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Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Taxes [Abstract]  
INCOME TAXES

NOTE 16 – INCOME TAXES

 

The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate.

 

Cayman Islands

 

The Company is a tax-exempt entity incorporated in Cayman Islands.

 

Hong Kong

 

HiTek Hong Kong Limited was incorporated in Hong Kong and does not conduct any substantial operations. No provision for Hong Kong profits tax has been made in the consolidated financial statements as HiTek Hong Kong Limited has no assessable profits for the years ended December 31, 2025, 2024 and 2023.

 

PRC

 

The Company’s PRC operating subsidiary and VIEs, being incorporated in the PRC, are governed by the income tax law of the PRC and are subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%, which applies to both domestic and foreign invested enterprises. From January 1, 2022 to December 31, 2024, if a small profit-making enterprise had annual taxable income less than or equal to RMB 1 million, only 12.5% of its annual taxable income will be subject to income tax at a reduced rate of 20%; for those with annual taxable income more than RMB 1 million but did not exceed RMB 3 million, 25% of their annual taxable income will be subject to income tax at a reduced rate of 20%. In March 2023, on the basis of the previous preferential policy, State Administration of Taxation and Ministry of Finance issued a notice stating that, from January 1, 2023 to December 31, 2024, for those with annual taxable income less than or equal to RMB 1 million, 25% of their annual taxable income will be subject to income tax at the same reduced rate of 20%. In August 2023, State Administration of Taxation and Ministry of Finance issued a notice stating that the above preferential policies were extended to December 31, 2027.

 

The Company’s (loss) income before income taxes includes the following for the years ended December 31.

 

   2025   2024   2023 
             
Non-PRC operations  $350,573   $(781,182)  $(176,949)
PRC operations   (221,866)   (75,761)   1,771,475 
Total income (loss) before income taxes  $128,707   $(856,943)  $1,594,526 

 

Income tax expense was comprised of the following for the years ended December 31.

 

   2025   2024   2023 
             
Current tax expense  $
-
   $
-
   $207,553 
Deferred tax (benefit) expense   (51,435)   39,747    339,332 
Total income tax (benefit) expense  $(51,435)  $39,747   $546,885 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative tax effect at the expected rate of 25% of significant items comprising the net deferred tax amount at December 31, 2025 and 2024 are as follows.

 

   2025   2024 
         
Deferred tax assets        
Net operating loss  $60,681   $87,285 
Deferred revenue   17,230    13,496 
Unbilled cost   461,325    441,973 
Unbilled interest   38,288    36,682 
Depreciation   9,373    5,586 
Software amortization   287,015    224,254 
Allowance for expected credit losses   232,109    106,569 
Inventories obsolescence   (6,590)   (6,408)
Unrealized losses on trading securities   1,787    1,712 
Accrued bonus   45,595    43,682 
Other   48,569    46,771 
Total deferred tax assets   1,195,463    1,001,602 
Valuation allowance   (15,529)   (14,878)
Total deferred tax assets, net   1,179,934    986,724 
Deferred tax liabilities          
Unbilled revenue   (2,264,589)   (2,188,848)
Unbilled interest income   (420,187)   (318,899)
Deferred government subsidy   (42,293)   (40,519)
Unrealized gain on short-term investment   (60,877)   (25,575)
Other   (8,041)   (11,792)
Total deferred tax liabilities   (2,795,987)   (2,585,633)
Deferred tax liabilities, net  $(1,616,053)  $(1,598,909)

 

Following is a reconciliation of income tax expense at the effective rate to income tax at the calculated statutory rates for the years ended December 31.

 

   2025   2024   2023 
PRC statutory tax rate  $32,177    25%  $(214,236)   25.0%  $398,632    25.0%
Effect of non-PRC entities not subject to PRC tax   (87,643)   (68.1)%   195,296    (22.8)%   44,292    2.8%
Effect of deregistration of a subsidiary   
-
    
-
%   16,535    (1.9)%   
-
    
-
%
Permanent difference   1,785    1.4%   39,358    (4.6)%   
-
    
-
%
Tax holiday effect   2,246    1.7%   2,794    (0.3)%   103,961    6.5%
Income tax expense and effective income tax rate  $(51,435)   (40.0)%  $39,747    (4.6)%  $546,885    34.3%

 

Uncertain Tax Positions

 

The Company had no significant unrecognized uncertain tax positions or unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of December 31, 2025 and 2024.