NOTE 12 – INCOME TAXES
United States
Mullan Agritech is established in the State of Nevada in the United States and is subject to Nevada State and US Federal tax laws. Mullan Agritech has approximately $102,000 of unused net operating losses (“NOLs”) available for carrying forward to future years for U.S. federal income tax reporting purposes. The benefit from the carry forward of such NOLs will begin expiring during the year ended December 31, 2034. Because United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full advantage of its NOLs for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain.
Hong Kong
Muliang HK is established in Hong Kong and its income is subject to a 16.5% profit tax rate for income sourced within the country. During the years ended December 31, 2016 and 2015, Muliang HK did not earn any income derived in Hong Kong, and therefore was not subject to Hong Kong Profits Tax.
China, PRC
Shanghai Mufeng and its subsidiaries Muliang Industry, Zongbao, Zongbao Cangzhou, Muliang Sales, Fukang, Agritech Development, Ningling, Zhongliang and Yunnan Muliang are established in China and its income is subject to income tax rate of 25%.
The reconciliation of effective income tax rate as follows:
| For the Years Ended | ||||||||
| December 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| US Statutory income tax rate | 35 | % | 35 | % | ||||
| Lower rates in PRC, net | (10 | )% | (10 | )% | ||||
| Valuation allowance | (25 | )% | (25 | )% | ||||
| Total | - | - | ||||||
All of our entities incurred a net loss for the year ended December 31, 2016 and 2015, except that Weihai Fukang created a net income of $1,328,879 for the year ended December 31, 2016. The income tax expense of $26,786 represents the income tax of Weihai Fukang for the year ended December 31, 2016.
The tax effects of temporary differences that give rise to the Company’s net deferred tax assets as follows:
| December 31, 2016 |
||||
| PRC income tax at statutory rate | 535,228 | |||
| Less: valuation allowance | (535,228 | ) | ||
| Net deferred tax asset | - | |||
The following tables provide the reconciliation of the differences between the statutory and effective tax expenses for the years ended December 31, 2016 and 2015:
| For the Years Ended | ||||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Income attributed to PRC | $ | (562,646 | ) | $ | (3,011,166 | ) | ||
| Loss attributed to US | - | - | ||||||
| Income before tax | (562,646 | ) | (3,011,166 | ) | ||||
| PRC Statutory Tax at 25% Rate | 26,786 | 377 | ||||||
| Effect of tax exemption granted | - | - | ||||||
| Income tax | $ | 26,786 | $ | 377 | ||||
| Per Share Effect of Tax Exemption | ||||||||
| Effect of tax exemption granted | $ | - | $ | - | ||||
| Weighted-Average Shares Outstanding Basic | 276,452,740 | 150,525,000 | ||||||
| Per share effect | $ | - | $ | - | ||||