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Note 15 - Taxation | 6 Months Ended
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Jun. 30, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
15. | Taxation
| 1 ) | Income tax
The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate. i). The Company is incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. Following the Share Exchange, the Company became a holding company and does not conduct any substantial operations of its own. Effective from January 1, 2018, the Company is subject to the new GILTI tax rules. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations. Under U.S. GAAP, the Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred. For the six and three months ended June 30, 2019 and 2018, no provision for federal corporate income tax has been made in the financial statements as the Company has no aggregated positive tested income. ii). China Net BVI and ChinaNet Investment BVI were incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, these BVI companies are not subject to tax on income or capital gains. Additionally, upon payments of dividends by these BVI companies to its respective shareholders, no BVI withholding tax will be imposed. iii). China Net HK was incorporated in Hong Kong and does not conduct any substantial operations of its own. Effective from April 1, 2018, a two -tier corporate income tax system was officially implemented in Hong Kong. The applicable income tax rate is 8.25% for the first HK$2.0 million profits, and the subsequent profits are taxed at 16.5%. No provision for Hong Kong income tax has been made in the financial statements as China Net HK has no assessable profits for the six and three months ended June 30, 2019 or any prior periods. Additionally, upon payments of dividends by China Net HK to its shareholders, no Hong Kong withholding tax will be imposed. iv). The Company’s PRC operating subsidiaries and VIEs, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%, which applies to both domestic and foreign invested enterprises.
| • | As approved by the related PRC governmental authorities, Business Opportunity Online continuously qualified as a High and New Technology Enterprise until November 2021, which enabled the entity, as approved by the local tax authorities of Beijing, the PRC, to continue enjoying the preferential EIT rate of 15% until November 2021. Therefore, for the six and three months ended June 30, 2019 and 2018, the applicable EIT rate of Business Opportunity Online was 15%. In accordance with the 2018 Bulletin No. 45 issued by the PRC State Administration of Taxation, which come into effect from January 1, 2018, an enterprise that obtains qualification as or remains as a High and New Technology Enterprise or Small and Medium-sized Tech Enterprise in any time of 2018 and afterwards, is allowed to carry forward all its previous five years’ net operating losses NOLs (starting from NOL of 2013 ) to up to ten years, compared with the PRC standard NOLs carryforward period of 5 years.
| • | The applicable EIT rate for other PRC operating entities of the Company was 25% for the six and three months ended June 30, 2019 and 2018.
| • | The current EIT law also imposed a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a 5% withholding tax rate, subject to approval from the related PRC tax authorities.
| 2 ) | Turnover taxes and the relevant surcharges
Service revenues provided by the Company’s PRC operating subsidiaries and VIEs were subject to Value Added Tax (“VAT”). VAT rate for provision of modern services (other than lease of corporeal movables) is 6%, and for small scale taxpayer, 3%. Therefore, for the six and three months ended June 30, 2019 and 2018, the Company’s service revenues are subject to VAT at a rate of 6%, after deducting the VAT paid for the services purchased from suppliers, or at a rate of 3% without any deduction of VAT paid for the services purchased from suppliers. The surcharges of the VAT in the aggregate is 12% to 14% of the VAT, depending on which tax jurisdiction the Company’s PRC operating subsidiaries and VIE operate in. As of June 30, 2019 and December 31, 2018, taxes payable consists of:
|  | June 30, 2019 |  | December 31, 2018
|  | US$(’000) |  | US$(’000)
|  | (Unaudited) |  |
PRC turnover tax and surcharge payable |  |  | 1,303 |  |  |  | 1,215 |
PRC enterprise income tax payable |  |  | 1,779 |  |  |  | 1,782 |
Total taxes payable |  |  | 3,082 |  |  |  | 2,997 |
For the six and three months ended June 30, 2019 and 2018, the Company’s income tax (expense)/benefit consisted of:
|  | Six Months Ended June 30, |  | Three Months Ended June 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
|  | US$(’000) |  | US$(’000) |  | US$(’000) |  | US$(’000)
|  | (Unaudited) |  | (Unaudited) |  | (Unaudited) |  | (Unaudited)
Current-PRC |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Deferred-PRC |  |  | (6 | ) |  |  | (689 | ) |  |  | 33 |  |  |  | (693 | )
Income tax (expense)/benefit |  |  | (6 | ) |  |  | (689 | ) |  |  | 33 |  |  |  | (693 | )
The Company’s deferred tax assets as of June 30, 2019 and December 31, 2018 were as follows:
|  | June 30, 2019 |  | December 31, 2018
|  | US$(’000) |  | US$(’000)
|  | (Unaudited) |  |
Tax effect of net operating losses carried forward |  |  | 9,601 |  |  |  | 9,243 |
Bad debts provision |  |  | 499 |  |  |  | 1,188 |
Valuation allowance |  |  | (9,551 | ) |  |  | (9,875 | )
Deferred tax assets, net |  |  | 549 |  |  |  | 556 |
The U.S. holding company has incurred aggregate NOLs of approximately US$19.7 million and US$19.2 million as of June 30, 2019 and December 31, 2018, respectively. The NOLs carryforwards incurred prior to December 31, 2017 gradually expire over time, the last of which expires in 2037. NOLs incurred after December 31, 2017 will no longer be available to carry back but can be carried forward indefinitely, subject to an annual limit of 80% on the amount of taxable income that can be offset by NOLs arising in tax years ending after December 31, 2017. The Company maintains a full valuation allowance against its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future earnings to utilize its U.S. deferred tax assets. The NOLs carried forward incurred by the Company’s PRC subsidiaries and VIEs were approximately US$26.3 million and US$25.2 million as of June 30, 2019 and December 31, 2018, respectively. The losses carryforwards gradually expire over time, the last of which expires in 2029 due to certain subsidiary enjoys the High and New Technology Enterprise’s privileged NOLs carryforward policy. The related deferred tax assets were calculated based on the respective NOLs incurred by each of the PRC subsidiaries and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized. The Company recorded approximately US$9.6 million and US$9.9 million valuation allowance as of June 30, 2019 and December 31, 2018, respectively, because it is considered more likely than not that a portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses related. For the six and three months ended June 30, 2019, the Company recorded approximately US$0.45 million and US$0.26 million deferred tax valuation allowance, respectively. For the six and three months ended June 30, 2018, the Company recorded approximately US$1.17 million and US$0.76 million deferred tax valuation allowance, respectively.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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