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Taxes
 9 Months Ended
Sep. 30, 2025
Taxes [Abstract]  
Taxes

Note 10 – Taxes

 

Income Tax

 

United States

 

GDC and AIC are corporations organized in the state of Nevada and operate primarily in the state of New York. As a result, they are subject to U.S. federal corporate income tax as well as state and local income taxes in New York.

 

For the nine months ended September 30, 2025 and 2024, the applicable statutory tax rates were as follows:

 

  ● Federal corporate income tax rate: 21%;

 

  ● New York State corporate income tax rate: 6.5%;

 

  ● New York City business corporation tax rate: 8.85%;

 

  ● Metropolitan Transportation Business Tax Surcharge (MTA Tax): 30% of the New York State corporate franchise tax liability;

 

The Company’s effective tax rate may differ from the statutory rates due to various factors, including non-deductible expenses, tax credits, valuation allowances, and the impact of state and local taxes. Additionally, the Company evaluates uncertain tax positions in accordance with ASC 740, recognizing tax benefits only if it is more likely than not that the position will be sustained upon examination.

British Virgin Islands

 

Citi Profit BVI and Pallas are incorporated in the British Virgin Islands and are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.

 

Hong Kong

 

Highlight HK is incorporated in Hong Kong and are subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. Highlight HK is subject to Hong Kong profit tax at a rate of 8.25% for assessable profits on the first HK$2 million and 16.5% for any assessable profits in excess of HK$2 million for the three and nine months ended September 30, 2025 and 2024. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception.

 

PRC

 

Highlight WFOE and SH Xianzhui are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), qualified small and micro enterprises with annual taxable income not exceeding RMB 3 million are eligible for a preferential corporate income tax rate of 5% until December 31, 2027. This preferential rate is applied in accordance with relevant Chinese tax laws and regulations, and may be adjusted by the authorities from time to time.

 

The current and deferred components of income tax expenses from continuing operations appearing in the unaudited interim condensed consolidated statements of operations are as follows:

 

   For the nine months ended
September 30,		 
   2025   2024 
Current tax expenses  (unaudited)   (unaudited) 
Federal  $(90,000)  $
-
 
State   (1,728,814)   
-
 
Total current tax expenses  $(1,818,814)  $
-
 
Deferred tax benefits          
Federal  $153,911   $22,666 
State   
-
    
-
 
Total deferred tax benefits  $153,911   $22,666 
Total (expenses) benefits for income taxes  $(1,664,903)   22,666 

The Company is subject to U.S. federal income tax as well as state income tax in certain jurisdictions. The tax years 2022 to 2024 remain open to examination by the major taxing jurisdictions to which the Company is subject. The following is a reconciliation of income tax expenses at the effective rate to income tax at the calculated statutory rates:

 

   For the
nine months
ended
September 30,
2025		   For the
nine months
ended
September 30,
2024		 
(unaudited)  (unaudited) 
Statutory tax rate        
Federal   21.00%   21.00%
State (net of federal benefit)   (5.94)%   
-
 
Foreign tax   (30.13)%   (1.53)%
Amortization of intangible assets   2.91%   
-
 
Change in valuation allowance   12.37%   (19.47)%
State capital base tax   (15.33)%   
-
%
Others   0.36%   (0.60)%
Effective tax rate   (14.76)%   (0.60)%

 

As of September 30, 2025 and December 31, 2024, income tax payable to US tax authorities was $1,960,625 and $141,810, respectively. As of September 30, 2025 and December 31, 2024, no income tax was payable to Chinese tax authorities.

 

The principal components of the Company’s deferred income tax assets and liabilities as of September 30, 2025 and December 31, 2024 were as follows:

 

   September 30,   December 31, 
   2025   2024 
   (unaudited)     
Deferred tax assets        
Net operating losses carried forward  $6,627,320   $6,105,138 
Provision of credit loss on note receivable and loan receivable   1,092,011    1,092,011 
Impairment loss of intangible assets   845,008    845,008 
Amortization of intangible assets   327,985    
-
 
Lease liability   483,357    605,169 
Total deferred tax assets  $9,375,681   $8,647,326 
Less: Valuation allowance   (9,008,993)   (8,020,571)
Deferred tax assets, net of valuation allowance  $366,688   $626,755 
Deferred tax liabilities          
Right - Of - Use assets  $(366,688)  $(465,347)
Amortization of intangible assets   
-
    (315,319)
Total deferred tax liabilities  $(366,688)  $(780,666)
Total deferred tax liabilities, net  $
-
   $(153,911)

 

As of September 30, 2025, the Group had tax losses carry forwards of approximately $5.3 million from the entity in the PRC. The tax loss in the PRC can be carried forward for five years to offset future taxable profit and which will expire between 2028 and 2029 if not utilized. As of September 30, 2025, the Group had tax losses carry forwards of approximately $20.0 million from the entities in the U.S. The tax loss in the U.S. can be carried forward indefinitely.

 

Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the United States. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management reviews this valuation allowance periodically and makes changes accordingly.