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Taxation
 6 Months Ended 12 Months Ended
Jun. 30, 2023
Dec. 31, 2022
Taxation [Abstract]    
TAXATION

13. TAXATION

 

Cayman Islands

 

Under the current laws of the Cayman Islands, the Group is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

 

British Virgin Islands

 

The Company’s subsidiaries incorporated in the BVI are not subject to taxation in the British Virgin Islands.

 

Hong Kong

 

According to Tax (Amendment) (No. 3) Ordinance 2018 published by Hong Kong government, form April 1, 2018, under the two-tiered profits tax rates regime, the profits tax rate for the first HKD2 million of assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for corporations. China Auto Market was not subject to Hong Kong profit tax for any period presented as it did not have assessable profit during the periods presented.

 

PRC

 

Generally, the Group’s subsidiaries, which are considered PRC resident enterprises under PRC tax law, are subject to enterprise income tax (“EIT”) on their worldwide taxable income as determined under PRC tax laws and accounting standards at a rate of 25%. EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”) at a rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. The Group’s subsidiaries, Shengda Automobile and Shanghai Chengle Network Technology Co., Ltd. were approved as a HNTE and is entitled to a reduced income tax rate of 15% beginning November 2018 and is valid till December 2024.

 

Continuing operations:

 

The income tax provision consisted of the following components:

 

   For the Six Months Ended
June 30,		 
   2022   2023 
Current income tax expenses   1,139    926 
Deferred income tax benefit   (249)   (76)
Total income tax expense  $890   $850 

 

A reconciliation between the Group’s actual provision for income taxes and the provision at the PRC, mainland statutory rate is as follows:

 

   For the Six Months Ended
June 30,		 
   2022   2023 
Income before income tax expense  $7,613   $1,986 
Computed income tax expense with statutory tax rate   1,903    573 
Additional deduction for R&D expenses   (257)   (237)
Tax effect of preferred tax rate   (766)   (791)
Tax effect of favorable tax rates on small-scale and low-profit entities   (5)   (15)
Tax effect of tax relief   (5)   (2)
Tax effect of non-deductible items   11    35 
Tax effect due to the disposal of Shengda Group*   (3,868)   
-
 
Tax effect of deferred tax effect of tax rate change   
-
    (42)
Changes in valuation allowance   3,877    1,329 
Income tax expense  $890   $850 

 

As of December 31, 2022 and June 30, 2023, the significant components of the deferred tax assets are summarized below:

 

   December 31,   June 30, 
   2022   2023 
Deferred tax assets:        
Temporary difference in accounts receivable recognition  $5,353   $5,092 
Temporary difference in research and development costs   3,738    3,983 
Net operating loss carried forward   7,676    8,635 
Share-based compensation   78    185 
Allowance for doubtful accounts   3,802    3,210 
Total deferred tax assets   20,647    21,105 
Valuation allowance   (7,577)   (8,475)
Deferred tax assets, net of valuation allowance  $13,070   $12,630 

 

Changes in valuation allowance are as follows:

 

   December 31,   June 30, 
   2022   2023 
         
Balance at beginning of the period  $2,314   $7,577 
Additions   5,436    1,268 
Foreign currency translation adjustments   (173)   (370)
Balance at end of the period  $7,577   $8,475 

 

As of December 31, 2022 and June 30, 2023, the Group had net operating loss carryforwards of approximately $32,266 and $35,848, respectively, which arose from the Group’s subsidiaries in the PRC. As of December 31, 2022 and June 30, 2023, deferred tax assets from the net operating loss carryforwards amounted to $7,676 and $8,635, respectively, and the Group has provided a valuation allowance of $7,577 and $8,475 as of December 31, 2022 and June 30, 2023, respectively, for which it has concluded that it is more likely than not that these net operating losses would not be utilized in the future.

 

As of June 30, 2023, net operating loss carryforwards will expire, if unused, in the following amounts:

 

Remainder of 2023   643 
2024   2,017 
2025   5,263 
2026   5,397 
2027   16,817 
2028   5,711 
Total   35,848 
16. TAXATION

 

Cayman Islands

 

Under the current laws of the Cayman Islands, the Group is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

 

Hong Kong

 

According to Tax (Amendment) (No. 3) Ordinance 2018 published by Hong Kong government, form April 1, 2018, under the two-tiered profits tax rates regime, the profits tax rate for the first HKD2 million of assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for corporations. China Auto Market was not subject to Hong Kong profit tax for any period presented as it did not have assessable profit during the periods presented.

 

PRC

 

Generally, the Group’s subsidiaries, which are considered PRC resident enterprises under PRC tax law, are subject to enterprise income tax (“EIT”) on their worldwide taxable income as determined under PRC tax laws and accounting standards at a rate of 25%. EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”) at a rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. The Group’s subsidiaries, Shengda Automobile and Shanghai Chengle Network Technology Co., Ltd. were approved as a HNTE and is entitled to a reduced income tax rate of 15% beginning November 2018 and renewing the HNTE in December 2021. The certificate is valid for three years.

 

According to Taxation [2019] No. 13 which was effective from January 1, 2019 to December 31, 2021 and Taxation [2021] No. 12 which was effective from January 1, 2021 to December 31, 2022, an enterprise is recognized as a small-scale and low-profit enterprise when its taxable income is less than RMB3 million. A small-scale and low-profit enterprise receives a tax preference including a preferential tax rate of 5% on its taxable income below RMB1 million and another preferential tax rate of 10% on its taxable income between RMB1 million and RMB3 million in 2020. A small-scale and low-profit enterprise receives a tax preference including a preferential tax rate of 2.5% on its taxable income below RMB1 million and another preferential tax rate of 10% on its taxable income between RMB1 million and RMB3 million in 2021 and 2022.

 

Continuing operations:

 

The income tax provision consisted of the following components:

 

   For the years ended December 31, 
   2020   2021   2022 
Current income tax expenses  $4,028   $2,062   $2,182 
Deferred income tax benefit   (2,276)   (1,124)   (1,951)
Total income tax expense  $1,752   $938   $231 

 

A reconciliation between the Group’s actual provision for income taxes and the provision at the PRC, mainland statutory rate is as follows:

 

   For the years ended December 31, 
   2020   2021   2022 
Income (Loss) before income tax expense  $8,374   $10,530   $(10,674)
Computed income tax expense (benefit) with statutory tax rate   2,093    2,632    (2,669)
Additional deduction for research and development expenses   (386)   (509)   (635)
Tax effect of preferred tax rate   (1,255)   (1,389)   1,050 
Tax effect of favorable tax rates on small-scale and low-profit entities   (52)   (93)   123 
Tax effect of tax relief   (51)   (9)   (7)
Tax effect of non-deductible items   27    71    26 
Tax effect due to the disposal of Shengda Group   
-
    
-
    (3,580)
Tax effect of deferred tax effect of tax rate change   
-
    
-
    129 
Changes in valuation allowance   1,376    235    5,794 
Income tax expense  $1,752   $938   $231 

 

As of December 31, 2021 and 2022, the significant components of the deferred tax assets are summarized below:

 

   December 31, 
   2021   2022 
Deferred tax assets:        
Temporary difference in accounts receivable recognition  $5,794   $5,353 
Temporary difference in research and development costs   4,211    3,738 
Net operating loss carried forward   4,142    7,676 
Share-based compensation   253    78 
Allowance for doubtful accounts   
-
    3,802 
Total deferred tax assets   14,400    20,647 
Valuation allowance   (2,314)   (7,577)
Deferred tax assets, net of valuation allowance  $12,086   $13,070 

 

Changes in valuation allowance are as follows:

 

   December 31, 
   2021   2022 
Balance at the beginning of the year  $2,030   $2,314 
Additions   233    5,436 
Foreign currency translation adjustments   51    (173)
Balance at the end of the year  $2,314   $

7,577

 

 

As of December 31, 2021 and 2022, the Group had net operating loss carryforwards of approximately $15,830 and $32,266, respectively, which arose from the Group’s subsidiaries in the PRC. As of December 31, 2021 and 2022, deferred tax assets from the net operating loss carryforwards amounted to $4,142 and $7,676, respectively, and the Group has recorded valuation allowances of $2,314 and $7,577 as of December 31, 2021 and 2022, respectively. Full valuation allowances have been provided where, based on all available evidence, management determined that deferred tax assets are not more likely than not to be realizable in future tax years.

 

As of December 31, 2022, net operating loss carryforwards will expire, if unused, in the following amounts:

 

2023  $676 
2024   2,303 
2025   5,534 
2026   5,757 
2027   17,996 
Total  $32,266