NOTE 16 - INCOME TAXES
The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws.
In 2009, the Joint Venture was awarded the Chinese government's "High-Tech Enterprise" designation. The High-Tech Enterprise certificate is valid for three years and provided for a reduced tax rate of 15% for years 2009 through 2011. The Company used a tax rate of 25% for the first three quarters of 2012. In December 2012, the Joint Venture passed the re-assessment of “High-Tech Enterprise” designation by the government, according to relevant PRC income tax laws. The High-Tech Enterprise certificate is valid for three years and provides for a reduced tax rate for years 2012 through 2014. In 2015, the Joint Venture was awarded the Chinese government's "High-Tech Enterprise" designation for a third time, which is valid for three years and it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017.
The reconciliation of the effective income tax rate of the Joint Venture to the statutory income tax rate in the PRC for the years ended on December 31, 2016 and 2015 is as follows:
| | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | |
| US statutory income tax rate | | | 35.00 | % | | | 35.00 | % |
| Valuation allowance recognized with respect to the loss in the US company | | | -35.00 | % | | | -35.00 | % |
| HK statutory income tax rate | | | 16.50 | % | | | 16.50 | % |
| Valuation allowance recognized with respect to the loss in the HK company | | | -16.50 | % | | | -16.50 | % |
| China statutory income tax rate | | | 25.00 | % | | | 25.00 | % |
| Effect of income tax exemptions and reliefs | | | -10.00 | % | | | -10.00 | % |
| Effects of additional deduction allowed for R&D expenses | | | -2.88 | % | | | -3.33 | % |
| Effects of expenses not deductible for tax purposes | | | 0.61 | % | | | 1.26 | % |
| Other items | | | 0.54 | % | | | -0.64 | % |
| Effective tax rate | | | 13.27 | % | | | 12.29 | % |
Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There currently is no tax benefit or burden recorded for the entity located in U.S. The tax authority may examine the tax returns of the Company three years after the year ended. In the years of 2016 and 2015, there were no penalties and interest, which generally are recorded in the general and administrative expenses or in the tax expenses. The provisions for income taxes for the years ended December 31, 2016 and 2015, respectively, are summarized as follows:
| | | December 31,
2016 | | December 31,
2015 | |
| | | | | | |
| Current | | $ | 2,763,510 | | $ | 3,179,989 | |
| Deferred | | | 502,903 | | | (1,145,213) | |
| | | | | | | | |
| Total | | $ | 3,266,413 | | $ | 2,034,776 | |
ASC 740-10 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and considered that no provision for uncertainty in income taxes was necessary as of December 31, 2016 and 2015.