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Income Tax | 9 Months Ended
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Sep. 30, 2018
Income Tax [Abstract] |
INCOME TAX | 17. 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 September 30, 2018, had net operating loss (“NOL”) carry forwards for income taxes of $14.69 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 September 30, 2018, the Company’s PRC subsidiaries had $8.87 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 nine and three months ended September 30, 2018 and 2017, respectively:
|  | Nine Months |  |  | Three Months |
|  | 2018 (Restated) |  |  | 2017 (Restated) |  |  | 2018 (Restated) |  |  | 2017 (Restated) |
U.S. statutory rates |  |  | (21.0 | )% |  |  | 34.0 | % |  |  | (21.0 | )% |  |  | 34.0 | %
Tax rate difference – current provision |  |  | (3.7 | )% |  |  | (9.2 | )% |  |  | (3.8 | )% |  |  | (9.6 | )%
Other |  |  | 2.0 | % |  |  | (2.6 | )% |  |  | (0.7 | )% |  |  | 5.1 | %
Permanent differences |  |  | 3.7 | % |  |  | 0.1 | % |  |  | 0.6 | % |  |  | 0.0 | %
Valuation allowance on PRC NOL |  |  | 11.4 | % |  |  | 20.5 | % |  |  | 7.0 | % |  |  | 15.1 | %
Valuation allowance on US NOL |  |  | 1.7 | % |  |  | 0.8 | % |  |  | 0.8 | % |  |  | 2.3 | %
Tax (benefit) per financial statements |  |  | (5.9 | )% |  |  | 43.6 | % |  |  | (17.1 | )% |  |  | 47.0 | %
The provision for income taxes expense for the nine and three months ended September 30, 2018 and 2017 consisted of the following:
|  | Nine Months |  |  | Three Months |
|  | 2018 (Restated) |  |  | 2017 (Restated) |  |  | 2018 (Restated) |  |  | 2017 (Restated) |
Income tax expense – current |  | $ | 1,316,866 |  |  | $ | 1,049,342 |  |  | $ | 395,824 |  |  | $ | 384,691 |
Income tax expense (benefit) – deferred |  |  | (1,589,864 | ) |  |  | (96,181 | ) |  |  | (936,740 | ) |  |  | (42,525 | )
Total income tax expense (benefit) |  | $ | (272,998 | ) |  | $ | 953,161 |  |  | $ | (540,916 | ) |  | $ | 342,166 |
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. The Company continues to examine the impact of certain provisions of the Tax Act that will become applicable in calendar year 2018 related to Base Erosion and Anti Abuse Tax (“BEAT”), GILTI, deduction for FDII, and other provisions that could affect its effective tax rate in the future. The Company records the income tax effects of GILTI and other provisions of the Tax Act as incurred beginning in calendar year 2018. For the nine and three months ended June 30, 2018, there were no such income tax effects. Also, because there may be additional state income tax implications, the Company will continue to monitor changes in state and local tax laws to determine if state and local taxing authorities intend to conform or deviate from changes to U.S. federal tax legislation as a result of the Tax Act. The prospects of supplemental legislation or regulatory processes to address questions that arise because of the Tax Act, or evolving technical interpretations of the tax law, may cause the final impact from the Tax Act to differ from the provisionally recorded amounts. The Company expects to complete its analysis within the measurement period allowed by Staff Accounting Bulletin (“SAB”) No.118 no later than the fourth quarter of calendar year 2018. China maintains a “closed” capital account, meaning companies, banks, and individuals cannot move money in or out of the country except in accordance with strict rules. The People’s Bank of China (PBOC) and State Administration of Foreign Exchange (SAFE) regulate the flow of foreign exchange in and out of the country. For inward or outward foreign currency transactions, the Company needs to make a timely declaration to the bank with sufficient supporting documents to declare the nature of the business transaction.

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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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