16 — INCOME TAXES

 

Corporation Income Tax (“CIT”)

 

(i)            The Company was incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporation income tax. The Company became a holding company and does not conduct any substantial operations of its own after the Share Exchange. No provision for federal corporate income tax has been made in the financial statements as the Company has no taxable income in the United States for the three months ended March 31, 2012. Earnings in the PRC are intended to be permanently reinvested in the PRC operation.

 

Trunkbow was established in the British Virgin Islands on July 17, 2009. Under the current laws of the British Virgin Islands, Trunkbow is not subject to tax on income or capital gains. In addition, upon payments of dividends by Trunkbow, no British Virgin Islands withholding tax is imposed.

 

Trunkbow Hong Kong was incorporated in Hong Kong on July 9, 2004. Taxable profits are subject to Hong Kong profits tax on corporations at the rate of 16.5%. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

 

(ii)          PRC subsidiaries and VIEs

 

The subsidiaries and VIEs incorporated in the PRC are generally subject to a corporate income tax rate of 25% commencing January 1, 2008 except for those subsidiaries and VIEs that enjoy tax holidays or preferential tax treatment, as discussed below.

 

Trunkbow Shandong

  

Trunkbow Shandong, a PRC company, is a wholly foreign-owned entity under PRC law and is governed by the income tax law of the PRC and is subject to PRC enterprise income tax. The statutory income tax rate commencing January 1, 2008 was 25%.

 

On October 16, 2009, Trunkbow Shandong was certified as a software enterprise by Shandong Economic and Information Technology Committee. Pursuant to the PRC tax laws, newly established and certified software enterprises are entitled to tax preferential policies of full exemption from income tax for the first two years and a 50% reduction for the next three years, commencing from the first profit-making year after offsetting all tax losses carried forward from the previous five years. The first profit making year for Trunkbow Shandong was 2009. On January 7, 2010, Trunkbow Shandong obtained the official approval from the tax bureau of Shandong Province Jinan City High-tech Industry Development Zone on the preferential tax exemption.

 

Pursuant to the aforementioned taxation laws, Trunkbow Shandong was exempt from income tax for the years ended December 31, 2009 and 2010, and thereafter, a half tax rate of 12.5% is applicable for the years ended December 31, 2011, 2012 and 2013.

 

In March 2012, Trunkbow Shandong was recognized as New and High-Tech Enterprise. Under the Enterprise Income Tax Law effective from January 1, 2008, Trunkbow Shandong will be entitled to the 15% of preferential tax rate for the years ended December 31, 2014, 2015 and 2016.

 

Trunkbow Shenzhen

 

Trunkbow Shenzhen, a PRC company, is a wholly foreign-owned entity under PRC law. Because it was incorporated in Shenzhen, a special economic zone in the PRC, it is entitled to a preferential income tax rate of 15% in 2007. According to the pronouncement of the tax bureau, for companies established after March 16, 2007, the income tax rate will be immediately raised to the unified tax rate of 25% started from January 1, 2008. As Trunkbow Shenzhen was established on September 7, 2007, the income tax rate from year 2008 on was 25%.

 

On June 8, 2011, Trunkbow Shenzhen was certified as a software enterprise by Shenzhen Technology, Industry, Commerce and Information Committee. Pursuant to the PRC tax laws, newly established and certified software enterprises are entitled to tax preferential policies of full exemption from income tax for the first two years and a 50% reduction for the next three years, commencing from the first profit-making year after offsetting all tax losses carried forward from the previous five years. Trunkbow Shenzhen was in net operation loss as of March 31, 2012 and no income tax provision was recorded.

 

Trunkbow Technologies

 

Trunkbow Technologies was registered in Shenzhen, a special economic zone in the PRC, which is entitled to preferential income tax rates of 18% and 15% in 2008 and 2007 respectively. According to the pronouncement of the tax bureau, for companies established before March 16, 2007, the income rate will gradually increase to 25% within 4 years, 20% in 2009, 22% in 2010, 24% in 2011 and 25% from 2012. Trunkbow Technologies was in net operation loss as of March 31, 2012 and no income tax provision was recorded.

 

Delixunda

 

Delixunda was registered in Beijing, the PRC. The applicable income tax rate for Delixunda was 25% for the three months ended March 31, 2012. Delixunda had a net operating loss for the three months ended March 31, 2012, and no income tax provision was recorded.

 

1) Deferred tax asset 

 

		March 31,				December 31,
		2012				2011
		(Unaudited)
Deferred tax asset		$	118,699			$	117,952

 

Deferred tax asset as of December 31, 2011 represented the deferred income tax asset arising from the allowance for doubtful debt of $943,619.

 

2) The following is a reconciliation of tax computed by applying the statutory income tax rate to PRC operations to income tax expenses for the three months ended March 31, 2012 and 2011, respectively:

 

		Three Months Ended March 31,
		2012				2011
		(Unaudited)				(Unaudited)
PRC statutory tax rate			25	%			25	%
Accounting income before tax		$	2,861,733			$	4,228,937
Computed expected income tax expenses			715,433				1,057,234
Accumulated loss from subsidiaries and VIEs			1,878				52,320
Less: net operation loss carryforward			76,167				0
Less: tax exemption			320,572				721,201
Income tax expenses		$	320,572			$	388,353