Note 11 - Income Taxes

Taxes payable consisted of the following at December 31, 2019 and 2018:

	2019		2018
Income tax payable - current	$	22,055	$	584,874
Income tax payable – noncurrent	$	1,833,286	$	2,255,094

As of December 31, 2019 and 2018, noncurrent tax payable were $1.83 million and $2.26 million, respectively, consisting primarily of an income tax payable of $1.82 million and $2.01 million respectively, arising from a one-time transition tax recognized in the fourth quarter of 2017 on post-1986 foreign unremitted earnings (see below), and unrecognized tax benefit of $0.01 million and $0.16 million, respectively, as ASC 740 specifies that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities (see Note 2).

The (benefit) provision for income taxes on income (loss) from continuing operations consisted of the following:

	2019			2018
Current:
Federal	$	(187,807	)	$	(623,679	)
State		2,400			2,400
		(185,407	)		(621,279	)

Deferred:
Federal		194,007			(41,138	)
State		242,442			(76,350	)
		436,449			(117,488	)
Total provision (benefit) for income taxes	$	251,042		$	(738,767	)

The following is a reconciliation of the difference between the actual (benefit) provision for income taxes and the (benefit) provision computed by applying the federal statutory rate on income before income taxes from continuing operations:

	2019			2018
Tax at federal statutory rate	$	(1,235,984	)	$	949,384
Foreign rate differential		(2,922	)		2,922
ASC 740-10 uncertain tax position		(230,322	)		(798,156	)
Tax exemption		(388,742	)		(1,148,552	)
Global Intangible Low-Taxed Income		420,444			574,510
Stock based compensation		18,473			(270,754	)
Tax Cut and Jobs Act		-			30,055
Others		(463,093	)		(78,176	)
Valuation allowance		2,133,188			-
Total provision (benefit) for income taxes	$	251,042		$	(738,767	)

The following presents the aggregate dollar effects of the Company’s tax exemption from its continuing operations:

		2019				2018
Aggregate dollar effect of tax holiday		$	388,742			$	1,148,552

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are comprised of the following:

	2019			2018
Non-Current Deferred Tax Assets:
Accrued liabilities	$	18,464		$	108,250
Fed & CA amortization		24,529			26,481
Stock compensation		189,635			129,691
ASC 842 – lease liability		742,878			-
Inventory		994,986			-
U.S. NOL		1,025,078			196,430

Non-Current Deferred Tax Liabilities:
Prepaid expenses		-			(3,988	)
Fed & CA depreciation		(21,081	)		(20,415	)
ASC 842- ROU Asset		(733,555	)		-

Net Non-Current Deferred Tax Assets before Valuation Allowance		2,240,934			436,449
Less: Valuation Allowance		(2,240,934	)		-
Non-Current Deferred Tax Assets, Net:		-			436,449
Total Deferred Assets, Net:	$	-		$	436,449

Nova LifeStyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI. There is no income tax for a company domiciled in the BVI. Accordingly, the Company’s consolidated financial statements do not present any income tax provision related to the BVI tax jurisdiction where Nova Furniture BVI is domiciled. On April 24, 2013, the Company acquired all outstanding shares of Bright Swallow, which is incorporated in BVI. Generally, there is no income tax for a company domiciled in the BVI.

For U.S. Federal income tax purpose, the Company has net operating loss, or NOL carryforwards of approximately $2.66 million and $0 million at December 31, 2019 and 2018, respectively.

For U.S. California income tax purpose, the Company has net operating loss, or NOL carryforwards of approximately $6.24 million and $2.81 million, at December 31, 2019 and 2018, respectively.

On September 19, 2013, Bright Swallow moved the office from Macau to Hong Kong, which is subject to a 16.5% corporate income tax. Nova Macao is an income tax-exempt entity incorporated and domiciled in Macao.

Corporate income tax in Malaysia is calculated at the statutory rate of 24% of the estimated taxable profit for the year ended December 31, 2019.