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Income Tax Expense
 12 Months Ended
Dec. 31, 2023
Income Tax Expense [Abstract]  
INCOME TAX EXPENSE

NOTE 20 — INCOME TAX EXPENSE

 

The provision for income tax expense consisted of the following:

 

   For the years ended
December 31,		 
   2023   2022 
Current tax  $332,275   $118,073 
Deferred tax   (45,737)   6,532 
Income tax expense  $286,538   $124,605 

 

The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company’s subsidiaries mainly operate in Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:

 

British Virgin Islands

 

The Company is incorporated in the British Virgin Islands and is not subject to taxation. In addition, upon payments of dividends by these entities to their shareholder, no British Virgin Islands withholding tax will be imposed.

 

Hong Kong

 

The Company’s subsidiaries operating in Hong Kong are subject to the Hong Kong Profits Tax at the income tax rates ranging from 8.25% to 16.5% on the assessable income arising in Hong Kong during its tax year.

 

For the years ended December 31, 2023 and 2022, Hong Kong profits tax is calculated in accordance with the two-tiered profits tax rates regime. The applicable tax rate for the first HK$ 2 million of assessable profits is 8.25% and assessable profits above HK$ 2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from the year of assessment 2018/2019.

 

The reconciliation of income tax rate to the effective income tax rate based on loss before income tax expense for the years ended December 31, 2023 and 2022 are as follows:

 

   For the years ended
December 31,		 
   2023   2022 
         
Loss before income taxes  $(48,919,481)  $(44,396,030)
Statutory income tax rate   16.5%   16.5%
Income tax expense at statutory rate   (8,071,714)   (7,325,345)
Income not subject to taxes   (2,563,028)   (71,468)
Non-deductible items:          
- Share based compensation   1,853,779    344,640 
- Investment loss   1,135,013    1,474,676 
- Change in fair values   
—
    888,251 
Under provision of prior years   220,570    31,284 
Change in valuation allowance   7,732,994    4,822,582 
Tax holiday   (21,076)   (21,838)
Other   
—
    (18,177)
Income tax expense  $286,538   $124,605 

 

The following table sets forth the significant components of the deferred tax liabilities and assets of the Company as of December 31, 2023 and 2022:

 

   As of December 31, 
   2023   2022 
Deferred tax liabilities:        
Accelerated depreciation  $
—
   $45,858 
Deferred tax liabilities  $
—
   $45,858 

 

   As of December 31, 
   2023   2022 
Deferred tax assets, net:        
Net operating loss carryforwards  $8,909,692   $5,461,370 
Less: valuation allowance   (8,909,692)   (5,461,370)
Deferred tax assets, net:  $
—
   $
—
 

 

The movement of valuation allowance is as follows:

 

   For the years ended
December 31,		 
   2023   2022 
Balance as of beginning of the year  $(5,461,370)  $(2,483,436)
Additions   (3,448,322)   (2,977,934)
Balance as of end of the year  $(8,909,692)  $(5,461,370)

 

As of December 31, 2023 and 2022, the operations incurred $54.0 million and $33.1 million, respectively of cumulative net operating losses, which can be carried forward to offset future taxable income. Net operating loss can be carried forward indefinitely, but cannot be carried back to prior years. There are no group relief provisions for losses or transfers of assets under Hong Kong tax regime. Each company within a corporate group is taxed as a separate entity. The Company has provided for a full valuation allowance against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes that it is more likely that not all of these assets will be realized in the future. The valuation allowance is reviewed annually.

 

Uncertain tax positions

 

The Company evaluates the uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2023 and 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the years ended December 31, 2023 and 2022 and also did not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2023.