Note 6 - INCOME TAXES

The Company operates in more than one jurisdiction with its main operations conducted in PRC and virtually no activities in USA, with complex regulatory environments subject to different interpretations by the taxpayer and the respective governmental taxing authorities. The Company evaluates its tax positions and establishes liabilities, if required.

The reconciliation of the U.S. statutory income tax rate to the Company’s effective income tax rate is as follows :

	Three Months Ended December 31,
	2013		2012

Income tax at U.S. statutory rate (34%)	$	(33,996)	$	(216,471)
Foreign rate differential (2013 :12.5 %, 2012 : 12.5%)		19,498		117,416
Expenses not deductible for tax (share-based payment)		-		30,689
Others		14,498		68,366

Income tax (credit)/expense	$	-	$	-

Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) through December 31, 2007 is at a statutory rate of 33%, which is comprised of 30% national income tax and 3% local income tax. As from January 1, 2008 onwards, the EIT is at a statutory rate of 25%.

On April 6, 2012, the Company obtains the approval from the tax authority of PRC that it fulfills certain tax requirements of a company engaging in the design of software and integrated circuit and thereby it is entitled to preferential tax relief for EIT. The Company is exempted from EIT in the first two profitable financial years of operation and is further granted a 50% relief from the EIT for the following three financial years. As the approval is officially given to the Company in April, 2012, no refund of tax would be made in respect of the EIT paid by the Company for the fiscal years ended December 31, 2009 and 2010, with the 50% relief from EIT becomes effective from the financial year commencing on January 1, 2011.

Deferred Income Tax Asset

The primary components of temporary differences which might give rise to the Company’s deferred tax assets as of December 31, 2013 and September 30, 2013 were as follows:

	As of
	December 31, 2013		September 30, 2013

Balance	$	324,514	$	157,063

USA		-		-
Hong Kong		8,247		17,754
PRC		6,251		149,697
		339,012		324,514
Less: valuation allowance		(339,012)		(324,514)
Deferred income tax benefit, net of valuation allowance	$	-	$	-

Increase in valuation allowance for the three months ended December 31, 2013 and 2012 was $14,498 and $68,265 respectively.

Deferred tax asset which may arise as a result of these losses have been offset in these consolidated financial statements by a valuation allowance due to the uncertainty surrounding their realization.

Deferred U.S. income taxes have not been provided on the undistributed income of the Company’s foreign subsidiaries because the Company does not plan to initiate any action that would require the payment of U.S. income taxes.

Uncertain Tax Positions

Interest associated with unrecognized tax benefits is classified as interest expense and penalties in selling, general and administrative expenses in the statements of income and comprehensive income.

For the three months ended December 31, 2013 and 2012, the Company had no unrecognized tax benefits and related interest and penalties expenses. Currently, the Company has not received any notice of examination by any tax authority in major tax jurisdictions, but the tax authority in PRC has the right to examine the Company’s tax positions in all past years.