NOTE 8 – INCOME TAX

Companies in the PRC are generally subject to PRC Enterprise Income Tax at a uniform tax rate of 25% under the China's Unified Enterprise Income Tax Law ("New EIT Law"), which took effect from January 1, 2008. Longsheng is exempt from both income tax and value-added tax because it operates in the agriculture industry, which the Chinese government encourages and offers special incentives. We benefited from the tax exemptions in both 2011 and 2010.

Honour is a Hong Kong company. Honour’s operations are conducted through its wholly owned subsidiary Zhihao and its VIE Dandong Longsheng, and Honour has no operations or income in Hong Kong. Accordingly no income tax provision is recorded for Hong Kong.

North China Horticulture, Inc. was incorporated in the state of Nevada and has no operations in the United States of America. Accordingly, the Company has not recorded a provision for U.S. federal income tax for the six months ended June 30, 2011 and 2010. The Company has a net operating loss carry forward in the United States of America which begins to expire in 2028. The deferred tax asset created by the net operating loss has been offset by a 100% valuation allowance.

The following table reconciles the U.S. Statutory rate to the Company’s effective tax rate for the three and six months ended June 30:

	2011			2010
US statutory rate		34	%		34	%
Tax rate difference		(9	)%		(9	)%
Effect of tax exempt		(25	)%		(25	)%
Effective tax rate		0	%		0	%

Effective January 1, 2007, the Company adopted authoritative guidance issued by the FASB for uncertainty in income taxes. The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the authoritative guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The authoritative guidance also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of June 30, 2011, the Company does not have a liability for unrecognized tax uncertainties except as described below. The Company’s Chinese subsidiaries have never been subject to a tax examination and all years are open to examination by the tax authorities.