NOTE 12 - INCOME TAXES

(a) Corporate income taxes

The Company was incorporated in the State of Delaware under the name of Universal Fog, Inc. on August 19, 2004. After the Company had acquired the business of China Health HK through the acquisition of all the share capital of China Health HK under a Share Exchange Agreement dated December 31, 2008, it became a holding company and do not conduct any substantial operations or business of its own in the State of Delaware and in the U.S.

The Company also does not provide for U.S. taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries, either owned directly or indirectly, because it was elected to indefinitely reinvest such earnings outside the U.S to support non-U.S. liquidity needs to fund operations and growth of its foreign subsidiaries and acquisitions.

United States

China Health Industries Holdings Inc ("China Health U.S.") was incorporated in Delaware on August 19, 2004. China Health U.S. had no taxable income for U.S. corporate income tax purposes for the years ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and 2016, China Health U.S. had $548,034 and $285,000 in net operating loss carry forwards available to offset future taxable income, respectively. The federal corporate net operating loss carryover is expired in 20 taxable years following the taxable year of the loss. If not utilized, the federal net operating loss for the fiscal years 2016 and 2017 in an amount of $285,000 and $263,034, respectively, will begin to expire in the years 2037 and 2038, respectively. Management believes that it is more likely than not that the benefits from these accumulated net operating losses will not be realized in the future due to the Company's operating history and the continued losses of its U.S. operation. Accordingly, the Company has provided a full valuation allowance on the deferred tax assets under its U.S. entity.

Hong Kong

China Health Industries Holdings Limited ("China Health HK") was incorporated in Hong Kong on July 20, 2007 and is subject to Hong Kong profits taxation on its business activities conducted in Hong Kong and income sourced in Hong Kong. As of June 30, 2017, and 2016, China Health Hong Kong had $8,465 and $7,917 in net operating loss carry forwards available to offset future taxable income, respectively. Net operating losses of Hong Kong can generally be carried forward indefinitely. The Company believes that it is more likely than not that these accumulated net operating losses will not be utilized in the future. Therefore, the Company had provided full valuation allowance for the deferred tax assets arising from the losses in Hong Kong during the years ended June 30, 2017 and 2016, amounting $548 and $7,917, respectively. Accordingly, there is no net deferred tax assets under this entity.

People’s Republic of China

Harbin Humankind Biology Technology Co. Limited ("Humankind"), Heilongjiang Huimeijia Pharmaceutical Co., Ltd ("HLJ Huimeijia") and Harbin Huimeijia Medicine Company ("Huimeijia") were incorporated in PRC and are governed by the income tax laws of the PRC. The income tax provision with respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate tax adjustments.

The net operating losses carried forward incurred by the Company's PRC subsidiaries were approximately $672,867 and $80,211 as of June 30, 2017 and 2016, respectively. The net operating loss carry forwards gradually expire over time, the last of which expires in 2022. The related deferred tax assets were calculated based on the respective net operating losses incurred by each of the PRC subsidiaries and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized. The Company recorded approximately $177,251 and $118,259 net valuation allowance as of June 30, 2017 and 2016, respectively, because it is considered more likely than not that this portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses relate.

As of June 30, 2017, and 2016, taxes payable consists of:

A reconciliation between the Company's actual provision for income taxes and the provision at the statutory rate is as follows:

The Company’s effective tax rate was 50.0% and 68.1% for the years ended June 30, 2017 and 2016, respectively.

The provision for income taxes on income consists of the following for the years ended June 30, 2017 and 2016:

Provision for income taxes consisted of:

Significant components of deferred tax assets were as follows:

(b) Uncertain tax positions

There were no unrecognized tax benefits as of June 30, 2017 and 2016, respectively. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its tax positions. For the years ended June 30, 2017 and 2016, the Company did not incur any interest and penalties arising from its tax payments.