18	INCOME TAXES

British Virgin Islands

Lianluo Smart is a tax-exempt company incorporated in the British Virgin Islands.

United States

Breathcare is a limited liability company and, such as, is not subject to federal income tax, instead any income would be taxable to Breathcare’s sole owner. Moreover, as of December 31, 2017, 2016 and 2015, Breathcare was inactive and generated no revenue.

PRC

PRC enterprise income tax is calculated based on the Enterprise Income Tax Law (the “EIT Law”). Under the EIT Law, a unified enterprise income tax rate of 25% and unified tax deduction standards will be applied equally to both domestic-invested enterprises and foreign-invested enterprises.

Under the current PRC laws, PRC government grants a preferential income tax rate of 15% to government-certified high technology companies, and under the new standard the period of validity for the certification of high technology companies is three years. In 2009, 2012 and 2015, BDL updated its certification for “high technology” company. Therefore, BDL used a 15% income tax rate to calculate the income tax expense for the years ended December 31, 2017, 2016 and 2015.

The tax rate for LCL and BTL is 25% in 2017, 2016 and 2015.

Benefit (provision) for income taxes consists of:

	Year Ended December 31
	2017		2016			2015
Current income taxes benefit	$	-	$	95,870		$	240,806
Deferred income taxes provision		-		-			(228,828	)
Total benefit for income taxes		-		95,870			11,978
Less: provision for income tax expenses from discontinued operations		-		(844	)		-
Benefit for income taxes from continuing operations	$	-	$	95,026		$	11,978

A reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company's income taxes is as follows:

	Years ended December 31,
	2017			2016			2015
Loss before provision for income tax and non-controlling interests	$	(5,136,434	)	$	(9,704,761	)	$	(6,710,848	)
PRC corporate income tax rate		25	%		25	%		25	%
Income tax benefit computed at PRC statutory corporate income tax rate		(1,284,108	)		(2,426,190	)		(1,677,712	)
Reconciling items:
Non-deductible expenses		597,189			691,298			1,331,524
Valuation allowance on deferred tax assets		686,919			1,734,892			346,188
Over-provision in prior years		-			(95,026	)		-
Others		-			-			(11,978	)
Income tax benefit	$	-		$	(95,026	)	$	(11,978	)

Deferred taxes assets

Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2017 and 2016 are presented below:

	2017			2016
Deferred tax assets
Net operating loss carried forward	$	2,386,069			1,798,009
Valuation allowance		(2,386,069	)		(1,798,009	)
Deferred tax assets, non-current	$	-		$	-

Deferred tax assets, non-current	$	-		$	-

As of December 31, 2017, the Company’s PRC subsidiaries had net operating loss carry forwards of $9,544,276, which will expire in various years through year 2022. Management believes it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.

According to the 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 its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. 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.