For the years ended December 31, 2017 and 2016, the local (“United States of America”) and foreign components of loss before income taxes were comprised of the following:
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Tax jurisdiction from: | ||||||||
| - Local | $ | (112,406 | ) | $ | 42,259 | |||
| - Foreign | (526 | ) | (21,129 | ) | ||||
| (Loss) income before income taxes | $ | (112,932 | ) | $ | 21,130 | |||
The provision for income taxes consisted of the following:
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Current: | ||||||||
| - Local | $ | – | $ | – | ||||
| - Foreign | 14,503 | – | ||||||
| Deferred: | ||||||||
| - Local | – | – | ||||||
| - Foreign | 207 | 1,964 | ||||||
| Income tax expense | $ | 14,710 | $ | 1,964 | ||||
The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company operates in various countries: United States of America, BVI, Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:
United States of America
COSG is registered in the State of Nevada and is subject to the tax laws of United States of America.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has completed the accounting for the effects of the Act during the quarter ended December 31, 2017. The Company’s financial statements for the year ended December 31, 2017 reflect certain effects of the Act which includes a reduction in the corporate tax rate from 34% to 21% as well as other changes.
As of December 31, 2017, the operation in the United States of America incurred $1,902,503 of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2037, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $399,525 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
BVI
Under the current BVI law, the Company is not subject to tax on income.
Hong Kong
The Company’s subsidiaries operating in Hong Kong are subject to the Hong Kong Profits Tax at a standard income tax rate of 16.5% on the assessable income arising in Hong Kong during its tax year. The reconciliation of income tax rate to the effective income tax rate for the years ended December 31, 2017 and 2016 is as follows:
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Income (loss) before income taxes | $ | 2,240 | $ | (21,129 | ) | |||
| Statutory income tax rate | 16.5% | 16.5% | ||||||
| Income tax expense at statutory rate | 370 | (3,486 | ) | |||||
| Tax effect from non-deductible items | 22,784 | 20,257 | ||||||
| Tax effect from deductible items | (3,656 | ) | (9,529 | ) | ||||
| Tax losses utilized | (4,995 | ) | (7,242 | ) | ||||
| Income tax expense | $ | 14,503 | $ | – | ||||
The PRC
The Company’s subsidiary operating in the PRC is subject to the Corporate Income Tax Law of the People’s Republic of China at a unified income tax rate of 25%. There has been no operation in the PRC during the year ended December 31, 2017
The following table sets forth the significant components of the deferred tax assets and liabilities of the Company as of December 31, 2017 and 2016:
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| Deferred tax liabilities: | ||||||||
| Accelerated depreciation | $ | 12,999 | $ | 12,870 | ||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | 399,525 | $ | 5,026 | ||||
| Less: valuation allowance | (399,525 | ) | (5,026 | ) | ||||
| Deferred tax assets, net | $ | – | $ | – | ||||
Management believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly, the Company provided for a full valuation allowance against its deferred tax assets of $399,525 as of December 31, 2017. In 2017, the valuation allowance increased by $394,499, primarily relating to net operating loss carryforwards from the local regime.