XML 47 R24.htm IDEA: XBRL DOCUMENT

Income Tax

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

18. INCOME TAX

The Company's Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Under Chinese tax law, the tax treatment of finance and sales-type leases is similar to US GAAP. However, the local tax bureau continues to treat CREG sales-type leases as operating leases. Accordingly, the Company recorded deferred income taxes.

The Company's subsidiaries generate all of their income from their PRC operations. All of the Company's Chinese subsidiaries' effective income tax rate for 2018 and 2017 was 25%. Yinghua, Shanghai TCH, Xi'an TCH, Huahong, Zhonghong and Erdos TCH file separate income tax returns.

There is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company's CFS do not present any income tax provisions related to Cayman Islands tax jurisdiction, where Sifang Holding is domiciled.

The US parent company, China Recycling Energy Corporation, is taxed in the US and, as of December 31, 2018, had net operating loss ("NOL") carry forwards for income taxes of $14.83 million, which may be available to reduce future years' taxable income as NOLs can be carried forward up to 20 years from the year the loss is incurred. Our management believes the realization of benefits from these losses may be uncertain due to the US parent company's continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

As of December 31, 2018, the Company's PRC subsidiaries had $6.47 million NOL that can be carried forward to offset future taxable income for five years from the year the loss is incurred. The NOL was mostly from Zhonghong, Zhonghong has not yet generated any sales yet; accordingly, the Company recorded a 100% deferred tax valuation allowance for PRC NOL.

The following table reconciles the U.S. statutory rates to the Company's effective tax rate for the years ended December 31, 2018 and 2017, respectively:

		2018				2017
U.S. statutory rates			(21.0	)%			34.0	%
Tax rate difference – current provision			(4.0	)%			(13.5	)%
Other			(0.1	)%			-	%
Tax rate change for future deferred tax items			-	%			30.6	%
Prior periods income tax adjustment per income tax return filed			-	%			(4.2	)%
Section 965 one-time transition tax			-	%			2,046.7	%
Permanent differences			-	%			1.0	%
Valuation allowance on PRC NOL			28.9	%			63.2	%
Valuation allowance on US NOL			0.2	%			16.3	%
Tax per financial statements			4.0	%			2,174.1	%

The provision for income taxes expense for the years ended December 31, 2018 and 2017 consisted of the following:

		2018				2017
Income tax expense – current		$	1,604,473			$	9,101,026
Income tax expense (benefit) – deferred			1,022,985				(1,061,548	)
Total income tax expense		$	2,627,428			$	8,039,476

On December 22, 2017, the Tax Cut and Jobs Act ("Tax Act") was signed into law in the United States. The Tax Act introduced a broad range of tax reform measures that significantly change the federal income tax laws. The provisions of the Tax Act that may have significant impact on the Company include the permanent reduction of the corporate income tax rate from 35% to 21% effective for tax years including or commencing on January 1, 2018, a one-time transition tax on post-1986 foreign unremitted earnings, the provision for Global Intangible Low Tax Income ("GILTI"), the deduction for Foreign Derived Intangible Income ("FDII"), the repeal of corporate alternative minimum tax, the limitation of various business deductions, and the modification of the maximum deduction of net operating loss with no carryback but indefinite carryforward provision. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017.

In 2017 the Company reflected the provisional income tax effects of the Tax Act under Accounting Standards Codification Topic 740, Income Taxes, and had approximately $7.61 million tax expense from recording the estimated one-time transition tax on post-1986 foreign unremitted earnings.