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TAXATION

12 Months Ended

Dec. 31, 2023

TAXATION

TAXATION

11. TAXATION

Cayman Islands

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

Hong Kong

iHuman Online and the Company’s other subsidiaries incorporated in Hong Kong are subject to Hong Kong Profits Tax, which is currently imposed at the rate of 16.5%, with half-rate of 8.25% that may be applied for the first HK$2 million of assessable profits for years of assessment beginning on or after April 1, 2018. The Hong Kong subsidiaries may be exempted from income tax on their foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

Mainland China

The Company’s subsidiaries, VIE and VIE’s subsidiaries domiciled in mainland China are subject to the statutory rate of 25%, in accordance with the Enterprise Income Tax law (the “EIT Law”), which was effective since January 1, 2008 except for the following entity which is eligible for a preferential tax rate.

Tianjin Hongen is qualified as a Software Enterprise (“SE”) and is entitled to an income tax exemption for two years beginning from its first profitable taxation year of 2020, and a reduced tax rate of 12.5% for the subsequent three years starting from 2022. The qualification as SE is subject to annual evaluation by the relevant authorities in mainland China. Meanwhile, in 2021, Tianjin Hongen was granted the High and New Technology Enterprise (“HNTE”) certificate and is also entitled to a preferential tax rate of 15% for three years starting from 2021. The Group expects to adopt the tax rate of 12.5% as SE in the annual filing of Enterprise Income Taxes for year 2023, which will be completed in May 2024.

Dividends, interests, rent or royalties payable by the Company’s subsidiaries in mainland China, to non-resident enterprises, and proceeds from any such non-resident enterprise investor’s disposition of assets (after deducting the net value of such assets) shall be subject to 10% withholding tax, unless the respective non-resident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with mainland China that provide for a reduced withholding tax rate or an exemption from withholding tax.

To the extent that the subsidiaries, the VIE and VIE’s subsidiaries in mainland China have undistributed earnings, the Group may need to accrue appropriate expected withholding tax associated with repatriation of such undistributed earnings. As of December 31, 2022 and 2023, the Group did not record any withholding tax as the entities in mainland China were still in accumulated deficit position.

The current and deferred components of income tax expenses (benefits) appearing in the consolidated statements of comprehensive income (loss) are as follows:

​

​	​	​	​	​	​	​	​	​
​	​	For the year ended
​	​	December 31,
​	​	2021	​	2022	​	2023	​	2023
​		RMB		RMB		RMB		US$
​	​	(in thousands)
Current income tax expenses (benefits)	​	(145)	​	22,953	​	21,666	​	3,052
Deferred income tax expenses		—	​	—	​	—	​	—
Total income tax expenses (benefits)		(145)	​	22,953	​	21,666	​	3,052

​

11. TAXATION (Continued)

​

A reconciliation of the differences between the statutory tax rate and the effective tax rate for enterprise income tax is as follows:

​

​	​	​	​	​	​	​	​	​
​	​	For the year ended December 31,
​	​	2021	​	2022	​	2023	​	2023
​		RMB		RMB		RMB		US$
​	​	(in thousands)
Income (loss) before income tax	​	(37,196)	​	132,772	​	202,573	​	28,531
Income tax computed at the statutory tax rate of 25%	​	(9,299)	​	33,193	​	50,643	​	7,133
Effect of differing tax rates in different jurisdictions	​	5,232	​	4,459	​	2,740	​	386
Research and development super‑deduction		(31,855)	​	(36,078)	​	(29,192)	​	(4,112)
Shared‑based compensation expenses		3,223	​	3,261	​	2,359	​	332
Non‑deductible expenses		1,656	​	2,310	​	2,928	​	412
Effect of preferential tax rates and tax holiday in mainland China	​	(43,974)	​	(15,934)	​	(28,489)	​	(4,013)
Change in valuation allowance		75,192	​	30,309	​	22,950	​	3,232
Others		(320)	​	1,433	​	(2,273)	​	(318)
Income tax expenses (benefits)		(145)	​	22,953	​	21,666	​	3,052

​

Deferred tax

The significant components of the Group’s deferred tax assets and liabilities are as follows:

​

​	​	​	​	​	​	​
​	​	As of December 31,
​	​	2022	​	2023	​	2023
​		RMB		RMB		US$
​	​	(in thousands)
Deferred tax assets	​	​	​	​	​	​
Tax loss carry forward	​	73,038	​	98,811	​	13,917
Deferred revenue and customer advances		37,752	​	34,107	​	4,804
Lease liabilities	​	1,960	​	878	​	124
Others		3,023	​	3,083	​	434
Less: valuation allowance		(113,125)	​	(136,075)	​	(19,166)
​	​	2,648	​	804	​	113
Deferred tax liabilities	​	​	​	​	​	​
ROU assets	​	(2,648)	​	(804)	​	(113)
​	​	(2,648)	​	(804)	​	(113)
Presentation in the consolidated balance sheets	​	​	​	​	​	​
Deferred tax assets, net	​	—	​	—	​	—
Deferred tax liabilities, net	​	—	​	—	​	—
Net deferred tax assets, net		—	​	—	​	—

​

The Company operates through its WFOE, the VIE and VIE’s subsidiaries and valuation allowance is considered on an individual entity basis. The Group recorded valuation allowance against deferred tax assets of those entities when the Group determines that it is not more likely than not that the deferred tax assets will be utilized in the future. In making such determination, the Group considered factors including the entities’ operating history, accumulated deficit, existence of taxable temporary differences and reversal periods, tax planning strategies, and forecasted profits, as applicable.

As of December 31, 2023, the Group had tax losses of approximately RMB403,791 thousand (US$56,873 thousand) mainly deriving from entities in mainland China. The tax losses in mainland China can be carried forward for five years to offset future taxable profit. The tax losses of entities in mainland China will begin to expire in 2026 if not utilized.

11. TAXATION (Continued)

​

Unrecognized tax benefit

The Group evaluated its income tax uncertainty under ASC 740. ASC 740 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The Group elects to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the consolidated statements of comprehensive income (loss). As of and for the years ended December 31, 2021, 2022 and 2023, there were no significant impact from tax uncertainties on the Group’s financial position and result of operations. The Group does not expect the amount of unrecognized tax benefits would increase significantly in the next 12 months.

In general, the tax authority in mainland China has up to five years to conduct examinations of the tax filings. Accordingly, as of December 31, 2023, the tax years of 2018 through 2023 for the Company’s entities in mainland China remain open to examination by tax authorities. The Group may also be subject to examination of tax filings in other jurisdictions, which are not material to the consolidated financial statements.

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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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