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INCOME TAXES
 9 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
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 (“US”)

 

Gulf Resources, Inc. may be subject to the United States of America Tax laws at a tax rate of 21%. 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, 2023 and 2022, and management believes that its earnings are permanently invested in the PRC.

 

(b)           British Virgin Islands (“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, 2023 and 2022.

 

(c)           Hong Kong

 

HKJI, a subsidiary of Upper Class Group Limited, was incorporated in Hong Kong and 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 income tax has been made as it has no taxable income for the three-month and nine-month periods ended September 30, 2023 and 2022.  The applicable statutory tax rates for the three-month and nine-month periods ended September 30, 2023 and 2022 are 16.5%. There is no dividend withholding tax in Hong Kong.

 

(d)           PRC

 

Enterprise income tax (“EIT”) for SCHC, SYCI, SHSI and DCHC in the PRC is charged at 25% of the assessable profits.

 

The operating subsidiaries SCHC is a wholly foreign-owned enterprises (“FIE”), SYCI, DCHC, and SHSI are incorporated in the PRC and are subject to PRC Local Income Tax Law. The PRC tax losses may be carried forward to be utilized against future taxable profit for ten years for High-tech enterprises and small and medium-sized enterprises of science and technology and for five years for other companies. Tax losses of the operating subsidiaries of the Company may be carried forward for five years.

 

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, 2023 and December 31, 2022, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are $138,933,575 and $147,686,099, 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, 2023 and December 31, 2022, the Company has not recorded any WHT on the cumulative amount of distributable retained earnings of its foreign invested enterprises that are subject to WHT in China. As of September 30, 2023 and December 31, 2022, the unrecognized WHT are $5,996,965 and $6,406,394, respectively.

 

The Company’s income 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 income tax returns filed in the United States for three years from the date of filing. The Company’s US income tax returns since 2016 are currently subject to examination.

 

Inland Revenue Department of Hong Kong (“IRD”) may examine the Company’s income tax returns filed in Hong Kong for seven years from date of filing. For the years 2012 through 2019, HKJI did not report any taxable income. It did not file any income tax returns during these years except for 2014 and 2018. For companies which do not have taxable income, IRD typically issues notification to companies requiring them to file income tax returns once in every four years. The tax returns for 2014 and 2018 have been examined, and there is no Hong Kong Profits Tax was charged.

 

The components of the income tax benefit from continuing operations are:

 

                                 
   Three-Month Period Ended September 30,  Nine-Month Period Ended September 30,
   2023  2022  2023  2022
Current taxes – PRC  $—   $—   $—   $— 
Deferred tax – PRC entities   483,524    (3,010,967)   876,779    (4,356,283)
Income Tax (Expense) Benefit  $483,524   $(3,010,967)  $876,779   $(4,356,283)

     

Significant components of the Company’s deferred tax assets and liabilities at September 30, 2023 and December 31, 2022 are as follows:

 

   September 30,  December 31,
   2023  2022
Deferred tax liabilities  $—   $— 
           
Deferred tax assets:          
Exploration costs   1,736,028    1,787,571 
PRC tax losses   12,948,587    12,211,867 
US federal net operating loss   1,569,617    1,336,405 
Total deferred tax assets   16,254,232    15,335,843 
Valuation allowance   (10,250,146)   (10,016,934)
Net deferred tax asset  $6,004,086   $5,318,909 

 

The decrease in valuation allowance for the three-month period ended September 30, 2023 is $12,974.

 

The increase in valuation allowance for the three-month period ended September 30, 2022 is $0.

 

The decrease in valuation allowance for the nine-month period ended September 30, 2023 is $233,212.

 

The increase in valuation allowance for the nine-month period ended September 30, 2022 is $34,176.

 

There were no unrecognized tax benefits and accrual for uncertain tax positions as of September 30, 2023 and December 31, 2022 and no amounts accrued for penalties and interest for the three and nine months ended September 30, 2023 and 2022.