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14. INCOME TAXES | 9 Months Ended
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Sep. 30, 2016
Income Tax Disclosure [Abstract] |
14. 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. may be subject to the United States of America Tax law at a tax rate of 35%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the three-month and nine-month periods ended September 30, 2016 and 2015, and management believes that its earnings are permanently invested in the PRC. (b) BVI Upper Class Group Limited, a subsidiary of Gulf Resources, Inc., 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 three-month and nine-month periods ended September 30, 2016 and 2015. (c) Hong Kong Hong Kong Jiaxing Industrial Limited, a subsidiary of Upper Class Group 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 three-month and nine-month periods ended September 30, 2016 and 2015. The applicable statutory tax rates for the three-month and nine-month periods ended September 30, 2016 and 2015 are 16.5%. There is no dividend withholding tax in Hong Kong. (d) PRC Enterprise income tax (“EIT”) for SCHC, SYCI, SCRC and DCHC in the PRC is charged at 25% of the assessable profits. The operating subsidiaries SCHC, SYCI, SCRC and DCHC 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 September 30, 2016 and December 31, 2015, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC are $280,522,787 and $260,471,507, 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 September 30, 2016 and December 31, 2015, the Company has not recorded any WHT on the cumulative amount of distributable retained earnings of its foreign invested enterprises in China. As of September 30, 2016 and December 31, 2015, the unrecognized WHT are $13,006,205 and $11,974,695, 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 2012 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 from year 2009 are currently subject to examination. The components of the provision for income taxes from continuing operations are:
| Three-Month Period Ended September 30, |  | Nine-Month Period Ended September 30, |
| 2016 |  | 2015 |  | 2016 |  | 2015 |
Current taxes – PRC |  | $ | 3,518,529 |  |  | $ | 3,290,372 |  |  | $ | 9,996,622 |  |  | $ | 9,086,618 |
Deferred taxes – PRC |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (81,460 | )
|  | $ | 3,518,529 |  |  | $ | 3,290,372 |  |  | $ | 9,996,622 |  |  | $ | 9,005,158 |
The effective income tax expenses differ from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:
| Three-Month Period Ended September 30, |  | Nine-Month Period Ended September 30,
Reconciliations | 2016 |  | 2015 |  | 2016 |  | 2015
Statutory income tax rate |  | 25 | % |  |  | 25 | % |  |  | 25 | % |  |  | 25 | % |
Non-taxable item |  | - |  |  |  | (1 | %) |  |  | - |  |  |  | (1 | %) |
Change in valuation allowance - US federal net operating loss |  | - |  |  |  | 0 | % |  |  | - |  |  |  | 1 | % |
Effective tax rate |  | 25 | % |  |  | 24 | % |  |  | 25 | % |  |  | 25 | % |
Significant components of the Company’s deferred tax assets and liabilities at September 30, 2016 and December 30, 2015 are as follows:
| September 30, 2016 |  | December 31, 2015
Deferred tax liabilities |  | $ | - |  |  | $ | - |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for obsolete and slow-moving inventories |  | $ | 3,085 |  |  | $ | 3,173 |
Impairment on property, plant and equipment |  |  | 437,465 |  |  |  | 449,879 |
Exploration costs |  |  | 1,864,387 |  |  |  | 1,917,301 |
Compensation costs of unexercised stock options |  |  | 106,586 |  |  |  | 629,162 |
US federal net operating loss |  |  | 11,485,000 |  |  |  | 10,835,000 |
Total deferred tax assets |  |  | 13,896,523 |  |  |  | 13,834,515 |
Valuation allowance |  |  | (11,591,586 | ) |  |  | (11,464,162 | )
Net deferred tax asset |  | $ | 2,304,937 |  |  | $ | 2,370,353 |
Current deferred tax asset |  | $ | - |  |  | $ | 3,173 |
Long-term deferred tax asset |  | $ | 2,304,937 |  |  | $ | 2,367,180 |
The increase in valuation allowance for each of the three-month period ended September 30, 2016 and 2015 is $227,574 and $70,320, respectively. The increase in valuation allowance for the nine-month period ended September 30, 2016 is $127,424. The decrease in valuation allowance for the nine-month period ended September 30, 2015 is $484,075. There were no unrecognized tax benefits and accrual for uncertain tax positions as of September 30, 2016 and December 31, 2015.

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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 Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: 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=65882285&loc=d3e32559-109319 Reference 3: 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=65882285&loc=d3e32718-109319 Reference 4: 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=65882285&loc=d3e32639-109319 Reference 5: 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=65882285&loc=d3e32537-109319 + Details
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