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Income Tax
 6 Months Ended
Dec. 31, 2024
Income Tax [Abstract]  
INCOME TAX

12 — INCOME TAX

 

Cayman Islands

 

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

 

British Virgin Islands

 

Under the current and applicable laws of BVI, Zhibao BVI is not subject to tax on income or capital gains.

 

Hong Kong

 

Zhibao HK is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first Hong Kong Dollar (“HKD$”) 2 million of assessable profits is 8.25% and assessable profits above HKD$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. Before that, the applicable tax rate was 16.5% for corporations in Hong Kong.

PRC

 

Zhibao China, Sunshine Insurance Brokers, Shanghai Anyi, and Zhibao Health were incorporated in the PRC and are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which took effect on January 1, 2008. The law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises.

 

The income tax benefits (expenses) for the six months ended December 31, 2023 and 2024 were comprised of the following:

 

   For the Six Months Ended 
   2023   2024 
   RMB   RMB 
Current income tax expenses   
—
    — 
Deferred income tax benefits (expenses)   137,354    (1,091,247)
    137,354    (1,091,247)

 

Below is a reconciliation of the statutory tax rate to the effective tax rate:

 

   For the Six Months Ended 
   2023   2024 
   RMB   RMB 
(Loss) Income before income tax expenses   (8,683,354)   446,642 
Income tax computed at statutory EIT rate (25%)   2,170,839    (111,661)
Effect of entertainment expense   (274,349)   (192,796)
Effect of staff welfare expense   
-
    (507,162)
Effect of different tax rate   (8,531)   (1,335,323)
Change in valuation allowance   (1,750,605)   1,055,695 
           
Income tax benefits (expenses)   137,354    (1,091,247)

 

The components of deferred tax assets and deferred tax liabilities are as follows:

 

   June 30,
2024		   December 31,
2024		 
   RMB   RMB 
Deferred tax assets        
Net operating loss carrying forwards   10,523,266    9,458,883 
Allowance against doubtful accounts   3,578,914    3,651,904 
Operating lease liabilities   4,517,779    4,980,865 
Total deferred tax assets   18,619,959    18,091,652 
Net off against deferred tax liabilities   (8,196,650)   (8,738,103)
Less: Valuation allowance   (10,366,052)   (9,310,357)
Total Deferred tax assets, net   57,257    43,192 

 

   June 30,
2024		   December 31,
2024		 
   RMB   RMB 
Deferred tax liabilities        
Operating lease right of use assets   4,498,450    5,017,049 
GAAP difference - unbilled revenue   6,382,018    7,482,054 
Total deferred tax liabilities   10,880,468    12,499,103 
Net off against deferred tax assets   (8,196,650)   (8,738,103)
Deferred tax liabilities, net   2,683,818    3,761,000 

The rollforward of valuation allowances of deferred tax assets were as follows:

 

   June 30,
2024		   December 31,
2024		 
   RMB   RMB 
Balance at beginning of the period   7,046,758    10,366,052 
Adjustment of opening balance due to adoption of ASU 2016-13   932,367    
—
 
Additions of valuation allowance   2,778,382    791,267 
Reversal of valuation allowance   
—
    (1,846,962)
Expiration of NOLs   (391,455)   
—
 
Balance at end of the period   10,366,052    9,310,357 

 

The Company evaluates its valuation allowance requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation allowance is needed. When circumstances cause a change in management’s judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryforward period available under applicable tax law.

 

As of June 30, 2024 and December 31, 2024, the Company had net operating losses of RMB 40,527,246 and RMB 37,870,435, respectively, which will be available to offset future taxable income. If not used, these carryforwards will expire from 2025 through 2029.

 

For the six months ended December 31, 2023 and 2024, the Company reversed valuation allowance of RMB nil and RMB 1,846,962, respectively as the Company made taxable income in certain subsidiaries during the year and expected to further generate net income in the next few years.

 

As of June 30, 2024 and December 31, 2024, due to uncertainties surrounding future utilization on PRC subsidiaries, the Company had valuation allowance of RMB 10,366,052 and RMB 9,310,357, respectively, against the deferred tax assets based upon management’s assessment as to their realization.

 

Unrecognized tax benefits

 

The aggregate change in the balance of gross unrecognized tax benefits for the six months ended December 31, 2023 and 2024 was as follows:

 

   For the Six Months Ended December 31, 
   2023   2024 
   RMB   RMB 
Balance at beginning of the period   1,026,964    1,026,964 
Increases related to tax positions change   
—
    
—
 
Balance at end of the period   1,026,964    1,026,964 

As of June 30, 2024 and December 31, 2024, there was RMB 1,026,964 and RMB 1,026,964 of unrecognized tax benefits, respectively, which would affect the annual effective tax rate if recognized. The unrecognized tax benefit was presented as a reduction of the Deferred tax assets — Net operating loss carrying forwards in the consolidated financial statements as of June 30, 2024. For the six months ended December 31, 2023 and 2024, the Company did not record unrecognized tax benefits as a reduction of the deferred tax assets.

 

The Company recognizes interest and penalty charges related to uncertain tax positions as necessary in the provision for income taxes. For the six months ended December 31, 2023 and 2024, no interest expense or penalty was accrued in relation to the unrecognized tax benefit. The Company has a liability for accrued interest of nil as of June 30, 2024 and December 31, 2024, respectively.

 

ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company records unrecognized tax benefits as liabilities or a reduction of deferred tax assets in accordance with ASC 740 and adjusts these amounts when our judgment changes as a result of the evaluation of new information not previously available. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of uncertain tax positions may result in liabilities which could be materially different from these estimates. In such an event, the Company will record additional tax expense or tax benefit in the period in which such resolution occurs.

 

According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million is specifically listed as a special circumstance). In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.