INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES [Text Block]

NOTE 15 - INCOME TAXES

The Company is subject to current income taxes on an entity basis on taxable income arising in or derived from the tax jurisdiction in which each entity is domiciled.

US China Kangtai was incorporated in the United States and is subject to United States income tax. No United States income taxes were provided in the nine months ended September 30, 2011 and 2010 since US China Kangtai had taxable losses in those periods.

At September 30, 2011, US China Kangtai had an unrecognized deferred United States income tax liability relating to undistributed earnings of Harbin Hainan Kangda. These earnings are considered to be permanently invested in operations outside the United States. Generally, such earnings become subject to United States income tax upon the remittance of dividends and under certain other circumstances. Determination of the amount of the unrecognized deferred United States income tax liability with respect to such earnings is not practicable.

Based on managements’ present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset of approximately $411,000 ($350,000 at December 31, 2010) attributable to the future utilization of the approximately $1,174,000 net operating loss carry forward of US China Kangtai as of September 30, 2011 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at September 30, 2011. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carry forward expires in varying amounts from year 2020 to year 2031.

Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.

BVI China Kangtai was incorporated in the BVI and is not subject to tax on income or on capital gains.

Harbin Hainan Kangda and Taishan Kangda were incorporated in the PRC and are subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. Harbin Hainan Kangda located its factories in a special economic region in Harbin, the PRC. This economic region allowed foreign owned enterprises a two-year income tax exemption beginning in the first year after they become profitable, being 2005 and 2006, and a 50% income tax reduction for the following three years, being 2007 to 2009. Harbin Hainan Kangda was approved as a wholly owned foreign enterprise in March 2005. The effective income tax rate was 15% for the years ended December 31, 2009 and 2008. The income tax rate was increased to 25% beginning from January 1, 2010.

The provision for income taxes differs from the amount computed by applying the statutory United States federal income tax rate of 35% to income before income taxes. The sources of the difference follow:

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2011			2010			2011			2010
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Expected tax at 35%	$	1,874,464		$	1,264,489		$	4,038,349		$	3,505,081
Non-taxable income from revaluation of Series A Preferred
Stock and A, B, C, and D warrants with characteristics of liabilities at fair value					(176,857	)		(166,322	)		(1,209,775	)
Tax effect of unutilized losses of US China Kangtai and BVI China Kangtai		14,258			13,760			60,898			253,817
Tax effect of PRC income taxed at lower rate		(519,074	)		(295,784	)		(1,075,395	)		(695,806	)
Actual provision for income taxes	$	1,369,648		$	805,608		$	2,857,530		$	1,853,317