Income Tax

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAX

NOTE 7 INCOME TAX

The Company's operating subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (the "Income Tax Laws").

All PRC subsidiaries, except for He Meida, are subject to income tax at the 25% statutory rate.

He Meida incorporated in Xizang (Tibet) Autonomous Region is subject to income tax at 15% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid through December 31, 2019.

Perfect Dream was incorporated in the British Virgin Islands (BVI), and under the current laws of the BVI, dividends and capital gains arising from the Company's investments in the BVI are not subject to income taxes.

Ever-Glory HK was incorporated in Samoa, and under the current laws of Samoa, has no liabilities for income taxes.

Ever-Glory Supply Chain Service Co., Limited was incorporated in Hong Kong, and under the current laws of Hong Kong, are subject to income tax at the 16.5% statutory rate.

The PRC's Enterprise Income Tax Law imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise in PRC to its immediate holding company outside China; such distributions were exempted under the previous income tax law and regulations. 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. The foreign invested enterprise became subject to the withholding tax starting from January 1, 2008. Given that the undistributed profits of the Company's subsidiaries in China are intended to be retained in China for business development and expansion purposes, no withholding tax accrual has been made.

After the tax assets and liabilities adjustment resulted from the reevaluation of the Company's tax position (resulting in the company allocating substantially all of the earnings of the Samoan subsidiary to the PRC and reporting such earnings as taxable in the PRC), pre-tax income (loss) for the three and nine months ended September 30, 2019 and 2018 was taxable in the following jurisdictions:

	Three months ended					Nine months ended
	September 30,					September 30,
	2019			2018		2019			2018
	(In thousands of U.S. Dollars)
PRC	$	(714	)	$	4,084	$	2,891		$	9,445
Others		(3	)		-		(10	)		(14	)
	$	(717	)	$	4,084	$	2,881		$	9,431

The following table reconciles the PRC statutory rates to the Company's effective tax rate for the three and nine months ended September 30, 2019 and 2018:

	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
PRC statutory rate		25.0	%		25.0	%		25.0	%		25.0	%
Net operating losses for which no deferred tax assets was recognized		0.2			18.5			78.0			8.1
Other		(79.1	)		(21.3	)		(10.5	)		(1.8	)
Effective income tax rate		(53.9	)%		22.2	%		92.5	%		31.3	%

Income tax expense for the three and nine months ended September 30, 2019 and 2018 is as follows:

	Three months ended					Nine months ended
	September 30,					September 30,
	2019		2018			2019		2018
Current	$	387	$	1,853		$	2,377	$	4,737
Deferred		-		(945	)		290		(1,788	)
Income tax expense	$	387	$	908		$	2,667	$	2,949

The Company's deferred tax liabilities arise from differences between US GAAP and PRC tax accounting for certain revenue and expense items, including timing of deduction of losses from allowances. 

The Company has not recorded U.S. deferred income taxes on approximately $104.3 million of its non-U.S. subsidiaries' undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. The U.S. Tax Reform signed into law on December 22, 2017 significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company's measurement, no deferred tax expense (income) relating to the Tax Act changed for the three and nine months ended September 30, 2019.