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Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

18.

INCOME TAXES

British Virgin Islands

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

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, Beijing Dehaier updated its certification for "high technology" company. Therefore, Beijing Dehaier used a 15% income tax rate to calculate the income tax expense for the years ended December 31, 2017, 2016 and 2015. In 2018, Beijing Dehaier did not pass the certification for "high technology" company, and therefore, is subject to a PRC income tax rate of 25% on its 2018 income.

The tax rate for Lianluo Connection is 25%.

The BVI and PRC components of loss before income taxes consisted of the following:

		Years Ended December 31,
		2019				2018				2017

BVI		$	(1,385,394	)		$	(957,973	)		$	(1,724,488	)
PRC			(3,065,600	)			(7,952,029	)			(3,411,946	)
Loss before income taxes		$	(4,450,994	)		$	(8,910,002	)		$	(5,136,434	)

The income taxes (benefit) provision for the years presented is as follows:

		Years Ended December 31,
		2019				2018				2017

Current:
BVI		$	-			$	-			$	-
PRC			-				-				-
			-				-				-
Deferred:
BVI			-				-				-
PRC			-				-				-
Income taxes (benefit) provision		$	-			$	-			$	-

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,
		2019				2018				2017
Loss before provision for income tax and non-controlling interests		$	(4,450,994	)		$	(8,910,002	)		$	(5,136,434	)
PRC corporate income tax rate			25	%			25	%			25	%
Income tax benefit computed at PRC statutory corporate income tax rate			(1,112,749	)			(2,227,500	)			(1,284,108	)
Reconciling items:
Allowances and reserves			20,414				4,940				126,090
Impairment on intangible assets			-				818,935				-
BVI tax rate and PRC tax law differential			346,349				239,493				431,122
Others			40,828				300				39,977
Valuation allowance on deferred tax assets			705,158				1,163,832				686,919
Income tax benefit		$	-			$	-			$

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, 2019 and 2018 are presented below:

		2019				2018
Deferred tax assets
Allowances and reserves		$	155,354			$	134,940
Impairment on intangible assets			818,935				818,935
Net operating loss carried forward			3,789,703				2,458,463
Valuation reserve			(4,763 992)				(3,412,338	)
Deferred tax assets, non-current		$	-			$	-

As of December 31, 2019, the Company's PRC subsidiaries had net operating loss carry forwards of $15,158,812, which will expire in various years through year 2024. 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 reserve was provided against the full amount of the potential tax benefits.

Uncertain tax position

The accounting for uncertain tax positions prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company is required to recognize in the financial statements the impact of a tax position, if that position is more-likely than-not of being sustained on audit, based on the technical merits of the position. The Company recorded a net charge for unrecognized tax benefits in 2019 and 2018 of $0 and $0, respectively. The Company includes interest and penalties related to unrecognized tax benefits, if any, within the benefit from (provision for) income taxes.

The Company only files income tax returns in PRC. 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.