of the income tax expense (benefit) from continuing operations are as follows:

 

The reconciliation of the statutory tax rate to our effective income tax rate is as follow:

 

 

 

Significant components of deferred tax assets (liabilities) are as follows:

 

Valuation allowances have been provided on deferred tax assets where, based on all available evidence, it was considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. After consideration of all positive and negative evidence, the Company believes that as of December 31, 2017 it is more likely than not the deferred tax assets will not be realized for our subsidiaries in Australia, China and Switzerland. For the years ended December 31, 2017 and 2016, there were increases in the valuation allowance by $30,356 and $1,627, respectively, which included the effect of expired net operating losses of $1,637 and $1,466, respectively. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more or less than the net amount recorded.

As of December 31, 2017 and 2016, the Company had net operating losses of approximately $209,979 and $27,948, respectively, of which net operating losses as of December 31, 2017 included $57,507 derived from entities in the PRC which expire in years 2018 through 2022, and $152,431 derived from an entity in Switzerland that expires in 2026. The Company has approximately $2,449 of U.S. research and orphan drug credits which will expire in 2037 if not utilized.

The gross unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 were as follows:

 

      Current year and prior year additions include assessment of potential global transfer pricing adjustments, and U.S. federal and state tax credits and incentives. $751 of unrecognized tax benefits as of December 31, 2017 would impact the consolidated income tax rate if ultimately recognized. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly change within the next 12 months.

The Company has elected to record interest and penalties related to income taxes as a component of income tax expense. For the years ended December 31, 2017, 2016 and 2015, the Company's accrued interest and penalties, where applicable, related to uncertain tax positions were not material.

     The Company conducts business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. As of December 31, 2017, China tax matters are open for the years 2012 through 2017, and U.S. federal tax matters are open to examination for years 2015 through 2017. Various U.S. states and other non-US tax jurisdictions in which the Company file tax returns remain open for examination for 2010 through 2017.