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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | 13. INCOME TAXES Cayman Islands Tax The Company is incorporated in the Cayman Islands and is not subject to tax in this jurisdiction. PRC Tax The Company’s subsidiaries are registered in the PRC as foreign invested enterprises. Under the Laws of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) which are effective January 1, 2008, the statutory enterprise income tax rate is 25%. Chongqing Daqo is a foreign invested enterprise established on January 14, 2008 located in Chongqing. In accordance with a PRC tax regulation which encourages investment in China’s southwest region, Chongqing Daqo is entitled to a preferential tax rate of 15% from its establishment through 2012. On November 19, 2012, Chongqing Daqo obtained a High and New Technology Enterprise (“HNTE”) certificate and renewed it on November 10, 2015, which is valid till 2017. During the years ended December 31, 2016 and 2017, Chongqing Daqo was entitled to a preferential tax rate of 15 % because of its HNTE status. During the year ended December 31, 2018, the statutory enterprise income tax rate of 25% is applicable to Chongqing Daqo. Xinjiang Daqo is a foreign-invested enterprise established on February 22, 2011 located in Shihezi Economic Development Area in Xinjiang Autonomous Region. On November 25, 2014, Xinjiang Daqo obtained a HNTE certificate and renewed it on August 28, 2017, which is valid till 2019. During the years ended December 31, 2016, 2017 and 2018, Xinjiang Daqo was entitled to a preferential tax rate of 15% because of its HNTE status. Xinjiang Daqo Investment is a foreign-invested enterprise established on March 10, 2011 located in Shihezi Economic Development Area in Xinjiang Autonomous Region. During the year ended December 31, 2018, the statutory enterprise income tax rate of 25% is applicable to Xinjiang Daqo Investment. Under the current EIT Law and implementation regulations issued by the PRC State Council, an income tax rate of 10% is applicable to interest and dividends payable to investors that are “non-resident enterprises”, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such interest or dividends have their sources within the PRC. The Company's PRC subsidiaries' retained earnings have been and will be permanently reinvested to the PRC subsidiaries. Therefore, no dividend withholding tax was accrued. Uncertainties exist with respect to how the current income tax law in the PRC applies to the Group’s overall operations, and more specifically, with regard to tax residency status. The EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for Chinese Income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting and properties, occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the legal entities organized outside of the PRC within the Group should be treated as residents for EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed resident enterprises, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income taxes, at a statutory income tax rate of 25%. The Group is not subject to any other uncertain tax position. According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million is specifically listed as a special circumstance). In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. From inception to 2014, the Group’s PRC subsidiaries are subject to examination of the PRC tax authorities. The Company classifies interest and penalties associated with taxes as income tax expense. Such charges were immaterial in the years ended December 31, 2016, 2017 and 2018, respectively. Income tax expenses comprise:
|  | Year ended December 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |
Current tax expenses |  | $ | 7,357,623 |  |  | $ | 17,417,528 |  |  | $ | 11,868,388 |
Deferred tax expenses (benefit) |  |  | 466 |  |  |  | (85,302 | ) |  |  | (151,843 | )
Total |  | $ | 7,358,089 |  |  | $ | 17,332,226 |  |  | $ | 11,716,545 |
The principal components of deferred income tax assets and liabilities from continuing operations are as follows:
|  | December 31, |
|  | 2017 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
Long-lived assets impairment & depreciation |  | $ | 714,068 |  |  | $ | 821,137 |
Total deferred tax assets |  | $ | 714,068 |  |  | $ | 821,137 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Difference in basis of buildings |  | $ | — |  |  | $ | (1,184,644 | )
Total deferred tax liabilities |  | $ | — |  |  | $ | (1,184,644 | )
The principal components of deferred income tax assets and liabilities from discontinued operations are as follows:
|  | December 31, |
|  | 2017 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |
Net operating loss carried forward |  | $ | 21,182,813 |  |  | $ | 17,293,577 |
Allowance for doubtful accounts |  |  | 1,998 |  |  |  | - |
Government grants related to assets |  |  | 211,707 |  |  |  | 180,759 |
Long-lived assets impairment & depreciation |  |  | 18,904,406 |  |  |  | 8,358,235 |
Others |  |  | 1,015,525 |  |  |  | 1,229,693 |
Sub-total |  |  | 41,316,449 |  |  |  | 27,062,264 |
Valuation Allowance |  |  | (41,316,449) |  |  |  | (27,062,264) |
Total deferred tax assets |  | $ | — |  |  | $ | — |
The changes of valuation allowance from discontinued operations are as follows:
|  | Year ended December 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |
Beginning balance |  | $ | 42,362,849 |  |  | $ | 38,729,208 |  |  | $ | 41,316,449 |
Reversal |  |  | (932,833) |  |  |  | (24,771) |  |  |  | (12,515,962) |
Foreign exchange effect |  |  | (2,700,808) |  |  |  | 2,612,012 |  |  |  | (1,738,223) |
Ending Balance |  | $ | 38,729,208 |  |  | $ | 41,316,449 |  |  | $ | 27,062,264 |
The Group uses the asset and liability method to record related deferred tax assets and liabilities. The Group considers positive and negative evidences to determine whether some portion or all of the deferred tax assets will be more likely than not realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses and forecasts of future profitability. These assumptions require significant judgement and the forecasts of future taxable income are consistent with the plans and estimates the Group is using to manage the underlying businesses. Valuation allowances are established for deferred tax assets based on a more likely than not threshold. The Group's ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. The Group has provided a full valuation allowance for the deferred tax assets relating to Chongqing Daqo as of December 31, 2017 and December 31, 2018 in the amount of $41,316,449 and $27,062,264, respectively, as management is not able to conclude that the future realization of those net operating loss carry forwards and other deferred tax assets are more likely than not. The effective income tax rate from continuing operation is different from the expected PRC statutory rate as a result of the following items:
|  | Year ended December 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |
PRC Enterprise Income Tax |  |  | 25 | % |  |  | 25 | % |  |  | 25 | %
Preferential income tax rate of a subsidiary |  |  | (11 | )% |  |  | (10 | )% |  |  | (11 | )%
Additional tax deductions |  |  | (1 | )% |  |  | (1 | )% |  |  | (3 | )%
Different tax rate in other jurisdictions |  |  | 2 | % |  |  | 1 | % |  |  | 5 | %
Tax credits |  |  | 1 | % |  |  | 0 | % |  |  | 0 | %
Effective tax rate |  |  | 16 | % |  |  | 15 | % |  |  | 16 | %
Xinjiang Daqo enjoys the preferential tax rate of 15%, which may be extended if the requirements of High and New Technology Enterprise are satisfied. The impact of the preferential tax rates decreased income taxes by $5.2 million, $11.3 million and $7.8 million for the years of 2016, 2017 and 2018, respectively. The benefit on net income per share was $0.02, $0.04 and $0.02 for the years of 2016, 2017 and 2018, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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