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Income Tax

9 Months Ended

Sep. 30, 2019

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 2019 and 2018 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, CREG is taxed in the US and, as of September 30, 2019, had net operating loss ("NOL") carry forwards for income taxes of $14.91 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 September 30, 2019, the Company's PRC subsidiaries had $40.39 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 months ended September 30, 2019 and 2018, respectively:

		2019				2018
U.S. statutory rates		(21.0		)%		(21.0		)%
Tax rate difference – current provision			(3.6	)%			(3.7	)%
Reversal of temporary difference due to disposal of Shenqiu			(15.5	)%			-	%
Permanent differences			1.3	%			3.7	%
Other			-	%			2.0	%
Valuation allowance on PRC NOL			17.0	%			11.4	%
Valuation allowance on US NOL			0.6	%			1.7	%
Tax (benefit) per financial statements			(21.2	)%			(5.9	)%

The provision for income tax expense for the nine months ended September 30, 2019 and 2018 consisted of the following:

		2019				2018
Income tax expense (benefit) – current		$	2,487			$	1,316,866
Income tax benefit – deferred			(3,044,371	)			(1,589,864	)
Total income tax expense (benefit)		$	(3,041,884	)		$	(272,998)

The following table reconciles the U.S. statutory rates to the Company's effective tax rate for the three months ended September 30, 2019 and 2018, respectively:

		2019				2018
U.S. statutory rates			(21.0	)%			(21.0	)%
Tax rate difference – current provision			(3.7	)%			(3.8	)%
Tax adjustment on PRC tax return			-	%			-	%
Reversal of temporary difference due to disposal of Shenqiu			(2.1	)%			-	%
Permanent differences			(0.1	)%			0.6	%
Other			-	%			(0.7)	%
Valuation allowance on PRC NOL			9.8	%			7.0	%
Valuation allowance on US NOL			1.5	%			0.8	%
Tax (benefit) per financial statements			(15.6	)%			(17.1	)%

The provision for income taxes expense for the three months ended September 30, 2019 and 2018 consisted of the following:

		2019				2018
Income tax expense (benefit) – current		$	(755,840	)		$	395,824
Income tax expense (benefit) – deferred			-				(936,740	)
Total income tax expense (benefit)		$	(755,840	)		$	(540,916	)