Income taxes

Cayman Islands

The Company is incorporated in the Cayman Islands, and is

not

subject to income tax under the current laws of the Cayman Islands.

British Virgin Islands

BeyondSpring Ltd. and BVI Biotech are incorporated in the British Virgin Islands, and are

not

subject to income tax under the current laws of the British Virgin Islands.

U.S.

BeyondSpring US is incorporated in Delaware, the U.S. It is subject to statutory U.S. Federal corporate income tax at a rate of

21%

for the year ended

December 31, 2018,

and

35%

for the years ended

December 31, 2017

and

2016.

BeyondSpring US had

taxable income for all years presented and therefore,

provisions for income taxes were recorded.

December 2017,

the Tax Cuts and Jobs Act (the

“2017

Tax Act”) was enacted. The

2017

Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from

35%

21%

for tax years beginning after

December 31, 2017.

Australia

BeyondSpring Australia incorporated in Australia is subject to corporate income tax at a rate of

30%.

BeyondSpring Australia has

taxable income for all years presented and therefore,

provision for income taxes is required.

Hong Kong

BeyondSpring HK is in 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. BeyondSpring HK has

taxable income for all years presented and therefore,

provision for income taxes is required.

PRC

Wanchun Shenzhen, Wanchunbulin and Beijing Wanchun are subject to the statutory tax rate of

25%

in accordance with the PRC Enterprise Income Tax Law (“EIT Law”), which was effective since

January 1, 2008.

The components of losses before income taxes are as follows:

	Year Ended December 31,
	2016		2017		2018

Cayman Islands		894		2,045		3,305
U.S.		9,840		80,008		23,347
PRC		1,338		11,341		6,742
BVI		-		2,498		22,979
Australia		473		496		1,101
Net loss before income taxes		12,545		96,388		57,474

There were

provisions for current and deferred income taxes because the Company and all of its subsidiaries were loss making and were at cumulative losses for the years presented.

A reconciliation of the differences between income tax benefits and the amounts computed by applying the U.S. Federal corporate income tax rate of

35%

for the years of

2016

and

2017,

and

21%

for the year of

2018

are as follows:

	Year Ended December 31,
	2016			2017			2018
Net loss before income taxes		12,545			96,388			57,474
Expected income tax benefit		4,391			33,736			12,069
Tax rate differential		581			5,796			(2,121	)
Non-deductible expenses		(152	)		(25,299	)		(880	)
Deemed disposal gain*		-			(10,506	)		-
Impact of U.S. statutory tax rate change		-			(2,943	)		-
Non-taxable income		-			227			75
Others		(63	)		74			(143	)
Change in valuation allowance		(4,757	)		(1,085	)		(9,000	)

Total income tax benefit		-			-			-

*Arose from intragroup transfer of certain intellectual property rights.

Net deferred tax assets as of

December 31, 2017

and

2018

consisted of the following:

	December 31,
	2017			2018
Deferred tax assets:
Net operating loss carryforward		7,244			13,403
Intangible asset		329			191
Deferral of tax deduction of R&D expense		1,239			2,891
Share based compensation		1,427			2,754
Less: valuation allowance		(10,239	)		(19,239	)

Net deferred tax assets		-			-

Valuation allowances have been provided on the 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. The Company recorded a full valuation allowance against deferred tax assets.

As of

December 31, 2018,

the Company had U.S. and PRC tax loss carryforwards of approximately

$38,938

and

$688,

respectively. For losses occurred in the U.S. in years after

December 31, 2017,

the Tax Cuts and Jobs Act included a limitation of the deduction for net operating losses to

80%

of current year taxable income and a provision where such losses can be carried forward indefinitely. Loss carryforwards in

2017

and prior years are

not

limited in their current usage, and can be carried forward for

years after the year they were generated. Whereas the PRC unused tax losses can be carryforward for

years and

$688

will fully expire by

2023

not

utilized.

As of

December 31, 2017

and

2018,

the Company determined that it had

material unrecognized tax benefit and accordingly

material related interest and penalty. Management does

not

expect that the amount of unrecognized tax benefit will increase significantly within the next

months.

The Company’s subsidiaries in the U.S., Australian and PRC filed income tax returns in the U.S., Australia and PRC, respectively. An entity in the U.S. is subject to U.S. federal and state income tax examination by tax authorities for tax years beginning in

2014.

An entity in Australia’s tax returns are open to examination by Australian Taxation Office for tax years beginning in

2016.

For entities in the PRC the tax returns for tax years after

2015

are open to examination by the PRC taxing authorities.