v2.3.0.11
INCOME TAXES
 3 Months Ended
Jun. 30, 2011
Income Taxes  
Income Tax Disclosure [Text Block]
9. INCOME TAXES


The following table sets forth the components of the Company’s income before income tax expense and the components of income tax expense.


             
   
For The Three Months Ended June 30,
    
For The Six Months Ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
   
(unaudited)
    
(unaudited)
    
(unaudited)
    
(unaudited)
  
                         
China Pre-tax Income
   $ 12,236,938     $ 11,097,716     $ 23,218,108     $ 19,306,036  
BVI Pre-tax Income (loss)
     (6,072 )     39,930       36,712       (29,674 )
Domestic Pre-tax Income
     2,993,052       2,183,467       8,938,304       2,316,476  
Total Pre-tax Income
   $ 13,279,368     $ 13,321,113     $ 32,193,124     $ 21,592,838  
                                 
Current:
                                
China Income Tax Expense
   $ 3,007,163     $ 810,875     $ 4,951,713     $ 1,558,027  
Domestic Income Tax Expense
     -       -       -       -  
Total Current Income Tax Expense
   $ 3,007,163     $ 810,875     $ 4,951,713     $ 1,558,027  
                                 
Deferred:
                                
China Income Tax Expense
   $ -     $ -     $ -     $ -  
Domestic Income Tax Expense
     -       -       -       -  
Total Deferred Income Tax Expense
   $ -     $ -     $ -     $ -  


Under the Income Tax Laws of the PRC, the Company is generally subject to tax at a statutory rate of 25% on its taxable income. However, HLJ ZQPT is located in a specially designated technology zone which allows foreign-invested enterprises a five-year income tax holiday. HLJ ZQPT enjoyed a two-year tax exemption through December 31, 2007 and an additional 50% income tax reduction from January 1, 2008 to December 31, 2010.


On March 16, 2007, National People’s Congress passed a new corporate income tax law, which was effective on January 1, 2008. This new corporate income tax unified the corporate income tax rate to 25%, and included cost deductions and tax incentive policies for both domestic and foreign-invested enterprises in China. According to the new corporate income tax law, the applicable corporate income tax rate of the HLJ ZQPT decreased to 12.5% from 2008 to 2010. HLJ ZQPT became subject to the full statutory tax rate of 25% on January 1, 2011.


 
 


 
A reconciliation of tax at United States federal statutory rate to provision for income tax recorded in the financial statements is as follows:


         
 
For The Three Months Ended June 30,
For The Six Months EndedJune 30,
 
2011
  
2010
  
2011
  
2010
  
 
(unaudited)
  
(unaudited)
  
(unaudited)
  
(unaudited)
  
 
     
     
U.S. statutory income tax rate
35.0%
     35.0 %
35.0%
     35.0 %
Foreign income not recognized in the U.S.
-35.0%
     -35.0 %
-35.0%
     -35.0 %
China Statutory income tax rates
25.0%
     25.0 %
25.0%
     25.0 %
China income tax exemption
0.0%
     -12.5 %
0.0%
     -12.5 %
Parent companies' income not subject to China tax
-2.4%
     -6.4 %
-7.3%
     -5.3 %
Tax refund
0.0%
     0.0 %
-2.7%
     0.0 %
Other items
0.1%
     0.0 %
0.4%
     0.0 %
Effective consolidated current income tax rate
22.7%
     6.1 %
15.4%
     7.2 %


The estimated tax savings as a result of our tax holidays for the six months ended June 30, 2010 amounted to $1,555,284. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share for the six months ended June 30, 2010 from $0.33 to $0.30.


The Company was incorporated in the United States.  It incurred a net operating loss for U.S. income tax purposes for the three and six months ended June 30, 2011 and 2010. The net operating loss carry forwards, including amortization of share-based compensation but excluding change in fair value of warrants, for United States income tax purposes amounted to $9,968,504 and $8,137,837 as of June 30, 2011 and December 31, 2010, respectively, which may be available to reduce future years' taxable income. These carry forwards will expire, if not utilized, beginning in 2027 through 2030. There are also deferred tax asset of $272,181 as of June 30, 2011 and December 31, 2010, resulting from temporary difference on stock options to employees. For United States income tax purposes, the valuation allowances as of June 30, 2011 and December 31, 2010 were $3,761,158 and $3,120,424, respectively.


The change in valuation allowance for the six months ended June 30, 2011 and 2010 were $640,734 and $(2,684,833), respectively.
  
The Company has cumulative undistributed earnings of foreign subsidiaries of $95,904,891 as of June 30, 2011. These undistributed earnings are included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations.  Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.