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Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

9. Income Taxes

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, the Cayman Islands do not impose withholding tax on dividend payments.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, the first HK$2 million of profits earned by the Company’s subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e. 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. The profits of group entities incorporated in Hong Kong not qualifying for the two-tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%. In addition, payments of dividends from Hong Kong subsidiaries to their shareholders are not subject to any Hong Kong withholding tax.

PRC

Under the Law of the People’s Republic of China on Enterprise Income Tax (“EIT Law”), domestically-owned enterprises and foreign-invested enterprises (“FIE”) are subject to a uniform tax rate of 25%. Zigong Noah Financial Service Co., Ltd. falls within the encouraged industries catalogue in Western China, which is eligible for preferential income tax rate of 15%. Ark (Shanghai) Network Technology Co., Ltd. obtained the approval for preferential income tax rate of 15% due to High and New Technology Enterprise in November 2020 and such preferential income tax rate will expire in 2023.

Income (loss) before income taxes consists of:

​

​	​	​	​	​	​	​	​	​
​	​	Years Ended December 31,
​	​	(Amount in Thousands)
​		2019		2020		2021		2021
​	​	RMB	​	RMB	​	RMB	​	US$
Mainland China		400,776		846,584		686,188		107,677
Hong Kong		379,896		345,758		584,236		91,679
Cayman Islands	​	100,232	​	(1,811,849)	​	(66,140)	​	(10,379)
Others	​	87,071	​	34,188	​	93,758	​	14,714
Total		967,975		(585,319)		1,298,042		203,691

​

The tax expense (benefit) comprises:

​

​	​	​	​	​	​	​	​	​
​		Years Ended December 31,
​	​	(Amount in Thousands)
​		2019		2020		2021		2021
​	​	RMB	​	RMB	​	RMB	​	US$
Current Tax	​	282,422	​	324,620	​	413,603	​	64,904
Deferred Tax	​	(62,397)	​	(66,160)	​	(119,663)	​	(18,778)
Total	​	220,025	​	258,460	​	293,940	​	46,126

​

Reconciliation between the statutory tax rate to income (loss) before income taxes and the actual provision for income taxes is as follows:

​

​	​	​	​	​	​	​	​
​		Years Ended December 31,
​		2019		2020		2021
PRC income tax rate	​	25.00	%	25.00	%	25.00	%
Expenses not deductible for tax purposes	​	0.04	%	(0.33)	%	0.18	%
Effect of non-deductible settlement expenses	​	—	​	(78.12)	%	0.40	%
Effect of tax-free investment income	​	(1.37)	%	1.47	%	(0.57)	%
Effect of different tax rate of subsidiary in other jurisdiction	​	(5.13)	%	6.44	%	(4.85)	%
Effect of deferred tax asset allowance	​	5.85	%	(4.13)	%	1.56	%
Effect of tax holidays	​	(2.60)	%	2.01	%	(1.27)	%
Effect of income from equity in fund of fund	​	1.27	%	0.16	%	2.91	%
Effect of true-ups	​	(0.47)	%	3.28	%	(0.82)	%
Effect of others	​	0.14	%	0.06	%	0.10	%
​	​	22.73	%	(44.16)	%	22.64	%

​

The aggregate amount and per share effect of the tax holidays (including effect of timing difference reversed in the year with different rate) are as follows:

​

​	​	​	​	​	​	​	​	​
​		Years Ended December 31,
​	​	(Amount in Thousands Except Shares Data)
​		2019		2020		2021		2021
​	​	RMB	​	RMB	​	RMB	​	US$
Aggregate	​	25,146	​	11,753	​	16,422	​	2,577
Per share effect-basic	​	0.82	​	0.38	​	0.49	​	0.08
Per share effect-diluted	​	0.81	​	0.38	​	0.49	​	0.08

​

The principal components of the deferred income tax asset and liabilities are as follows:

​

​	​	​	​	​	​	​
​		As of December 31,
​	​	(Amount in Thousands)
​		2020		2021		2021
​	​	RMB	​	RMB	​	US$
Deferred tax assets:	​		​		​
Accrued expenses	​	2,040	​	26,271	​	4,122
Tax loss carry forward	​	222,615	​	489,179	​	76,763
Unrealized other loss	​	5,150	​	4,895	​	768
Provision for impairment of investments	​	39,389	​	39,300	​	6,167
Provision for allowance of credit losses	​	15,412	​	45,750	​	7,179
Others	​	262	​	2,323	​	365
Gross deferred tax assets	​	284,868	​	607,718	​	95,364
Valuation allowance	​	(60,628)	​	(271,813)	​	(42,653)
Net deferred tax assets	​	224,240	​	335,905	​	52,711
Deferred tax liabilities:	​	​	​	​	​	​
Unrealized investment income	​	45,881	​	42,276	​	6,634
Acquired deferred tax liabilities (Note 7)	​	—	​	191,858	​	30,107
Net deferred tax liabilities (after offsetting)	​	45,881	​	234,134	​	36,741

​

Deferred tax assets and liabilities have been offset where the Group has a legally enforceable right to do so, and intends to settle on a net basis.

The Group considers positive and negative evidence 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, forecasts of future profitability, the duration of statutory carry forward periods, the Group’s experience with tax attributes expiring unused and tax planning alternatives. These assumptions require significant judgment 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 amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced. As of December 31, 2021, operating loss carry forward amounted to RMB2,019,141 for the PRC and Hong Kong income tax purpose. According to the Article 18 of PRC Tax Law, the enterprise can carry over the losses to the succeeding five tax years, tax loss carry forward that the Group recognized for PRC subsidiaries and VIEs will begin to expire from 2022 to 2027.

A valuation allowance is 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. The movements of valuation allowance of deferred tax assets are as follows:

​	​	​	​	​	​	​
​	​	For the year ended December 31,
​	​	2019	​	2020	​	2021
​		RMB		RMB		RMB
​	​	(Amount in Thousands)
Balance at beginning of the year		15,651		56,653		60,628
Provided		56,653		24,196		20,275
Addition due to acquisition	​	—	​	—	​	193,826
Write off		(15,651)		(20,221)		(2,916)
Balance at end of the year		56,653		60,628		271,813

​

Refer to Note 7, the acquisition of Nuohong resulted in an increase of RMB193,826 in both deferred tax assets of tax loss carry forward and related valuation allowance as the Group estimated that accumulated loss of Nuohong can’t be realized in the future based on its intent to use.

In accordance with the EIT Law, dividends, which arise from profits of FIEs earned after January 1, 2008, are subject to a 10% withholding income tax. In addition, under tax treaty between the PRC and Hong Kong, if the foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%, if the investor holds at least 25% in the FIE, or 10%, if the investor holds less than 25% in the FIE. A deferred tax liability should be recognized for the undistributed profits of PRC companies unless the Group has sufficient evidence to demonstrate that the undistributed dividends will be reinvested and the remittance of the dividends will be postponed indefinitely. The accumulated undistributed earnings of the Group’s PRC subsidiaries were RMB4.6 billion as of December 31, 2021. The Group intends to indefinitely reinvest the remaining undistributed earnings of the Group’s PRC subsidiaries, and therefore, no provision for PRC dividend withholding tax was accrued. Aggregate undistributed earnings of the Group’s VIE companies located in the PRC that are available for distribution to the Group were approximately RMB2.4 billion as of December 31, 2021. A deferred tax liability should be recorded for taxable temporary differences attributable to the excess of financial reporting amounts over tax basis amount in domestic subsidiaries. However, recognition is not required in situations where the tax law provides a means by which the reported amount of that investment can be recovered tax-free and the enterprise expects that it will ultimately use that means. The Group has not recorded any such deferred tax liability attributable to the undistributed earnings of its financial interest in VIEs because it believes such excess earnings can be distributed in a manner that would not be subject to income tax.

The Group did not record any uncertain tax positions during the years ended December 31, 2019, 2020 and 2021. The Group does not anticipate any significant increases or decreases to its liability for unrecognized tax benefits within the next 12 months.

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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.

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