Quarterly report pursuant to Section 13 or 15(d)

Taxation

v3.7.0.1
Taxation
6 Months Ended
Jun. 30, 2017
Taxation [Abstract]  
Income Tax Disclosure [Text Block]
7.
Taxation
 
Highpower and its direct and indirect wholly and majority owned subsidiaries file tax returns separately.
 
1) VAT
 
Pursuant to the Provisional Regulation of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in the sale of products in the PRC are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayers. Further, when exporting goods, the exporter is entitled to a portion of or all the refund of VAT that it has already paid or incurred. The Company’s PRC subsidiaries are subject to VAT at 17% of their revenues.
 
2) Income tax
 
United States
 
Highpower was incorporated in Delaware and is subject to U.S. federal income tax with a system of graduated tax rates ranging from 15% to 35%. No deferred U.S. taxes are recorded since all accumulated profits in the PRC will be permanently reinvested in the PRC.
 
Hong Kong
 
HKHTC, which was incorporated in Hong Kong, is subject to a corporate income tax rate of 16.5%.
 
PRC
 
In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income.
 
In China, the companies granted with National High-tech Enterprise (“NHTE”) status enjoy 15% income tax rate. This status needs to be renewed every three years. If these subsidiaries fail to renew NHTE status, they will be subject to income tax at a rate of 25% after the expiration of NHTE status. All the PRC subsidiaries received NHTE status and enjoy 15% income tax rate for calendar year 2016.
 
SZ Highpower, ICON and GZ Highpower received the NHTE in 2014 and has reapplied for NHTE status in the second quarter of 2017. If SZ Highpower, ICON and GZ Highpower fail to obtain the approval in 2017, SZ Highpower, ICON and GZ Highpower will be subject to income tax at a rate of 25% starting for calendar year 2017.
 
HZ HTC received NHTE status in 2015 and SZ Springpower received NHTE status in 2016. As a result, HZ HTC and SZ Springpower are entitled to a preferential enterprise income tax rate of 15% for calendar year 2017.
 
The components of the provision for income taxes expenses are:
 
 
 
Three months ended
 
Six months ended
 
 
 
June 30,
 
June 30,
 
 
 
2017
 
2016
 
2017
 
2016
 
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
 
$
 
$
 
$
 
$
 
Current
 
 
456,583
 
 
111,867
 
 
919,800
 
 
274,488
 
Deferred
 
 
139,125
 
 
62,446
 
 
263,673
 
 
(64,671)
 
Total income tax expenses
 
 
595,708
 
 
174,313
 
 
1,183,473
 
 
209,817
 
 
The reconciliation of income tax expense computed at the statutory tax rate applicable to the Company to income tax expense is as follows:
 
 
 
Three months ended
 
Six months ended
 
 
 
June 30,
 
June 30,
 
 
 
2017
 
2016
 
2017
 
2016
 
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
 
$
 
$
 
$
 
$
 
Income before tax
 
 
5,057,908
 
 
2,047,426
 
 
8,258,215
 
 
1,606,801
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes at applicable income tax rate
 
 
1,267,859
 
 
512,993
 
 
2,071,191
 
 
409,393
 
Effect of preferential tax rate
 
 
(397,140)
 
 
(116,208)
 
 
(788,983)
 
 
(139,878)
 
R&D expenses eligible for super deduction
 
 
(442,939)
 
 
(555,531)
 
 
(442,939)
 
 
(555,531)
 
Non-deductible expenses
 
 
17,448
 
 
96,716
 
 
33,995
 
 
114,336
 
Change in valuation allowance
 
 
150,480
 
 
236,343
 
 
310,209
 
 
381,497
 
Effective enterprise income taxes expenses
 
 
595,708
 
 
174,313
 
 
1,183,473
 
 
209,817
 
 
3) Deferred tax assets
 
Deferred tax assets and deferred tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of temporary difference.
 
 
 
June 30,
 
December 31,
 
 
 
2017
 
2016
 
 
 
(Unaudited)
 
 
 
 
 
$
 
$
 
Tax loss carry-forward
 
 
4,330,451
 
 
4,274,881
 
Allowance for doubtful receivables
 
 
125,037
 
 
121,932
 
Impairment for inventory
 
 
119,315
 
 
98,276
 
Difference for sales cut-off
 
 
731
 
 
14,245
 
Deferred income
 
 
133,823
 
 
114,224
 
Property, plant and equipment subsidized by government grant
 
 
475,064
 
 
468,313
 
Impairment for property, plant and equipment
 
 
58,779
 
 
76,248
 
Total gross deferred tax assets
 
 
5,243,200
 
 
5,168,119
 
Valuation allowance
 
 
(3,994,974)
 
 
(3,690,358)
 
Total net deferred tax assets
 
 
1,248,226
 
 
1,477,761
 
 
The deferred tax assets arising from net operating losses will expire from 2018 through 2021 if not utilized.
 
Valuation allowance was provided against deferred tax assets in entities where it was determined it was more likely than not that the benefits of the deferred tax assets will not be realized. The Company had deferred tax assets which consisted of tax loss carry-forwards and others, which can be carried forward to offset future taxable income. The management determines it is more likely than not that part of deferred tax assets could not be utilized, so allowance was provided as of June 30, 2017 and December 31, 2016.