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Income taxes
 12 Months Ended
Jun. 28, 2024
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.
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 28,
2024		June 30,
2023		June 24,
2022
Current$11,993 $15,044 $6,744 
Deferred3,180 (2,861)(158)
Total income tax expense$15,173 $12,183 $6,586 
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 28,
2024		June 30,
2023		June 24,
2022
Income before income taxes (1)
$311,354 $260,096 $206,966 
Tax expense calculated at a statutory corporate income tax rate of 20%
62,271 52,019 41,393 
Effect of income taxes from locations with tax rates different from Thailand
(945)659 681 
Income not subject to tax (2)
(62,940)(43,679)(35,982)
Income tax on unremitted earnings1,488 2,452 1,417 
Non-deductible expenses10,347 35 68 
Foreign operations(534)1,968 (1,165)
Tax rebate from research and development application17 (124)(873)
Provision for uncertain income tax position1,131 (7)668 
Utilization of loss and tax credits carryforward— (80)(194)
Changes in valuation allowance (3)
3,759 (1,608)— 
Others579 548 573 
Corporate income tax expense$15,173 $12,183 $6,586 
(1)Income before income taxes was primarily generated from domestic operations in the Cayman Islands amounted to $306.0 million, $196.5 million and $171.0 million for the years ended June 28, 2024, June 30, 2023 and June 24, 2022, respectively.
(2)Income not subject to tax relates to income earned in the Cayman and Mauritius Islands and income subject to an investment promotion privilege in Thailand. Income not subject to tax per ordinary share on a diluted basis was $1.72, $1.19, and $0.96 for the years ended June 28, 2024, June 30, 2023, and June 24, 2022, 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 28,
2024		June 30,
2023
Deferred tax assets:
Depreciation$1,890 $1,999 
Severance liability4,496 4,058 
Reserves and allowance3,735 1,712 
Net operating loss carryforwards3,146 7,142 
Others792 1,008 
Total14,059 15,919 
Less: Valuation allowance(3,613)(3,824)
Net deferred tax assets$10,446 $12,095 
Deferred tax liabilities:
Temporary differences from intangibles and changes in the fair value of assets acquired$(1,626)$(1,711)
Deferred tax from unremitted earnings(5,303)(4,819)
Others2,034 1,731 
Total(4,895)(4,799)
Net$5,551 $7,296 
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 25, 2021$2,061 
Additional2,873 
Balance as of June 24, 20224,934 
Additional498 
Reduction(1,608)
Balance as of June 30, 20233,824 
Additional3,613 
Reduction(3,824)
Balance as of June 28, 2024$3,613 
During fiscal year 2020, one of our subsidiaries 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 $3.8 million, $4.9 million and $2.1 million were set up for the fiscal year ended June 30, 2023, June 24, 2022 and June 25, 2021, respectively. During fiscal year 2024, deferred tax assets and valuation allowance were released due to our cessation of operations in the U.K.
During fiscal year 2023, the other 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. In fiscal year 2024, due to our cessation of operations in the U.K., management believe that
it will not generate sufficient taxable income to utilize the remaining deferred tax assets. Thus, a full valuation allowance of $1.0 million was recorded.
During fiscal year 2024, our subsidiary in Israel continued to generate 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 $2.7 million for the deferred tax assets was set up as of the end of fiscal year 2024.
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 $144.4 million and $135.1 million as of June 28, 2024 and June 30, 2023, respectively. Unrecognized deferred tax liabilities for such unremitted earnings were $11.6 million and $12.3 million as of June 28, 2024 and June 30, 2023, respectively.
Deferred tax liabilities of $1.5 million and $1.9 million have been established for withholding tax on the unremitted earnings in China for the years ended June 28, 2024 and June 30, 2023, 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 $0.2 million of accrued interest and penalties related to uncertain income tax positions on the consolidated balance sheets as of June 28, 2024. The Company recorded interest and penalties of $0.1 million and $0.1 million for the years ended June 30, 2023 and June 24, 2022, respectively, in the consolidated statements of operations and comprehensive income. The amount of interest and penalties reversed in fiscal 2024 provision for income taxes is $0.2 million. With regard to the Thailand jurisdiction, tax years 2018 through 2022 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 28, 2024, June 30, 2023 and June 24, 2022, excluding interest and penalties, were as follows:
Years Ended
(in thousands)June 28,
2024		June 30,
2023		June 24,
2022
Beginning balance$1,288 $1,392 $807 
Additions during the year1,091 15 610 
Release of tax positions of prior years(1,130)(119)(25)
Ending balance$1,249 $1,288 $1,392