Note 8 – Income taxes

(a) Corporate income tax

China ACM is organized in the United States. China ACM had no taxable income for United States income tax purposes for the years ended June 30, 2017 and 2016, respectively. China ACM’s net operating loss for the year ended June 30, 2017, amounted to approximately $0.3 million. As of June 30, 2017, China ACM’s net operating loss carry forward for United States income taxes was approximately $0.7 million. The net operating loss carry forward are available to reduce future years’ taxable income through year 2037. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the United States. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management reviews this valuation allowance periodically and makes changes accordingly.

BVI-ACM is incorporated in the British Virgin Islands (“BVI”), where its income tax rate is 0% under current BVI law.

China-ACMH and VIE-Chinese operations

China-ACMH and Xin Ao are governed by the income tax laws of the PRC. Income tax provisions with respect to operations in the PRC are 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 Chinese Enterprise Income Tax (“EIT”) law, the statutory corporate income tax rate applicable to most companies is 25%. In 2009, Xin Ao applied and received an Enterprise High-Tech Certificate. The High-Tech Certificate was required to be renewed every 3 years. The certificate was awarded based on Xin Ao’s involvement in producing high-tech products, its research and development, as well as its technical services. As granted by the State Administration of Taxation of the PRC, Xin Ao is entitled to a reduction in its income tax rate from 25% to 15% until 2018.

The EIT Law imposes a 10% withholding income tax, subject to reduction based on tax treaties where applicable, for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. Such dividends were exempted from PRC tax under the previous income tax law and regulations. The Company intends to permanently reinvest undistributed earnings of its Chinese operations located in the PRC. As a result, there is no deferred tax expense related to withholding tax on the future repatriation of these earnings.

Loss before provision for income taxes consisted of:

Significant components of deferred tax assets were as follows:

As of June 30, 2017 and 2016, the Company believes it is more likely than not that its PRC operations will be unable to fully utilize its deferred tax assets related to its allowance for doubtful accounts, impairment loss of long-lived assets and the net operating loss carryforward in the PRC. If the Company continues to incur losses in its PRC operations, it is more likely than not that it will not have sufficient income to utilize its deferred tax assets. As of June 30, 2017, the Company has a net operating loss carry forward in the PRC that expires in 2021. As a result, the Company provided a 100% allowance on all deferred tax assets of approximately $6.2  million and $6.5 million related to its operations in the PRC as of June 30, 2017 and 2016, respectively.

The Company has incurred losses from its United States operations during all periods presented. Accordingly, management provided approximately $0.2 million and $0.2 million of valuation allowance against the deferred tax assets related to the Company’s United States operations as of June 30, 2017 and 2016, respectively, because the deferred tax benefits of the net operating loss carry forward in the United States might not be utilized.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended June 30, 2017 and 2016.

*This represents the expenses incurred by the Company that are not subject to PRC income taxes during the years.

As of June 30, 2017 and 2016, the Company had $103,419 and $95,708 of other business tax payables, respectively.

(b) Uncertain tax positions

There were no uncertain tax positions as of June 30, 2017 and 2016. Management does not anticipate any potential future adjustments 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 tax related interest or penalties.