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INCOME TAX AND DEFERRED TAX ASSETS | 12 Months Ended
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Dec. 31, 2019
INCOME TAX AND DEFERRED TAX ASSETS |
INCOME TAX AND DEFERRED TAX ASSETS | NOTE 5 – INCOME TAX AND DEFERRED TAX ASSETS The Company and its subsidiaries and VIE have no presence in the United States and does not conduct business in the United States, so no United States income tax is imposed upon the Company and its subsidiaries and VIE. MDJM was incorporated under the laws of the Cayman Islands. Under the current laws of the Cayman Islands, the Company and its subsidiaries are not subject to tax on income or capital gain. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed. MDJM Hong Kong was incorporated under the laws of Hong Kong and is subject to the uniform tax rate of 16.5%. Under Hong Kong tax law, it is exempted from the Hong Kong income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on the remittance of dividends. MDJM Hong Kong did not have significant activities in Hong Kong in the years ended December 31, 2019, 2018, and 2017, respectively. The Group conducts substantially all of its business through its VIE and subsidiaries of the VIE, the operating entities located in the PRC, and they are subject to PRC income taxes. The Group’s subsidiary and VIE in the PRC are subject to a 25% standard tax rate for the years ended December 31, 2019, 2018, and 2017, respectively. The Group adopted ASC 740‑10‑25 Accounting for Uncertainty in Income Taxes and such adoption did not have any material impact on the accompanying consolidated financial statements. The Group through its Chinese subsidiary and VIE are principally engaged in the business located in the PRC and therefor, are subject to income taxes in the PRC. Tax regulations are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. All tax positions taken, or expected to be taken, continue to be more likely than not ultimately settled at the full amount claimed. The Company’s tax filings are subject to the PRC tax bureau’s examination for a period up to five years. The Company is not currently under any examination by the PRC tax bureau. Deferred income tax assets are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of comprehensive income in the period of the enactment of the change. Significant components of the Company’s deferred tax assets are as follows at December 31, 2019 and 2018:
|  | 2019 |  | 2018 |
Deferred tax items |  |  |  |  |  |  |
Accounts receivable, net |  | $ | 12,807 |  | $ | 49,963 |
Accrued expenses |  |  | 112,954 |  |  | 162,089 |
Deferred income |  |  | 26,429 |  |  | 64,153 |
Depreciation |  |  | (18,429) |  |  | — |
Net operating loss carryforward |  |  | 57,695 |  |  | 327,473 |
Total deferred items |  |  | 191,456 |  |  | 603,678 |
Tax rate at |  |  | 25 | % |  | 25 | %
Deferred tax assets |  |  | 47,864 |  |  | 150,920 |
Valuation allowance |  |  | (14,424) |  |  | (15,449) |
Deferred tax assets, net |  | $ | 33,440 |  | $ | 135,471 |
The provision for income taxes are summarized as follows:
|  | 2019 |  | 2018 |  | 2017
Current |  | $ | 206 |  | $ | — |  | $ | 338,194
Deferred tax adjustment |  |  | 101,166 |  |  | (134,454) |  |  | 58,358
Change in valuation allowance |  |  | — |  |  | 134,454 |  |  | —
Total |  | $ | 101,372 |  | $ | — |  | $ | 396,552
Reconciliation of the statutory income tax rate and the Company’s effective income tax rate for the years ended December 31, 2019, 2018, and 2017, respectively, are as follows:
|  | 2019 |  | 2018 |  | 2017 |
Hong Kong statutory income tax rate |  | 16.5 | % | 16.5 | % | — |
Valuation allowance recognized with respect to the loss in the Hong Kong Company |  | (16.5) | % | (16.5) | % | — |
PRC statutory income tax rate |  | 25.0 | % | 25.0 | % | 25.0 | %
Effect of income tax exemptions and reliefs in the PRC companies |  | 0.0 | % | 0.0 | % | 0.0 | %
Effect of loss carryforward in the PRC companies |  | (24.9) | % | (25.0) | % | 0.0 | %
Effect of non-deductible expenses in the PRC companies |  | 0.0 | % | 0.0 | % | 0.4 | %
Effective rate |  | 0.1 | % | 0.0 | % | 25.4 | %
Aggregate undistributed earnings of the Company’s subsidiary, VIE and VIE’s subsidiaries located in the PRC that are available for distribution at December 31, 2019 are considered to be indefinitely reinvested and accordingly, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to any entity within the Company that is outside of the PRC. The Company does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future. It intends to retain most of its available funds and any future earnings for use in the operation and expansion of its business. As of December 31, 2019 and 2018, the Company had not declared any dividends. As of December 31, 2019 and 2018, the Company had no significant uncertain tax positions that qualify for either recognition or disclosure in the financial statements. As of December 31, 2019, income tax returns for the tax years ended December 31, 2015 through December 31, 2019 remained open for statutory examination by PRC tax authorities. The uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. Based on the outcome of any future examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns, might materially change from those recorded as liabilities for uncertain tax positions in the Company’s consolidated financial statements as of December 31, 2019 and 2018. In addition, the outcome of these examinations may impact the valuation of certain deferred tax assets (such as net operating losses) in future periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits, if any, as a component of income tax expense. The Company does not anticipate any significant increases or decreases to its liability for unrecognized tax benefit within the next 12 months. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes is due to computational errors made by the taxpayer. The statute of limitations will be extended to five years under special circumstances, which are not clearly defined, but an underpayment of income tax liability exceeding RMB100,000 (approximately $14,000) is specifically listed as a special circumstance. In the case of a transfer pricing related adjustment, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. Accounting for Uncertainty in Income Taxes The tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional tax liabilities. ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and concluded that no provision for uncertainty in income taxes was necessary as of December 31, 2019 and 2018.

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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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