Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

12 Months Ended

Dec. 31, 2023

Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities [Abstract]

Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

21. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

(a) Income taxes in the consolidated statements of comprehensive loss(income)

The Company’s provision for income taxes credit consisted of:

	December 31,		December 31,
	2022		2023
PRC income tax	$		$
Current income tax credit, net		-		-
Deferred income tax credit (expenses)		1,228,207		(2,486,145	)
	$	1,228,207	$	(2,486,145	)

United States Tax

CBAK is a Nevada corporation that is subject to U.S. federal tax and state tax. On December 31, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; (4) providing modification to subpart F provisions and new taxes on certain foreign earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions go into effect starting January 1, 2018.

The Global Intangible Low-taxed Income (GILTI) is a new provision introduced by the Tax Cuts and Jobs Act. U.S. shareholders, who are domestic corporations, of controlled foreign corporations (CFCs) are eligible for up to an 80% deemed paid foreign tax credit (FTC) and a 50% deduction of the current year inclusion with the full amount of the Section 78 gross-up subject to limitation. This new provision is effective for tax years of foreign corporations beginning after December 31, 2017. The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of its foreign controlled corporations. The Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable amount related to GILTI as a current period expense when incurred. As of December 31, 2022 and 2021, the Company does not have any aggregated positive tested income; and as such, does not have additional provision amount recorded for GILTI tax.

No provision for income taxes in the United States has been made as CBAK had no taxable income for the years ended December 31, 2022 and 2023.

Hong Kong Tax

The Company’s subsidiaries in Hong Kong are subject to Hong Kong profits tax rate of 16.5% and did not have any assessable profits arising in or derived from Hong Kong for the years ended December 31, 2022 and 2023 and accordingly no provision for Hong Kong profits tax was made in these periods.

PRC Tax

The CIT Law in China applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to High-New Technology Enterprises. CBAK Power was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Dalian Government authorities. Under the preferential tax treatment, CBAK Power was entitled to enjoy a tax rate of 15% for the years from 2021 to 2024 provided that the qualifying conditions as a High-new technology enterprise were met. Hitrans was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Zhejiang Government authorities. Under the preferential tax treatment, Hitrans was entitled to enjoy a tax rate of 15% for the years from 2021 to 2024 provided that the qualifying conditions as a High-new technology enterprise were met. Nanjing CBAK was regarded as a “High-new technology enterprise” pursuant to a certificate jointly issued by the relevant Nanjing Government authorities. Under the preferential tax treatment, Nanjing CBAK was entitled to enjoy a tax rate of 15% for the years from 2023 to 2025 provided that the qualifying conditions as a High-new technology enterprise were met.

A reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company’s income taxes is as follows:

	Year ended December 31, 2022			Year ended December 31, 2023
Income (loss) before income taxes	$	(12,556,018	)	$	(6,053,182	)
United States federal corporate income tax rate		21	%		21	%
Income tax credit computed at United States statutory corporate income tax rate		(2,636,764	)		(1,271,168	)
Reconciling items:
Over provision of deferred taxation in prior year
Rate differential for PRC earnings		(685,944	)		(160,672	)
Tax effect of entity at preferential tax rate		683,459			1,918,084
Non-deductible (income) expenses		(978,010	)		171,936
Share based payments		13,481			257,407
Tax effect of utilisation of tax losses previously not recognised		(885,021	)		(222,354	)
Valuation allowance on deferred tax assets		3,260,592			1,792,912
Income tax (credit) expenses	$	(1,228,207	)	$	2,486,145

(b) Deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2022 and 2023 are presented below:

	December 31, 2022			December 31, 2023
Deferred tax assets
Trade accounts receivable	$	1,976,354			1,156,095
Inventories		554,041			2,942,702
Property, plant and equipment		2,353,141			2,398,035
Non-marketable equity securities		161,716			157,432
Equity method investment		157,432			380,982
Intangible assets		97,468			31,601
Accrued expenses, payroll and others		224,795			541,665
Provision for product warranty		119,207			136,611
Net operating loss carried forward		34,379,188			36,103,945
Valuation allowance		(37,122,551	)		(43,645,828	)
Deferred tax assets, non-current	$	2,743,359			203,240
Deferred tax liabilities, non-current
Long-lived assets arising from acquisitions	$	256,380		$	203,240

As of December 31, 2023, the Company’s U.S. entity had net operating loss carry forwards of $103,580,741, of which $102,293 available to reduce future taxable income which will expire in various years through 2035 and $103,478,448 available to offset capital gains recognized in the succeeding 5 tax years. As of December 31, 2023, the Company’s PRC subsidiaries had net operating loss carry forwards of $65,349,412, which will expire in various years through 2023 to 2032. Management believes it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.

The impact of an uncertain income tax positions on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.