NOTE 7 - TAXES
(a) Federal Income Tax and Enterprise Income Taxes
The Company, YBP, registered in the State of Nevada, and its subsidiary, MC, registered in the State of California, are subject to the United States federal income tax at a tax rate of 34%. No provision for income taxes in the U.S. has been made as YBP and MC had no U.S. taxable income as of December 31, 2016 and 2015.
The Company’s subsidiary, Yew Bio-Pharm (HK), is incorporated in Hong Kong and has no operating profit or tax liabilities during the years. Yew Bio-Pharm (HK) is subject to tax at 16.5% on the assessable profits arising in or derived from Hong Kong.
The Company’s subsidiary, JSJ, and VIE and its subsidiary, HYF and HDS, incorporated in the PRC, are subject to PRC’s Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income Taxes (“EIT”) is generally imposed at 25%. However, HDS has been named as a leading enterprise in the agricultural industry and awarded with a tax exemption through December 31, 2058 with an exception of sales of handicrafts, yew candle, pine needle extracts and yew essential oil soap which are not within the scope of agricultural area.
The provision for income taxes consists of the following:
| For the Years Ended December 31, |
||||||||
| 2016 | 2015 | |||||||
| Current | $ | 18,009 | $ | 16,488 | ||||
| Deferred | - | - | ||||||
| Total | $ | 18,009 | $ | 16,488 | ||||
The combined effects of the income tax expense exemptions and tax reductions available to the Company for the years ended December 31, 2016 and 2015 are as follows:
|
Years Ended December 31, |
||||||||
| 2016 | 2015 | |||||||
| Tax exemption effect | $ | 629,937 | $ | 1,581,916 | ||||
| Tax reduction due to loss carry-forwards | 8,200 | 2,226 | ||||||
| Loss not subject to income tax | (180,550 | ) | (448,322 | ) | ||||
| Basic net income per share effect | $ | (0.01 | ) | $ | (0.02 | ) | ||
| Diluted net income per share effect | $ | (0.01 | ) | $ | (0.02 | ) | ||
The table below summarizes the difference between the U.S. statutory federal tax rate and the Company’s effective tax rate for the years ended December 31, 2016 and 2015:
|
Years Ended December 31, |
||||||||
| 2016 | 2015 | |||||||
| U.S. federal income tax rate | 34.00 | % | 34.00 | % | ||||
| Foreign income not recognized in the U.S. | (34.00 | )% | (34 | )% | ||||
| PRC EIT rate | 25.00 | % | 25.00 | % | ||||
| PRC tax exemption | (61.96 | )% | (30.92 | )% | ||||
| Income tax difference under different tax jurisdictions | 5.36 | % | 6.08 | % | ||||
| Valuation allowance | 32.48 | % | 0.19 | % | ||||
| Other | - | (0.04 | )% | |||||
| Total provision for income taxes | 0.89 | % | 0.31 | % | ||||
Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for income tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset for the Company as of December 31, 2016 and 2015, are as follows:
|
December 31, 2016 |
December 31, 2015 |
|||||||
| Tax benefit of net operating loss carry forward and inventory write-down | $ | 2,105,056 | $ | 1,925,808 | ||||
| Tax benefit of inventory write-down | 624,891 | - | ||||||
| Valuation allowance | (2,729,947 | ) | (1,925,808 | ) | ||||
| Non-current deferred tax assets | $ | - | $ | - | ||||
For U.S. income tax purposes, the Company has cumulative undistributed earnings of foreign subsidiary and VIE of approximately $33.0 million and $30.6 million as of December 31, 2016 and 2015, respectively, which are included in consolidated retained earnings and will continue to be indefinitely reinvested in overseas operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted to the U.S. in the future.
ASC 740 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.
(b) Value Added Taxes (“VAT”)
The applicable VAT tax rate is 13% for agricultural products and 17% for handicrafts, yew candles and pine needle extracts sold in the PRC. In accordance with VAT regulations in the PRC, the Company is exempt from paying VAT on its yew raw materials and yew trees sales as an agricultural corps cultivating company up to December 31, 2016. The company’s sales of yew candles and pine needle extracts and export products are under VAT tax-exempt treaty and thus are eligible for return of VAT-IN. VAT payable in the PRC is charged on an aggregated basis at the applicable rate on the full price collected for the goods sold or taxable services provided and less any deductible VAT already paid by the taxpayer on purchases of goods in the same fiscal year.