| 11. | INCOME TAX |
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company had no U.S. taxable income for the year ended December 31, 2016 and 2015. The effective income tax rate for the Company for both of the years ended December 31, 2016 and 2015 were negative 44% and 54%, respectively. Some of our subsidiaries generated income and we accrued income tax according to the Chinese corporate income tax rate, but some had a loss and no tax provision was made.
The amount of unrecognized deferred tax liabilities for temporary differences related to the dividend from foreign subsidiaries is not determined because such determination is not practical.
The Company has not provided deferred taxes on undistributed earnings attributable to its PRC subsidiaries as they are to be permanently reinvested. On February 22, 2008, MOFCOM, and SAT, jointly issued Cai Shui 2008 Circular 1, “Circular 1.” According to Article 4 of Circular 1, distributions of accumulated profits earned by foreign investment enterprises, (“FIE”) prior to January 1, 2008 to their foreign investors will be exempt from withholding tax, (“WHT”) while distribution of the profits earned by a FIE after January 1, 2008 to its foreign investors shall be subject to WHT.
Dividend payments by PRC subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by PRC subsidiaries without first receiving prior approval from SAFE. Dividend payments are restricted to 90% of after tax profits.
The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740, Income Taxes. Since SkyPeople (China) intends to reinvest its earnings to further expand its businesses in mainland China, its PRC subsidiaries do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any deferred taxes in relation to US tax on the cumulative amount of undistributed retained earnings since January 1, 2008.
Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules imposed a unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign-invested enterprises in the PRC, unless they qualify under certain limited exceptions. All of the Companies’ Chinese subsidiaries were subject to an enterprise income tax rate of 25%.
The reconciliation of income tax expense at the U.S. statutory rate of 35% in 2016 and 2015, to the Company’s effective tax rate is as follows:
| Year ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Expected income tax expenses at U.S. statutory rate | $ | -- | $ | 2,769,970 | ||||
| Tax rate difference between China and U.S. | (325,658 | ) | (791,420 | ) | ||||
| Change in Valuation Allowance | 195,934 | 373,587 | ||||||
| Permanent difference | 1,731,691 | 1,915,213 | ||||||
| Income tax expense at effective tax rate | $ | 1,601,967 | $ | 4,267,350 | ||||
The provisions for income taxes are summarized as follows:
| Year ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Current | $ | 2,442,904 | $ | 5,182,854 | ||||
| Deferred | (840,937 | ) | (915,504 | ) | ||||
| Total | $ | 1,601,967 | $ | 4,267,350 | ||||
The tax effects of temporary differences that give rise to the Company’s net deferred tax asset as of December 31, 2016 and 2015 are as follows:
| Year ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net operating loss carry forward | $ | 3,973,803 | $ | 2,810,336 | ||||
| Inventory markdown | - | 14,468 | ||||||
| Bad debt provision | - | - | ||||||
| Accrued expenses | 496,515 | 209,332 | ||||||
| Startup costs | - | - | ||||||
| Others | - | - | ||||||
| 4,470,318 | 3,034,136 | |||||||
| Less: valuation allowance | (903,876 | ) | (707,942 | ) | ||||
| Deferred tax assets | $ | 3,566,442 | $ | 2,326,194 | ||||