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Income taxes
 12 Months Ended
Jun. 30, 2023
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
Fabrinet’s effective tax rate is a function of the mix of tax rates in the various jurisdictions in which we conduct business. Fabrinet is domiciled in the Cayman Islands. Under the current laws of the Cayman Islands, Fabrinet is not subject to tax in the Cayman Islands on income or capital gains until March 6, 2039. Income of the Company exempted from corporate income tax in the Cayman Islands amounted to $196.5 million, $171.0 million and $115.8 million for the years ended June 30, 2023, June 24, 2022 and June 25, 2021, respectively.
The majority of the Company’s operations and production take place in Thailand. The Company was not subject to tax in Thailand from July 2012 through June 2020 on income generated from the manufacture of products at its Pinehurst campus Building 6, and is not subject to tax in Thailand from July 2018 through June 2026 on income generated from the manufacture of products at its Chonburi campus. After June 2020, 50% of the Company's income generated from products manufactured at its Pinehurst campus Building 6 will be exempted from tax in Thailand through June 2025. New preferential tax treatment is available to the Company for products manufactured at its Chonburi campus Building 9, where income generated will be tax exempt through 2031, capped at the Company’s actual investment amount. Such preferential tax treatment is contingent on various factors, including the export of our customers’ products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least
15 years from the date on which preferential tax treatment was granted. Currently, the corporate income tax rate for our Thai subsidiary is 20%.
The corporate income tax rates for our subsidiaries in the PRC, the U.S., the U.K. and Israel are 25%, 21%, 25% and 23%, respectively. Our provision for income taxes is computed using the asset and liability method, under which deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at currently enacted statutory tax rates for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment.
The Company’s income tax expense consisted of the following:
Years Ended
(in thousands)June 30,
2023		June 24,
2022		June 25,
2021
Current$15,044 $6,744 $6,355 
Deferred(2,861)(158)(4,212)
Total income tax expense$12,183 $6,586 $2,143 
The reconciliation between the Company’s taxes that would arise by applying the statutory tax rate of the country of the Company’s principal operations, Thailand, to the Company’s effective tax charge is shown below:
Years Ended
(in thousands)June 30,
2023		June 24,
2022		June 25,
2021
Income before income taxes (1)
$260,096 $206,966 $150,484 
Tax expense calculated at a statutory corporate income tax rate of 20%
52,019 41,393 30,097 
Effect of income taxes from locations with tax rates different from Thailand
659 681 198 
Income not subject to tax (2)
(43,679)(35,982)(24,853)
Income tax on unremitted earnings2,452 1,417 1,395 
Foreign operations2,003 (1,165)(2,855)
Tax rebate from research and development application(124)(873)(728)
Provision for uncertain income tax position(7)668 (403)
Utilization of loss and tax credits carryforward(80)(194)(610)
Changes in valuation allowance (3)
(1,608)— (2,146)
Others548 641 2,048 
Corporate income tax expense$12,183 $6,586 $2,143 
(1)Income before income taxes was mostly generated from domestic income in the Cayman Islands.
(2)Income not subject to tax relates to income earned in the Cayman and Mauritius Islands and income subject to an investment promotion privilege for Pinehurst Building 6 and the Company’s Chonburi campus. Income not subject to tax per ordinary share on a diluted basis was $1.19, $0.96, and $0.63 for the years ended June 30, 2023, June 24, 2022, and June 25, 2021, respectively.
(3)Changes in valuation allowances were due to adjustments based on management's assessment on the realizability of the related deferred tax assets.
The Company’s deferred tax assets and deferred tax liabilities, net of valuation allowance, at each balance sheet date are as follows:
As of
(in thousands)June 30,
2023		June 24,
2022
Deferred tax assets:
Depreciation$1,999 $1,579 
Severance liability4,058 3,345 
Reserves and allowance1,712 1,711 
Net operating loss carryforwards7,142 7,025 
Others1,008 1,074 
Total15,919 14,734 
Less: Valuation allowance(3,824)(4,934)
Net deferred tax assets$12,095 $9,800 
Deferred tax liabilities:
Temporary differences from intangibles and changes in the fair value of assets acquired$(1,711)$(1,816)
Deferred tax from unremitted earnings(4,819)(5,550)
Others1,731 1,365 
Total(4,799)(6,001)
Net$7,296 $3,799 
The changes in the valuation allowances of deferred tax assets were as follows:
(in thousands)Valuation allowances of
deferred tax assets
Balance as of June 26, 2020$3,728 
Additional479 
Reduction(2,146)
Balance as of June 25, 20212,061 
Additional2,873 
Balance as of June 24, 20224,934 
Additional498 
Reduction(1,608)
Balance as of June 30, 2023$3,824 
During fiscal year 2020, one of our subsidiaries in the U.S. generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future; therefore, management believed it was more likely than not that all of the deferred tax assets of such subsidiary would not be utilized. Thus, a full valuation allowance of $2.1 million for the deferred tax assets was set up as of the end of fiscal year 2020.
During fiscal year 2021, our subsidiaries in the U.S. generated taxable income sufficient for the utilization of loss carryforwards due to better operating performance and effective control of operating expenses. Management determined that it was more likely than not that future taxable income would be sufficient to allow utilization of the deferred tax assets. Thus, a full valuation allowance of $2.1 million for the deferred tax assets was released as of June 25, 2021 and no valuation allowances for deferred tax assets of our subsidiaries in the U.S. have been set up as of June 30, 2023 and June 24, 2022.
During fiscal year 2020, our subsidiary in the U.K. also generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future. Therefore, management believed it was more likely than not that all of the deferred tax assets of such subsidiary would not be utilized. Thus, a full valuation allowance of $1.6 million for the deferred tax assets was set up as of the end of fiscal year 2020. A full valuation allowance of $4.9 million and $2.1 million were set up for the fiscal year ended June 24, 2022 and June 25, 2021, respectively.
During fiscal year 2023, our subsidiary in the U.K. generated taxable income and was able to utilize loss carryforwards. Management determined that it was more likely than not that future taxable income would be sufficient to allow utilization of the deferred tax assets. Thus, a full valuation allowance of $1.6 million for the deferred tax assets was released as of June 30, 2023.
Income tax liabilities have not been established for withholding tax and other taxes that would be payable on the unremitted earnings in Thailand, which are permanently reinvested. Unremitted earnings in Thailand totaled $135.1 million and $135.5 million as of June 30, 2023 and June 24, 2022, respectively. Unrecognized deferred tax liabilities for such unremitted earnings were $12.3 million and $11.3 million as of June 30, 2023 and June 24, 2022, respectively.
Deferred tax liabilities of $1.9 million and $1.4 million have been established for withholding tax on the unremitted earnings in China for the years ended June 30, 2023 and June 24, 2022, respectively, which are included in non-current deferred tax liability in the consolidated balance sheets.
Uncertain income tax positions
Interest and penalties related to uncertain income tax positions are recognized in income tax expense. The Company had approximately $0.1 million of accrued interest and penalties related to uncertain income tax positions on the consolidated balance sheets as of June 30, 2023. The Company recorded interest and penalties of $0.1 million and $0.4 million for the years ended June 24, 2022 and June 25, 2021, respectively, in the consolidated statements of operations and comprehensive income. The amount of interest and penalties reversed in fiscal 2023 provision for income taxes is not material. With regard to the Thailand jurisdiction, tax years 2017 through 2021 remain open to examination by the local authorities.
The following table indicates the changes to the Company’s uncertain income tax positions for the years ended June 30, 2023, June 24, 2022 and June 25, 2021, excluding interest and penalties, were as follows:
Years Ended
(in thousands)June 30,
2023		June 24,
2022		June 25,
2021
Beginning balance$1,392 $807 $970 
Additions during the year15 610 389 
Release of tax positions of prior years(119)(25)(552)
Ending balance$1,288 $1,392 $807