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INCOME TAXES
 6 Months Ended
Jun. 30, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES

15. INCOME TAXES

 

BVI

 

The Company is incorporated in the BVI. Under the current laws of the BVI, the Company is not subject to income or capital gains taxes. In addition, dividend payments are not subject to with holdings tax in the BVI.

 

Hong Kong

 

On March 21, 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits tax rates regime. The Bill was signed into law on March 28, 2018 and was announced on the following day. Under the two-tiered profits tax rates regime, the first 2 million Hong Kong Dollar (“HKD”) of profits of the qualifying group entity will be taxed at 8.25%, and profits above HKD 2 million will be taxed at 16.5%. The Company’s Hong Kong subsidiaries did not have assessable profits that were derived in Hong Kong for the six months ended June 30, 2026 and 2025. Therefore, no Hong Kong profit tax has been provided for the six months ended June 30, 2026 and 2025.

 

PRC

 

The Company’s PRC subsidiaries are subject to the PRC Enterprise Income Tax Law (“EIT Law”) and are taxed at the statutory income tax rate of 25%, unless otherwise specified.

 

U.S.

 

For entities operating in Delaware with a physical presence, the effective rate includes the State of Delaware corporate income tax rate of 8.7%. The U.S. federal corporate income tax is charged at a flat rate of 21%. The Company’s U.S. subsidiaries are taxed at the combined statutory income tax rate.

 

Composition of loss before income tax for the periods presented by jurisdictions is as follows:

 

       
   For the six months ended June 30, 
   2026   2025 
Chinese Mainland  $(898,382)  $310,715 
Other jurisdictions   (255,181)   (2,762,059)
Total  $(1,153,563)  $(2,451,344)

 

The components of the income tax provision are:

 

       
   For the six months ended June 30, 
   2026   2025 
Current income tax expense  $-   $170,825 
Deferred income tax benefit   (75,118)   - 
Total  $(75,118)  $170,825 

 

The income tax provision is included in our consolidated statement of operations and comprehensive income.

 

The reconciliations of the statutory income tax rate and the Company’s effective income tax rate are as follows:

 

SCHEDULE OF INCOME TAX RECONCILIATIONS

                   
   For the six months ended June 30, 
   2026   2025 
   Amount   Percent   Amount   Percent 
Loss before income taxes   (1,153,563)        (2,451,344)     
Income tax expense computed at PRC statutory income tax rate of 25%   (288,391)   25.0%   (612,835)   25.0%
Foreign tax effects   62,991    (5.5)%   690,514    (28.2)%
Nontaxable or nondeductible items   1,142    (0.1)%   238,417    (9.7)%
Other adjustments                    
Tax incentives relating to R&D expenditures   -    0.0%   (188,480)   7.7%
Effect of preferential tax of PRC subsidiary   107,236    (9.3)%   37,849    (1.5)%
Effect of deferred income tax arising from operating lease   (30,752)   2.7%   -    0.0%
Changes in valuation allowance   72,656    (6.3)%   5,360    (0.2)%
Income tax (benefit)/expense   (75,118)   6.5%   170,825    (6.9)%

 

The PRC statutory income tax rate was used because the majority of the Company’s operations are based in PRC.

 

The Company’s deferred tax assets and liabilities as of June 30, 2026 and December 31, 2025 are attributable to the following:

  

         
   As of 
   June 30, 2026   December 31, 2025 
Deferred tax assets:          
Lease liability  $247,048   $245,571 
Net operating loss carryforwards-PRC   269,395    156,031 
Valuation allowance   (222,732)   (154,293)
Total deferred tax assets   293,711    247,309 
           
Deferred tax liabilities          
Right-of-use assets   118,793    151,308 
Total deferred tax liabilities   118,793    151,308 
           
Net deferred tax assets   182,882    96,001 
Net deferred tax liabilities   7,964    - 

 

 

15. INCOME TAXES – continued

 

The movement of valuation allowance provision for deferred tax assets is as follows:

 

SCHEDULE OF MOVEMENT OF VALUATION ALLOWANCE PROVISION FOR DEFERRED TAX ASSETS 

         
   As of 
   June 30, 2026   December 31, 2025 
Balance as of January 1,   154,293    261,846 
Current year addition   72,656    147,310 
Write-off   (9,656)   (263,106)
Exchange rate effect   5,439    8,243 
Balance as of June 30 and December 31,   222,732    154,293 

 

The current PRC EIT Law imposes a 10% withholding income tax for dividends distributed by foreign invested enterprises to their immediate holding companies outside the PRC. A lower withholding tax rate will be applied if there is a tax treaty arrangement between the PRC and the jurisdiction of the foreign holding company. Distributions to holding companies in Hong Kong that satisfy certain requirements specified by the PRC tax authorities, for example, will be subject to a 5% withholding tax rate.

 

As of June 30, 2026 and December 31, 2025, the Company had not recorded any withholding tax on the retained earnings of its foreign invested enterprises in the PRC, since the Company intends to reinvest its earnings to further expand its business in mainland China, and its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies.

 

As of June 30, 2026 and December 31, 2025, there was no tax effect of temporary difference under ASC Topic 740 “Accounting for Income Taxes” that gives rise to deferred tax asset and liability.

 

The Company did not identify significant unrecognized tax benefits for the period ended June 30, 2026 and December 31, 2025. The Company did not incur any interest or penalties related to potential underpaid income tax expenses. In general, the PRC tax authority has up to five years to conduct examinations of the Company’s tax filings. Accordingly, the tax years from 2021 to 2025 of the Company’s PRC subsidiaries remain open to examination by the taxing jurisdictions. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.