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Income Taxes
 12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 14 – INCOME TAXES

  

Enterprise Income Taxes (“EIT”)

 

Huadi International is incorporated in Cayman Island as an offshore holding company and is not subject to tax on income or capital gain under the laws of Cayman Island.

 

Tuoxing is incorporated in BVI as an offshore holding company and is not subject to tax on income or capital gain under the laws of BVI.

 

HK Beach is established in Hong Kong and is subject to statutory income tax rate at 16.5%.

 

Hongshun is established in PRC and is subject to statutory income tax rate at 25%.

 

Huadi Steel, the Company’s main operating subsidiary in PRC, was entitled High and New Technology Enterprise (“HNTE”) and enjoyed preferential tax rate of 15% for a three-year validity period from fiscal year 2019, and the HNTE certificate needs to be renewed every three years. Thus, Huadi Steel is eligible for a 15% preferential tax rate for fiscal years 2021, 2020 and 2019. As of September 30, 2021, the tax years ended December 31, 2015 through December 31, 2020 for the Company’s PRC entities remain open for statutory examination by PRC tax authorities.

 

The Company evaluates each 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 September30, 2021 and 2020 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 fiscal years ended September 30, 2021 and 2020, respectively, and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from September 30, 2021.

 

Per the consolidated statements of income and comprehensive income, the income tax expenses for the Company can be reconciled to the income before income taxes for the years ended September 30, 2021, 2020, and 2019 as follows:

 

   2021   2020   2019 
Income before taxes  $2,468,045   $3,575,248   $6,446,944 
PRC EIT tax rates   15%   15%   15%
Tax at the PRC EIT tax rates  $370,207    536,287    967,042 
Tax effect of R&D expenses deduction   (231,474)   (238,573)   (199,925)
Tax effect of non-taxable investment income and government grant   (138,733)   (120,754)   (72,160)
Tax effect of non-deductible expenses   
-
    41,989    310,233 
Tax effect of deferred tax recognized   (89,000)   
-
    
-
 
Income tax expenses (benefits)  $(89,000)  $218,949   $1,005,190 

 

Income taxes for the years ended September 30, 2021, 2020 and 2019 are attributed to the Company’s continuing operations in China and consisted of:

 

   2021   2020   2019 
Current income tax  $
-
   $218,949   $709,027 
Deferred income tax   (89,000)   
-
    296,163 
Total income tax expense  $(89,000)  $218,949   $1,005,190 

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset at September 30, 2021 and 2020 are presented below:

 

   As of September 30, 
   2021   2020 
Deferred tax assets:        
Bad debt allowance  $436,761   $436,583 
Loss carryforward   113,160    
-
 
Total  $549,921   $436,583 

 

There were no valuation allowance for the deferred tax assets as of September 30, 2021 and 2020. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax assets are deductible, and the scheduled reversal of deferred tax liabilities, management believes it is more likely than not the company will realize the benefits of those deductible differences at September 30, 2021 and 2020.