INCOME TAXES

9 Months Ended

Sep. 30, 2018

NOTE 9 – 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 losses for income tax purposes through September 30, 2018, resulting in loss carry forwards of $19,260,430 for U.S. income tax purposes available for offsetting against future taxable U.S. income, expiring in 2037. 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 September 30, 2018 and December 31, 2017 was $4,044,690 and $6,151,702, respectively.

Dragon Lead is incorporated in the British Virgin Islands (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 three and nine months ended September 30, 2018 and for the year ended December 31, 2017. The Company recorded $22,054,343 and $6,677,675 deferred income tax assets as of September 30, 2018 and December 31, 2017, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has determined that the Company’s VIE in PRC does not qualify as a reportable controlled foreign corporation (“CFC”) in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result the Company assessed there was no significant income tax impact during the period in which the legislation was enacted. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the Company’s VIE in PRC does not qualify as a reportable CFC, therefore it is not necessary to record any income tax provision in connection with the transition tax on the mandatory deemed repatriation of foreign earnings at December 31, 2017. Additional work has been ongoing to further the detailed analysis of the Act as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in fiscal 2018 when the analysis is complete.

Income (loss) from continuing operations before income taxes was allocated between the U.S. and foreign components for the three and nine months ended September 30, 2018 and 2017:

	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
United States	$	(214,312	)	$	(236,952	)	$	(1,167,190	)	$	(953,598	)
Foreign		17,949,121			38,965,061			54,951,370			22,224,744
	$	17,734,809		$	38,728,109		$	53,784,180		$	21,271,146

Significant components of the income tax provision (benefit) were as follows for the three and nine months ended September 30, 2018 and 2017:

	For the three months ended September 30,				For the nine months ended September 30,
	2018		2017		2018		2017
Current tax provision
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		1,787,717		7,778,520		9,214,312		12,996,602
	$	1,787,717	$	7,778,520	$	9,214,312	$	12,996,602
Deferred tax provision (benefit)
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		2,699,588		1,962,539		4,523,643		(7,440,305	)
		2,699,588		1,962,539		4,523,643		(7,440,305	)
Income tax provision (benefit)	$	4,487,305	$	9,741,059	$	13,737,955	$	5,556,297

The components of deferred tax assets and deferred tax liabilities as of September 30, 2018 and December 31, 2017 consist of the following:

	As of September 30, 2018			As of December 31, 2017
Deferred tax assets:
Accrued interest	$	1,609,466		$	1,824,171
Inventory Valuation		-			4,545,708
Accrued expenses		-			330,663
Deferred financing costs on the loans		2,609,240			741,008
Unrealized loss due to change in fair value of investments in gold		19,242,937			-
Other temporary differences		-			56,062
Net operating losses from parent company		4,044,690			6,151,702
Valuation allowance		(4,044,690	)		(6,151,702	)
		23,461,643			7,497,612
Deferred tax liabilities:
Inventory Valuation	$	(840,680	)	$	-
Accrued expenses		(514,296	)		-
Other temporary differences		(52,324	)		-
Unrealized gain due to change in fair value of investments in gold		-			(819,937	)
Deferred tax assets - Net	$	22,054,343		$	6,677,675