Income Taxes

6 Months Ended

Dec. 31, 2024

NOTE 11 – INCOME TAXES

The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company’s PRC subsidiaries file their income tax returns online with PRC tax authorities. The Company conducts all of its businesses through its subsidiaries and affiliated entities, principally in the PRC.

The Company’s U.S. parent company is subject to U.S. income tax rate of 21% and files U.S. federal income tax return. As of December 31, 2024 and June 30, 2024, the U.S. entity had net operating loss (“NOL”) carry forwards for income tax purposes of $6.45 million and $5.60 million. The NOL arising in tax years beginning after 2017 may reduce 80% of a taxpayer’s taxable income, and be carried forward indefinitely. However, the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) passed in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. Management believes the realization of benefits from these losses remains uncertain due to the parent Company’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

The Company’s offshore subsidiary, Shuhai Skill (HK), a HK holding company is subject to 16.5% corporate income tax in HK. Shuhai Beijing received a tax holiday with a 15% corporate income tax rate since it qualified as a high-tech company. Tianjin Information, Xunrui, Guozhong Times, Guozhong Haoze, Guohao Century, Jingwei, Shuhai Nanjing are subject to the regular 25% PRC income tax rate.

As of December 31, 2024 and June 30, 2024, the Company has approximately $18.69 million and $17.86 million of NOL from its HK holding company, PRC subsidiaries and VIEs that expire in calendar years 2021 through 2025. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the Company’s future generation of taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance as of December 31, 2024 and June 30, 2024.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended December 31, 2024 and 2023:

	2024			2023
US federal statutory rates		(21.0	)%		(21.0	)%
Tax rate difference – current provision		(2.4	)%		(3.5	)%
Permanent difference		3.3	%		-	%
Effect of PRC tax holiday		2.9	%		2.0	%
Valuation allowance		17.2	%		22.5	%
Effective tax rate		-	%		-	%

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended December 31, 2024 and 2023:

	2024			2023
US federal statutory rates		(21.0	)%		(21.0	)%
Tax rate difference – current provision		(2.7	)%		(3.0	)%
Permanent difference		3.7	%		-	%
Effect of PRC tax holiday		(0.4	)%		2.2	%
Valuation allowance		20.4	%		21.8	%
Effective tax rate		-	%		-	%

The Company’s net deferred tax assets as of December 31, 2024 and June 30, 2024 is as follows:

	December 31, 2024			June 30, 2024
Deferred tax asset
Net operating loss	$	5,201,557		$	4,777,372
R&D expense		123,750			123,750
Depreciation and amortization		147,645			81,079
Bad debt expense		114,888			116,718
Social security and insurance accrual		56,306			56,343
Inventory impairment		13,393			13,402
ROU, net of lease liabilities		(1,692	)		(951	)
Total		5,655,847			5,167,713
Less: valuation allowance		(5,655,847	)		(5,167,713	)
Net deferred tax asset	$	-		$	-

- Definition

The entire disclosure for income tax.

+ References

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+ Details

DATASEA INC. 10-Q