16.

Taxation

)

Income tax

The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate.

i). The Company is incorporated in the state of Nevada. Under the current law of Nevada, the Company is

not

subject to state corporate income tax. Following the Share Exchange, the Company became a holding company and does

not

conduct any substantial operations of its own. Effective from

January 1, 2018,

the Company is subject to the new GILTI tax rules. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to

percent to offset the income tax liability, subject to some limitations. Under U.S. GAAP, the Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred. For the

nine

and

three

months ended

September 30, 2019

and

2018,

provision for federal corporate income tax has been made in the financial statements as the Company has

aggregated positive tested income.

ii). China Net BVI, ChinaNet Investment BVI and Grandon BVI were incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, these BVI companies are

not

subject to tax on income or capital gains. Additionally, upon payments of dividends by these BVI companies to its respective shareholders,

BVI withholding tax will be imposed.

iii). China Net HK was incorporated in Hong Kong and does

not

conduct any substantial operations of its own. Effective from

April 1, 2018,

two

-tier corporate income tax system was officially implemented in Hong Kong. The applicable income tax rate is

8.25%

for the

first

HK$2.0

million profits, and the subsequent profits are taxed at

16.5%.

provision for Hong Kong income tax has been made in the financial statements as China Net HK has

assessable profits for the

nine

and

three

months ended

September 30, 2019

or any prior periods. Additionally, upon payments of dividends by China Net HK to its shareholders,

Hong Kong withholding tax will be imposed.

iv). The Company’s PRC operating subsidiaries and VIEs, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is

25%,

which applies to both domestic and foreign invested enterprises.

As approved by the related PRC governmental authorities, Business Opportunity Online continuously qualified as a High and New Technology Enterprise until

November 2021,

which enabled the entity, as approved by the local tax authorities of Beijing, the PRC, to continue enjoying the preferential EIT rate of

15%

until

November 2021.

Therefore, for the

nine

and

three

months ended

September 30, 2019

and

2018,

the applicable EIT rate of Business Opportunity Online was

15%

In accordance with the

2018

Bulletin

No.

issued by the PRC State Administration of Taxation, which come into effect from

January 1, 2018,

an enterprise that obtains qualification as or remains as a High and New Technology Enterprise or Small and Medium-sized Tech Enterprise in any time of

2018

and afterwards, is allowed to carry forward all its previous

five

years’ net operating losses NOLs (starting from NOL of

2013

) to up to

ten

years, compared with the PRC standard NOLs carryforward period of

years.

The applicable EIT rate for other PRC operating entities of the Company was

25%

for the

nine

and

three

months ended

September 30, 2019

and

2018.

The current EIT law also imposed a

10%

withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a

withholding tax rate, subject to approval from the related PRC tax authorities.

)

Turnover taxes and the relevant surcharges

Service revenues provided by the Company’s PRC operating subsidiaries and VIEs were subject to Value Added Tax (“VAT”). VAT rate for provision of modern services (other than lease of corporeal movables) is

and for small scale taxpayer,

Therefore, for the

nine

and

three

months ended

September 30, 2019

and

2018,

the Company’s service revenues are subject to VAT at a rate of

6%,

after deducting the VAT paid for the services purchased from suppliers, or at a rate of

without any deduction of VAT paid for the services purchased from suppliers. The surcharges of the VAT in the aggregate is

12%

14%

of the VAT, depending on which tax jurisdiction the Company’s PRC operating subsidiaries and VIE operate in.

As of

September 30, 2019

and

December 31, 2018,

taxes payable consists of:

	September 30, 2019		December 31, 2018
	US$(’000)		US$(’000)
	(Unaudited)

PRC turnover tax and surcharge payable		1,298		1,215
PRC enterprise income tax payable		1,729		1,782
Total taxes payable		3,027		2,997

For the

nine

and

three

months ended

September 30, 2019

and

2018,

the Company’s income tax benefit/(expense) consisted of:

	Nine Months Ended September 30,					Three Months Ended September 30,
	2019		2018			2019		2018
	US$(’000)		US$(’000)			US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)

Current-PRC		-		-			-		-
Deferred-PRC		10		(805	)		16		(116	)
Income tax benefit/(expense)		10		(805	)		16		(116	)

The Company’s deferred tax assets as of

September 30, 2019

and

December 31, 2018

were as follows:

	September 30, 2019			December 31, 2018
	US$(’000)			US$(’000)
	(Unaudited)

Tax effect of net operating losses carried forward		9,447			9,243
Bad debts provision		483			1,188
Valuation allowance		(9,381	)		(9,875	)
Deferred tax assets, net		549			556

The U.S. holding company has incurred aggregate NOLs of approximately

US$19.9

million and

US$19.2

million as of

September 30, 2019

and

December 31, 2018,

respectively. The NOLs carryforwards incurred prior to

December 31, 2017

gradually expire over time, the last of which expires in

2037.

NOLs incurred after

December 31, 2017

will

longer be available to carry back but can be carried forward indefinitely, subject to an annual limit of

80%

on the amount of taxable income that can be offset by NOLs arising in tax years ending after

December 31, 2017.

The Company maintains a full valuation allowance against its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization, the Company estimates there will

not

be sufficient future earnings to utilize its U.S. deferred tax assets.

The NOLs carried forward incurred by the Company’s PRC subsidiaries and VIEs were approximately

US$26.1

million and

US$25.2

million as of

September 30, 2019

and

December 31, 2018,

respectively. The losses carryforwards gradually expire over time, the last of which expires in

2029

due to certain subsidiary enjoys the High and New Technology Enterprise’s privileged NOLs carryforward policy. The related deferred tax assets were calculated based on the respective NOLs incurred by each of the PRC subsidiaries and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized.

The Company recorded approximately

US$9.4

million and

US$9.9

million valuation allowance as of

September 30, 2019

and

December 31, 2018,

respectively, because it is considered more likely than

not

that a portion of the deferred tax assets will

not

be realized through sufficient future earnings of the entities to which the operating losses related.

For the

nine

months ended

September 30, 2019,

the Company recorded approximately

US$0.42

million deferred tax valuation allowance. For the

three

months ended

September 30, 2019,

the Company reversed approximately

US$0.03

million deferred tax valuation allowance. For the

nine

and

three

months ended

September 30, 2018,

the Company recorded approximately

US$3.1

million and

US$1.9

million deferred tax valuation allowance, respectively.

For the

nine

and

three

months ended

September 30, 2019,

the Company also utilized approximately

US$0.07

million and

US$0.06

million

previously recognized deferred tax assets, respectively, due to earnings generated during the periods by

one

of our operating entities.