Income taxes

9 Months Ended

Sep. 30, 2020

Income taxes [Abstract]

Income taxes

17. Income taxes

In connection with the IPO, NFE LLC contributed the net proceeds from the IPO to NFI in exchange for NFI LLC Units, and NFE LLC became the managing member of NFI. NFI is a limited liability company that is treated as a partnership for U.S. federal income tax purposes and for most applicable state and local income tax purposes. As a partnership, NFI is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by NFI is passed through to and included in the taxable income or loss of its members, on a pro rata basis, subject to applicable tax regulations. NFE is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its allocable share of any taxable income or loss of NFI. Additionally, NFI and its subsidiaries are subject to income taxes in the various foreign jurisdictions in which they operate.

In connection with the IPO, NFE recorded a deferred tax asset of $42,783 related to the difference between its tax basis in its investment in NFI and NFE’s share of the financial statement carrying amount of the net assets of NFI. The deferred tax asset was recorded to equity and is fully offset by a valuation allowance also recorded to equity.

Subsequent to the Exchange Transactions completed on June 10, 2020, 100% of NFI’s operations are included in the NFE income tax provision; there is no impact on income tax expense expected due to the Exchange Transactions. Additionally, in the third quarter of 2020, the Company completed the Conversion; NFE LLC has been a corporation for U.S. federal tax purposes, and converting NFE LLC from a limited liability company to a corporation has no effect on the U.S. federal tax treatment of the Company or its shareholders.

The effective tax rate for the three months ended September 30, 2020 was (5.27)%, compared to 0.12% for the three months ended September 30, 2019. The total tax expense (benefit) for the three months ended September 30, 2020 was $1,836, compared to $(64) for the three months ended September 30, 2019.

The effective tax rate for the nine months ended September 30, 2020 was (0.75)%, compared to (0.20)% for the nine months ended September 30, 2019. The total tax expense for the nine months ended September 30, 2020 was $1,949, compared to $337 for the nine months ended September 30, 2019.

The primary items which decreased the Company’s effective tax rate for the three months and nine months ended September 30, 2020 and September 30, 2019 from the U.S. federal statutory rate of 21% were valuation allowances recorded against the Company’s current period losses and earnings generated in non-U.S. jurisdictions with lower tax rates.

The Company has not recorded a liability for uncertain tax positions as of September 30, 2020. The Company remains subject to periodic audits and reviews by the taxing authorities, and NFE’s returns since its formation remain open for examination.