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Income Taxes
 6 Months Ended
Jun. 30, 2025
Income Taxes [Abstract]  
INCOME TAXES

NOTE 8 — INCOME TAXES

 

Wetouch

 

Wetouch is subject to a tax rate of 21% per year beginning 2018, and files a U.S. federal income tax return.

 

BVI Wetouch

 

Under the current laws of the British Virgin Islands, BVI Wetouch, a wholly owned subsidiary of Wetouch, is not subject to tax on its income or capital gains. In addition, no British Virgin Islands withholding tax will be imposed upon the payment of dividends by the Company to its stockholders.

 

Hong Kong

 

HK Wetouch is subject to profit taxes in Hong Kong at a progressive rate of 16.5%.

 

PRC

 

Sichuan Wetouch and Sichuan Vtouch files income tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income tax rate is 25% according to the Corporate Income Tax (“CIT”) Law which was passed by the National People’s Congress on March 16, 2007.

 

Under PRC CIT Law, domestic enterprises and foreign investment enterprises (the “FIEs”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on a case-by-case basis by local government as preferential tax treatment to High and New Technology Enterprises (the “HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for their HNTE status every three years. Pursuant to an approval from the local tax authority in October 2017, Sichuan Wetouch became a qualified enterprise located in the western region of the PRC, entitled it to a preferential income tax rate of 15% from October 11, 2017 to October 11, 2020.

 

On October 21, 2020, Sichuan Wetouch was granted on a case-by-case basis by Sichuan Provincial government as an HNTE, entitled to a reduced income tax rate of 15% from October 21, 2020 until October 20, 2023.

 

Sichuan Vtouch is subject to a 25% income tax rate.

 

The CIT Law and its implementation rules impose a withholding income tax at 10%, unless reduced by a tax treaty or arrangement, on the amount of dividends distributed by a PRC-resident enterprise to its immediate holding company outside the PRC that are related to earnings accumulated beginning on January 1, 2008. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding income tax.

The Company’s provision for income taxes expenses consisted of:

 

   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2025   2024   2025   2024 
   (Unaudited)   (Unaudited) 
PRC income tax        
Income tax provision  $860,267   $1,099,331   $2,336,755   $1,761,179 
Deferred income tax expenses   16,455    
-
    11,073    
-
 
Sub total  $876,722   $1,099,331   $2,347,828   $1,761,179 
                     

US

   
-
    
-
    
-
    
-
 
BVI   
-
    
-
    
-
    
-
 

Hong Kong

   
-
    
-
    
-
    
-
 
Income tax provision  $876,722   $1,099,331   $2,347,828   $1,761,179 

 

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three and six months June 30, 2025 and 2024:

 

   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2025   2024   2025   2024 
   (Unaudited)   (Unaudited) 
PRC statutory income tax rate   25.0%   25.0%   25.0%   25.0%
Income tax computed at PRC statutory corporate income tax rate of 25%   28.0%   28.9%   30.0%   35.3%
Tax rate differential on entities not subject to PRC income   (0.5)%   (0.6)%   (0.8)%   (1.6)%
R&D additional deduction   0.0%   0.3%   0.0%   0.4%
Change in valuation allowance   0.0%   (0.2)%   0.0%   (0.2)%
Temporary differences   2.1%   0.0%   0.2%   0.3%
Non-deductible expenses   (1.5)%   0.5%   3.4%   0.9%
Effective tax rate   28.1%   28.9%   32.8%   35.1%

 

The Company follows ASC 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company’s deferred tax assets consisted of the following components:

 

   As of
June 30,
2025		   As of
December 31,
2024		 
   (Unaudited) 
Deferred tax assets:    
Credit loss on advance to vendors  $22,600   $11,056 
Provision of obsolete inventory   7,991    30,607 
Leasing liabilities   200,883    263,536 
Total gross deferred tax assets   231,474    305,199 
Less valuation allowance   
-
    
-
 
Deferred tax assets net of valuation allowance   231,474    305,199 
           
Deferred tax liabilities:          
Right-of-use assets   (200,883)   (263,802)
Deferred tax liabilities   (200,883)   (263,802)
Deferred tax assets, net  $30,591   $41,397 

 

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of June 30, 2025 and December 31, 2024, taxes for Sichuan Vtouch remained open for statutory examination by PRC tax authorities.