(6) Income Taxes
United States
The Company is incorporated in United States, and is subject to corporate income tax rate of 34%.
The People's Republic of China (PRC)
Under the Provisional Regulations of The People’s Republic of China Concerning Income Tax on Enterprises promulgated by the PRC, which took effect on January 1, 2008, domestic and foreign companies pay a unified corporate income tax of 25%, except for a 15% corporate income tax rate for qualified high technology and science enterprises.
The new EIT Law also imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Such withholding income tax was exempted under the previous income tax regulations.
Loss before income taxes consists of:
| For the years ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Non-PRC | $ | (213,423 | ) | $ | (55,632 | ) | ||
| PRC | $ | 5,561 | $ | (2,314,834 | ) | |||
| $ | (207,862 | ) | $ | (2,370,465 | ) | |||
The income tax expense in the consolidated statements of operations consisted of:
| For the years ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Unites States Enterprise Income Tax | $ | - | $ | - | ||||
| PRC Enterprise Income Tax | - | - | ||||||
| Income taxes, net | $ | - | $ | - | ||||
The components of deferred taxes are as follows at December 31, 2016 and 2015:
| December 31, 2016 | December 31, 2015 | |||||||
| Deferred tax assets, current portion | ||||||||
| Amortization of fair value of stock for services | $ | - | $ | - | ||||
| Total deferred tax assets, current portion | $ | - | $ | - | ||||
| Valuation allowance | $ | - | $ | - | ||||
| Deferred tax assets, current portion, net | $ | - | $ | - | ||||
| Deferred tax assets, non-current portion | ||||||||
| Fixed assets | $ | - | $ | - | ||||
| Net operating losses | $ | 17,177,431 | $ | 17,106,759 | ||||
| Total deferred tax assets, non-current portion | $ | 17,177,431 | $ | 17,106,759 | ||||
| Valuation allowance | $ | (17,177,431 | ) | $ | (17,106,759 | ) | ||
| Deferred tax assets, non-current portion, net | $ | - | $ | - | ||||
As of December 31, 2016, Royal Shanghai had a net operating loss of $662,059 that can be carried forward to offset future net profit for income tax purposes under the PR China tax law. The net operating loss carry forwards as of December 31, 2016 will expire in years 2016 to 2020 if not utilized.
China Carbon is subject to United States of America tax law. As of December 31, 2016, the operations in the United States of America incurred $50,521,857 of cumulative net operating losses that can be carried forward to offset future taxable income. The net operating loss carry forwards as of December 31, 2016 will expire in the year of 2033 to 2035 if not utilized. The Company has provided full valuation allowance for the deferred tax assets on the expected future tax benefits from the net operating loss carry forwards as the management believes it is more likely than not that these assets will not be realized in the future.
A reconciliation between the income tax computed at the U.S. statutory rate and the Company's provision for income tax in the PRC is as follows:
| December 31, 2016 | December 31, 2015 | |||||||
| Tax expense at statutory rate - US | 34 | % | 34 | % | ||||
| Foreign income not recognized in the U.S. | (34 | )% | (34 | )% | ||||
| PRC enterprise income tax rate | 25 | % | 25 | % | ||||
| Loss not subject to income tax | (25 | )% | (25 | )% | ||||
| Effective income tax rates | - | % | - | % | ||||