Note 10 - Income Taxes

12 Months Ended

Mar. 31, 2018

Notes

Note 10 - Income Taxes

NOTE 10 - INCOME TAXES

China YCT International Group, Inc. and Landway Nano were incorporated in the United States of America and are subject to United States federal taxation. No provisions for income taxes have been made, as there was no taxable income from U.S. operations for the years ended March 31, 2018 and 2017. The Company has net loss carryforward of approximately $22,000, which will expire in 2037. The Company has set up 100% valuation allowance on deferred tax assets resulting from net operating loss incurred in the U.S.

The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. The Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a deferred tax expense of $3,095 for the year ended March 31, 2018 which was offset by the change of valuation allowance as of March 31, 2018. This expense is attributable to the Company being in a net deferred tax asset position at the time of remeasurement. This amount can be seen on the rate reconciliation as an adjustment to deferred tax asset and corresponding valuation allowance.

The Company's Chinese subsidiary is governed by the Income Tax Law of the PRC concerning the privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

Dividend payments by PRC subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by PRC subsidiaries without first receiving prior approval from SAFE. Dividend payments are restricted to 90% of after tax profits.

The Company had not provided deferred taxes on undistributed earnings attributable to its PRC subsidiaries as they were to be permanently reinvested. On February 22, 2008, the Ministry of Finance and State Administration of Taxation jointly issued Cai Shui 2008 Circular 1, "Circular 1." According to Article 4 of Circular 1, distributions of accumulated profits earned by foreign investment enterprises ("FIE") prior to January 1, 2008 to their foreign investors would be exempt from withholding tax ("WHT"), while distribution of the profits earned by a FIE after January 1, 2008 to its foreign investors should be subject to WHT.

Prior to the enactment of the Act, since Shandong Spring Pharmaceutical intends to reinvest its earnings to further expand its businesses in mainland China, it does not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any deferred taxes in relation to US tax on the cumulative amount of undistributed retained earnings since January 1, 2008. Under the "#1703. Treatment of deferred foreign income upon transition to new participation exemption system-deemed repatriation" of the Act, U.S. shareholders owning at least 10% of a foreign subsidiary generally must include income, for the subsidiary's last tax year beginning before 2018, the shareholder's pro rata share of the accumulated post-'86 historical E&P of the foreign subsidiary as of the "measurement date" to the extent such E&P has not been previously subject to U.S. tax.  The measurement date is November 2, 2017, or December 31, 2017, whichever date produces a greater result. The portion of the E&P comprising cash or cash equivalents is taxed at a reduced rate of 15.5%, while any remaining E&P is taxed at a reduced rate of 8%. At the election of the U.S. shareholder, the tax liability is payable over a period of up to eight years. The payments for each of the first five years equal 8% of the net tax liability. The amount of the sixth installment is 15% of the net tax liability, increasing to 20% for the seventh installment and the remaining balance of 25% in the eighth year.

As of March 31, 2018, the Company has conducted a preliminary assessment of its income tax effects of the Act, and based on the analysis, the Company concluded that it had no one-time transition tax liability on its cumulative amount of undistributed retained earnings since January 1, 2008 as the Company had sufficient foreign tax credits available to offset the resulting incremental tax. However, further regulatory guidance related to the Act may be expected to be issued during 2018, which may result in changes to the Company’s estimates. In this case, additional analysis of the Act and the impact to the Company will be performed, and any impact will be finalized no later than the fourth quarter of 2018.

The reconciliation of income tax expense at the U.S. statutory rate of 35% for the years ended March 31, 2018 and 2017 to the Company's effective tax rate is as follows:

	Years Ended
	March 31,
	2018			2017
U.S. Statutory rate		$	5,452,062		$	4,639,348
Tax rate difference between China and U.S.			(1,557,732)			(1,327,739)
Change in valuation allowance			-			7,738
Permanent difference			(55,498)			(118,722)
Effective tax rate		$	3,838,832		$	3,200,625

The provisions for income taxes are summarized as follows:

	Years Ended
	March 31,
	2018		2017
Current	$	3,499,474	$	3,520,126
Deferred		339,358		(319,501)
Total	$	3,838,832	$	3,200,625

The tax effects of temporary differences that give rise to the Company's net deferred tax assets as of March 31, 2018 and 2017 are as follows:

	March 31,		March 31,
	2018		2017
Impairment loss	$	87,476	$	240,504
Revenue and cost		72,658		181,166
Depreciation		-		50,514
Others		40,253		36,337
Loss carry forward		7,738		7,738
Effect of rate change		(3,095)		-
Less valuation allowance		(4,643)		(7,738)
Total net deferred tax assets	$	200,387	$	508,521