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15. INCOME TAXES | 12 Months Ended
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Dec. 31, 2012
Income Tax Disclosure [Abstract] |
15. INCOME TAXES | NOTE 15 – INCOME TAXES The Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740-10. (a) United States Gulf Resources, Inc. is subject to the United States of America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the years ended December 31, 2012 and 2011, and management believes that its earnings are permanently invested in the PRC. (b) BVI Upper Class Group Limited was incorporated in the BVI and, under the current laws of the BVI, it is not subject to tax on income or capital gain in the BVI. Upper Class Group Limited did not generate assessable profit for the years ended 31 December 31, 2012 and 2011. (c) Hong Kong Hong Kong Jiaxing Industrial Limited was incorporated in Hong Kong and is subject to Hong Kong profits tax. The Company is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for profits tax has been made as the Company has no assessable income for the years. The applicable statutory tax rates for the years ended December 31, 2012 and 2011 are 16.5%. (d) PRC Enterprise income tax (“EIT”) for SCHC and SYCI in the PRC is charged at 25% of the assessable profits. The operating subsidiaries SCHC and SYCI are wholly foreign-owned enterprises (“FIE”) incorporated in the PRC and are subject to PRC Foreign Enterprise Income Tax Law. On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 will be exempted from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT at 5% effective tax rate. As of December 31, 2012 and 2011, the accumulated distributable earnings under the Generally Accepted Accounting Principles (“GAAP”) of PRC are $197,042,047 and $180,939,187, respectively. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, as of December 31, 2012 and 2011, the Company has not recorded any WHT on the cumulative amount of distributable retained earnings of its foreign invested enterprises in China. As of December 31, 2012 and 2011, the unrecognized WHT are $8,768,486 and $7,965,999, respectively. The Company’s tax returns are subject to the various tax authorities’ examination. The federal, state and local authorities of the United States may examine the Company’s tax returns filed in the United States for three years from the date of filing. The Company’s US tax returns since 2009 are currently subject to examination. Inland Revenue Department of Hong Kong may examine the Company’s tax returns filed in Hong Kong for seven years from date of filing. The Company’s Hong Kong tax returns since incorporation are currently subject to examination. The tax authorities of the PRC may examine the Company’s PRC tax returns for three years from the date of filing. The Company’s PRC tax returns since 2009 are currently subject to examination. The components of the provision for income taxes from continuing operations are:
|  | Years ended December 31, |
|  | 2012 |  |  | 2011 |  |  |
Current taxes – PRC |  | $ | 5,102,119 |  |  | $ | 15,972,518 |  |  |
Deferred tax – PRC |  |  | 489,334 |  |  |  | (2,569,647 | ) |  |
|  | $ | 5,591,453 |  |  | $ | 13,402,871 |  |  |
The effective income tax expenses differ from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:-
|  | Years ended December 31,
|  | 2012 |  | 2011 |  |
Statutory income tax rate |  | 25% |  |  | 25% |  |  |
Non-taxable items |  | - |  |  | (1%) |  |  |
Non-deductible items |  | - |  |  | 3% |  |  |
US federal net operating loss |  | 2% |  |  | 3% |  |  |
Effective tax rate |  | 27% |  |  | 30% |  |  |
As of December 31, 2012 and 2011, the Company had US federal net operating loss (“NOL”) of approximately $31 million and $30 million available to offset against future federal income tax liabilities, respectively. NOL can be carried forward up to 15 years from the year the loss is incurred. NOL of approximately $12 million will expire at the beginning of 2014. The Company believes the realization of benefits from these losses remains uncertain due to the Company’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance has been provided. Differences between the application of accounting principles and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities. Significant components of the Company’s deferred tax assets and liabilities at December31, 2012 and 2011 are as follows:
|  | As of December 31, |
|  | 2012 |  |  | 2011 |
Deferred tax liabilities |  | $ | - |  |  | $ | - |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for obsolete and slow-moving inventories |  | $ | 6,973 |  |  | $ | 3,718 |
Impairment on property, plant and equipment |  |  | 464,778 |  |  |  | 639,031 |
Exploration costs |  |  | 1,781,921 |  |  |  | 1,797,391 |
Repair and maintenance costs |  |  | - |  |  |  | 224,984 |
Property, plant and equipment |  |  | - |  |  |  | 81,060 |
Property, plant and equipment under capital leases |  |  | - |  |  |  | (8,001 | )
Compensation costs of unexercised stock options |  |  | 1,809,378 |  |  |  | 1,635,809 |
US federal net operating loss |  |  | 8,809,935 |  |  |  | 8,476,012 |
Total deferred tax assets |  |  | 12,872,985 |  |  |  | 12,850,004 |
Valuation allowance |  |  | (10,619,313 | ) |  |  | (10,111,821 | )
Net deferred tax asset |  | $ | 2,253,672 |  |  | $ | 2,738,183 |
Current deferred tax asset |  | $ | 6,973 |  |  | $ | 228,702 |
Long-term deferred tax asset |  | $ | 2,246,699 |  |  | $ | 2,509,481 |
The increases in valuation allowance for each of the years ended December 31, 2012 and 2011 were $507,492 and $2,413,596 respectively. There were no unrecognized tax benefits and accrual for uncertain tax positions as of December 31, 2012 and 2011.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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