NOTE 15 - INCOME TAXES

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

Kingold is incorporated in the United States and has incurred net operating loss for income tax purposes for 2016 and 2015. The Company has loss carry forwards of approximately $16,760,000 for U.S. income tax purposes available for offsetting against future taxable U.S. income, expiring in 2036. Management believes that the realization of the benefits from these losses is uncertain due to its history of continuing losses in the United States. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded. The valuation allowance as of December 31, 2016 and 2015 was approximately $5,699,000 and $5,335,000, respectively. The net increase in the valuation allowance for the years ended December 31, 2016 and 2015 was approximately $364,000 and $623,000, respectively.

Dragon Lead is incorporated in the BVI, and under current laws of the BVI, income earned is not subject to income tax.

Wuhan Vogue-Show and Wuhan Kingold are incorporated in the PRC and are subject to PRC income tax, which is computed according to the relevant laws and regulations in the PRC. The applicable tax rate is 25% for the years ended December 31, 2016 and 2015. The Company recorded $Nil deferred income tax assets as of December 31, 2016 and 2015.

The Company intends to reinvest its foreign profits indefinitely in order to avoid a tax liability upon repatriation to the United States. Since the U.S. holding company does not have any earnings and profits, distributions made in 2014 were deemed as a return of capital for U.S. income tax purpose.

Income (loss) from continuing operations before income taxes was allocated between the U.S. and foreign components for the year ended December 31, 2016 and 2015:

	For the years ended December 31,
	2016		2015

United States	$	(1,010,848)	$	(1,833,064)
Foreign		126,541,875		29,733,565
	$	125,531,027	$	27,900,501

Significant components of the income tax provision were as follows for the years ended December 31, 2016 and 2015:

	For the years ended December 31,
	2016		2015
Current tax provision
Federal	$	-	$	-
State		-		-
Foreign		33,055,811		4,488,815
		33,055,811		4,488,815

Deferred tax provision (benefit)
Federal		-		-
State		-		-
Foreign		(428,101)		1,849,910
		(428,101)		1,849,910
Income tax provision	$	32,627,710	$	6,338,725

The components of deferred tax assets and deferred tax liability as of December 31, 2016 and 2015 consist of the following:

	As of December 31,
	2016		2015
Deferred tax assets:
Deferred tax assets from net operating losses from parent company	$	5,698,869	$	5,335,180
Valuation allowance		(5,698,869)		(5,335,180)
	$	-	$	-

Deferred tax liability:
Deferred tax liability from capitalized interest	$	-	$	1,774,993
Deferred financing costs on the loans		1,971,192	$	-
Other temporary differences		(721,570)		-
Deferred income tax liability	$	1,249,622	$	1,774,993

The following table reconciles the U.S. statutory rates to the Company’s effective rate for the years ended December 31, 2016 and 2015:

	For the years ended December 31,
	2016			2015
US statutory rate		34	%		34	%
Foreign income and loss not recognized in U.S.A.		(34)	%		(34)	%
China income tax		25	%		25	%
Miscellanies and non-deductible expense		1	%		(2.3)	%
Effective tax rate		26	%		22.7	%