Income Tax

3 Months Ended

Mar. 31, 2022

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, are subject to income tax at the 25% statutory rate.

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 Hongkong, and under the current laws of Hongkong, its income tax rate is 8.25% when its profit is under HKD 2.0 million and its income tax rate is 16.5% when its profit is over HKD 2.0 million.

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 liability 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 loss for the three months ended March 31, 2022 and 2021 was in the following jurisdictions: 

	2022			2021
	(In thousands of U.S. Dollars)
PRC	$	(3,974	)	$	(438	)
Others		(3	)		(3	)
	$	(3,977	)	$	(441	)

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2022 and 2021:

	2022			2021
	(In thousands of U.S. Dollars)
U.S. tax rate		21.0	%		21.0	%
Valuation allowance recognized with respect to the loss		(52.9	)%		(103.9	)%
Foreign tax rate differential		4.0	%		4.0	%
Others		-			(86.8	)%
Effective income tax rate		(27.9	)%		(165.7	)%

Income tax expense for the three months ended March 31, 2022 and 2021 is as follows:

	2022		2021
	(In thousands of U.S. Dollars)
Current
U.S. Federal
Foreign	$	415	$	706
Total Deferred	$	415	$	706
Deferred
U.S. Federal
Foreign	$	697	$	23
Total Deferred	$	697	$	23
Income tax expense	$	1,112	$	729

Deferred tax assets net of valuation allowance as of:

	March 31, 2022			December 31, 2021
	(In thousands of U.S. Dollars)
Inventories, net	$	2,623		$	1,684
Accounts receivable, net		580			624
Deferred income		2,092			2,387
Accrued expenses		1,148			2,464
Depreciation		156			108
Net operating loss carryforward		4,659			3,782
Deferred tax assets		11,258			11,049
Valuation allowance		(11,056	)		(10,150	)
Deferred tax assets, net	$	202		$	899

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 changes for the year ended March 31, 2022.