Income tax

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income tax

Note 11 – Income tax

Pursuant to an approval from the local tax authority in July 2013, Sichuan Xinda, a subsidiary of China XD, became a qualified enterprise located in the western region of the PRC, which entitled it to a preferential income tax rate of 15% from January 1, 2013 to December 31, 2020. Under the current laws of Dubai, Dubai Xinda, a subsidiary of China XD, is exempted from income taxes.

The effective income tax rates for the three-month periods ended March 31, 2019 and 2018 were 24.9% and 24.5%, respectively.  The effective income tax rate increased from 24.5% for the three-month period ended March 31, 2018 to 24.9% for the three-month period ended March 31, 2019, primarily due to the decrease of Sichuan Xinda's profit before tax ("PBT") ratio. The effective income tax rate for the three-month period ended March 31, 2019 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate and  75% additional deduction of R&D expenses of the major PRC operating entities.

As of March 31, 2019, the unrecognized tax benefits were US$34,626,289 and the interest relating to unrecognized tax benefits was US$13,710,137, of which the unrecognized tax benefits in year 2013 amounting to US$3,752,714 and related accrued interest amounting to US$3,164,360 were classified as current liabilities as the five-year tax assessment period will expire on May 31, 2019. No penalties expense related to unrecognized tax benefits were recorded. The Company is currently unable to provide an estimate of a range of the total amount of unrecognized tax benefits that is reasonably possible to change significantly within the next twelve months.