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Income Tax

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAX

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 March 31, 2019, had net operating loss ("NOL") carry forwards for income taxes of $14.61 million; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer's taxable income, and may be carried forward indefinitely. The 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 March 31, 2019, the Company's PRC subsidiaries had $35.89 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 three months ended March 31, 2019 and 2018, respectively:

		2019				2018
U.S. statutory rates			(21.0	)%			21.0	%
Tax rate difference – current provision			(3.4	)%			7.4	%
Other			(0.7	)%			16.4	%
Reversal of temporary difference due to disposal of Shengqiu			(52.9	)%			-	%
Permanent differences			4.3	%			-	%
Utilization of NOL			(1.1	)%			-	%
Valuation allowance on PRC NOL			19.6	%			190.8	%
Valuation allowance on US NOL			-	%			17.7	%
Tax per financial statements			(55.2	)%			253.3	%

The provision for income taxes expense for the three months ended March 31, 2019 and 2018 consisted of the following:

		2019				2018
Income tax expense – current		$	139,743			$	457,995
Income tax expense (benefit) – deferred			(2,530,614	)			(118,450	)
Total income tax expense		$	(2,390,871	)		$	339,545

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- References

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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

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