NOTE 13. INCOME TAXES 

BVI

Under the current laws of the BVI, the Company’s BVI subsidiary, Ispire International, is not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholding tax in the BVI.

Hong Kong

Under the two-tiered profits tax rates regime for Hong Kong, the first 2 million HKD of profits of the qualifying entity will be taxed at 8.25%, and profits above HKD 2 million will be taxed at 16.5%.

United States

The Company and Aspire North America LLC are each subject to the federal income tax rate of 21% if in a taxable position.

Malaysia

Ispire Malaysia Sdn Bhd are subject to the standard corporate tax rate of 24% if in a taxable position. However, resident companies that qualify as small and medium-sized enterprises may benefit from a reduced tax rate of 15% on the first RM 150,000 of chargeable income and 17% on the next RM 450,000.

For the years ended June 30, 2026 and 2025 income (loss) before income taxes by major taxing jurisdiction consists of:

The provision for income taxes consisted of the following:

The reconciliation of the actual income taxes to the amount of tax computed by applying the aforementioned statutory tax rate to pre-tax income is as follows:

The Company’s effective tax rate for the years ended June 30, 2026 and 2025, was different from the United States statutory income tax rate due primarily to the U.S. and Malaysia subsidiaries being in a loss position and the Hong Kong subsidiary being in an income position. No tax benefit has been recognized for these current losses and the related carryforward losses of these subsidiaries, as a full valuation allowance has been established against the deferred tax asset arising from these losses.

As of June 30, 2026, the Company had deferred tax assets totaling $29,025,130. Of this amount, $17,973,556 related to federal, state, and foreign net operating loss carryforwards, which may provide future income tax benefits. These deferred tax assets are attributable to gross net operating loss carryforwards of $54,221,556 for federal, $78,411,629 for state and $4,629,480  for foreign jurisdictions. In accordance with the Tax Cuts and Jobs Act enacted in December 2017, federal NOL carryforwards arising from tax years beginning after January 1, 2018 can be carried forward indefinitely, subject to a taxable income limitation. State net operating loss carryforwards will begin to expire in 2043, and foreign net operating loss carryforwards will begin to expire in 2034.

The amount of the valuation allowance as of June 30, 2026 was $28,018,555, resulting from an addition of $9,401,452 to the valuation allowance. Valuation allowances provided against the deferred tax assets are related to all net operating loss carryforwards, as the Company’s management does not believe that sufficient positive evidence exists to conclude that the benefits of such deferred tax assets are more likely than not to be realized in full.

After the valuation allowance, there is remaining deferred tax assets of $1,006,575 and deferred tax liabilities of $920,862 resulting in a net deferred tax asset of $85,713 which is recognized by Hong Kong subsidiary. Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences and carryforwards that exist at the balance sheet date, and are measured using enacted rates and provisions of the tax law. Deferred tax assets are recognized for deductible temporary differences as well as tax attributes.

The Company generated Global Intangible Low-Taxes Income during the year. However, no corresponding U.S. federal income tax expense was recognized due to the utilization of net operating loss carryforwards. The Company will continue to monitor the impact of Global Intangible Low-Taxes Income on its future tax positions.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, significantly amending U.S. federal tax law, including changes to international tax provisions, expensing of research and experimental expenditures, depreciation, and interest deduction rules. The company does not expect the OBBBA to have a material impact on its effective tax rate.

Significant components of the Company’s deferred tax liabilities and assets as of June 30, 2026 and 2025 are as follows:

Movement of valuation allowance:

The Company is subject to income taxes in the U.S. federal, state, and various foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

United States

The subsidiary in United States is subject to US federal income tax examinations by the Internal Revenue Service (“IRS”). Under the Internal Revenue Code, the statute of limitations for the IRS to assess additional taxes generally expires three years from the later of the tax return filing date or its due date (including extensions). However, this period may be extended to six years in cases of substantial understatement of income (>25% of gross income) or indefinitely in instances of fraud or failure to file a return.”

Hong Kong

An additional assessment may be made by an HKIRD tax assessor if a taxpayer chargeable to tax has not been assessed to tax or has been assessed at less than the proper amount. The assessment must be made within the relevant year of assessment or within six years after the end of that year of assessment. The time limit for making additional assessments is extended when a taxpayer either has not been assessed, or is under-assessed, due to fraud or wilful evasion. In that case, an additional assessment may be made up to ten years after the end of the relevant assessment year.

Malaysia

Additional assessments can be made within five years (seven years for transfer pricing assessments) after the expiration of the relevant year of assessment. This time limit is not applicable where fraud, wilful default, or negligence has been committed.

The Company does not have any tax audits or other issues pending.