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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Taxes  
Income Taxes

17.  Income Taxes

Cayman Islands

Under the current tax laws of Cayman Islands, the Company is not subject to income, corporation or capital gains tax, and no withholding tax is imposed upon the payment of dividends.

British Virgin Islands

Under the current laws of the British Virgin Islands, entities incorporated in the British Virgin Islands are not subject to tax on their income or capital gains.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, the Group’s subsidiaries in Hong Kong are subject to 16.5% Hong Kong profit tax on its taxable income generated from operations in Hong Kong.

PRC

PRC Enterprise Income Tax (“EIT”)

On March 16, 2007, the National People’s Congress of PRC enacted the Enterprise Income Tax Law (the “new CIT Law”), under which foreign invested enterprises (“FIEs”) and domestic companies would be subject to enterprise income tax (“EIT “) at a uniform rate of 25%. The new CIT law became effective on January 1, 2008. In accordance with the implementation rules of EIT Law, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years. An entity could re-apply for the HNTE certificate when the prior certificate expires.

The WFOE (Hangzhou Tuya Information Technology Co., Ltd.) obtained its HNTE certificate with a valid period of three years in November 2018, and renewed in December 2021 with a valid period of three years. Therefore, the WFOE is eligible to enjoy a preferential tax rate of 15% from the years ended December 31, 2018 to 2023, to the extent it has taxable income under the EIT Law, and as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures with the relevant tax authority.

PRC Withholding Income Tax on Dividends

The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.”

The EIT Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong can be subject to withholding tax at a rate of no more than 5% if the immediate holding company in Hong Kong owns directly at least 25% of the shares of the FIE and could be recognized as a Beneficial Owner of the dividend from PRC tax perspective.

As of December 31, 2022 and 2023, the Company did not record any withholding tax on the retained earnings of its subsidiaries in the PRC as the Group does not have retained earnings for any of the years presented.

United States

The Company’s subsidiary in California, United States is subject to U.S. federal corporate tax and California corporate franchise tax on its taxable income as reported in its statutory financial statements adjusted in accordance with relevant U.S. tax laws. The applicable U.S. federal corporate tax rate is 21% and the California corporate franchise tax rate is 8.84% or minimum of $0.8, whatever is larger in 2021,2022 and 2023.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carry-forwards created in tax years beginning after December 31, 2017. In addition, the California corporate franchise tax remained the same after the enactment of the Tax Act.

The Company assessed the impact of Tax Act and concluded that it was not material to the Company.

As the Group incurred income tax expense mainly from PRC tax jurisdictions, the following information is based mainly on PRC income taxes.

Composition of income tax expense

The components of loss before tax are as follow:

​

​

​

​

​

​

​

​

​

​

Year Ended December 31, 

​

    

2021

    

2022

    

2023

​

​

US$

​

US$

​

US$

Loss before tax

 

  

 

  

​

​

Loss from PRC entities

 

(150,478)

 

(143,951)

​

(71,249)

(Loss)/profit from overseas entities

 

(24,456)

 

(344)

​

14,183

Total loss before tax

 

(174,934)

 

(144,295)

​

(57,066)

​

​

​

​

​

​

​

​

​

​

Year Ended December 31, 

​

    

2021

    

2022

    

2023

​

​

US$

​

US$

​

US$

Current income tax expense

 

490

 

1,880

​

3,249

Deferred income tax

 

—

 

—

​

—

Total income tax expense

 

490

 

1,880

​

3,249

​

Reconciliation of the differences between statutory tax rate and the effective tax rate

Reconciliation of the differences between the statutory EIT rate applicable to losses of the consolidated entities and the income tax expenses of the Group:

​

​

​

​

​

​

​

​

​

​

​

Year Ended December 31, 

 

​

    

2021

    

2022

    

2023

 

PRC Statutory income tax rate

 

25.0

%

25.0

%

25.0

%

Effect of tax rates in different tax jurisdiction

 

(2.0)

%

(0.3)

%

(2.5)

%

Effect of preferential tax rate for qualified HNTE entities (1)

 

(2.2)

%

(6.0)

%

(5.4)

%

Additional deduction for research and development expenditures

 

7.2

%

8.5

%

17.7

%

Share-based compensation expenses

​

(8.4)

%

(10.5)

%  

(19.7)

%  

Permanent book-tax differences

​

6.2

%  

(1.4)

%  

1.6

%  

Change in valuation allowance (2)

​

(26.0)

%  

(16.6)

%  

(22.4)

%  

Effective tax rates

​

(0.2)

%  

(1.3)

%  

(5.7)

%  

(1)The effect of the preferential income tax rate that the WFOE is entitled to enjoy as a qualified HNTE is 15%.
(2)Valuation allowance for the years ended December 31, 2021, 2022 and 2023 are related to the deferred tax assets of certain group entities which reported losses. The Group believes that it is more likely than not that the deferred tax assets of these entities will not be utilized. Therefore, valuation allowance has been provided.

Deferred tax assets and deferred tax liabilities

The following table sets forth the significant components of the deferred tax assets:

​

​

​

​

​

​

​

​

​

    

​

​

​

​

​

​

​

As of December 31, 

​

    

2021

    

2022

    

2023

​

​

US$

​

US$

​

US$

Deferred tax assets

 

​

 

​

​

​

Net accumulated losses-carry forward

 

76,944

 

103,231

​

114,958

Payroll liabilities

 

5,438

 

2,915

​

2,451

Credit-related impairment of long-term investments

​

—

​

—

​

1,421

Inventory write-downs

 

402

 

691

​

531

Receivables allowances

 

171

 

42

​

279

Other deductible temporary difference

 

9

 

88

​

106

Less: valuation allowance

 

(82,964)

 

(106,967)

​

(119,746)

Total deferred tax assets

 

—

 

—

​

—

​

As of December 31, 2023, the Group had tax losses carry forwards of approximately US$608,109, which mainly arose from its subsidiaries established in the PRC. These tax losses carry forwards from PRC entities will expire during the period from 2024 to 2033 as follows:

​

​

​

​

At December 31, 2023

    

US$

2024

 

227

2025

 

59,719

2026

 

106,030

2027

 

50,463

2028

 

59,405

2029

 

68,687

2030

 

37,607

2031

 

34,690

2032

 

98,215

2033

 

36,502

Total tax losses carry forwards

 

551,545

​

Movement of valuation allowance

​

​

​

​

​

​

​

​

​

​

As of December 31, 

​

    

2021

    

2022

    

2023

​

​

US$

​

US$

​

US$

Balance at beginning of the year

 

37,405

 

82,964

​

106,967

Changes of valuation allowance(1)

 

45,559

 

24,003

​

12,779

Balance at end of the year

 

82,964

 

106,967

​

119,746

(1)Valuation allowances have been provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s entities’ operating history, accumulated deficit, existence of taxable temporary differences and reversal periods. As of December 31, 2022 and 2023, full valuation allowances on deferred tax assets were provided because it was more likely than not that the Group will not be able to utilize tax loss carry forwards and other temporary tax difference generated by its unprofitable subsidiaries and the VIE.