19.

Taxation

Income tax

The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate.

i). The Company is incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. Following the Share Exchange, the Company became a holding company and does not conduct any substantial operations of its own.

provision for federal corporate income tax has been made in the financial statements as the Company has no assessable profits for the year ended

December

31,

2016,

or any prior periods. The Company does

t provide for U.S. taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries because such earnings are intended to be reinvested indefinitely. If undistributed earnings were distributed, foreign tax credits could become available under current law to reduce the resulting U.S. income tax liability.

ii). China Net BVI was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, China Net BVI is not subject to tax on income or capital gains. Additionally, upon payments of dividends by China Net BVI to its shareholders,

BVI withholding tax will be imposed.

iii). China Net HK was incorporated in Hong Kong and does not conduct any substantial operations of its own.

provision for Hong Kong profits tax has been made in the financial statements as China Net HK has

assessable profits for the year ended

December

31,

2016

or any prior periods. Additionally, upon payments of dividends by China Net HK to its shareholders,

Hong Kong withholding tax will be imposed.

iv). The Company’s PRC operating subsidiaries and VIEs, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is

25%,

which applies to both domestic and foreign invested enterprises.

November

2015,

Business Opportunity Online was re-approved by the related PRC governmental authorities as a High and New Technology Enterprise, which enabled the entity, as approved by the local tax authorities of Beijing, the PRC, to continue enjoying the favorable statutory tax rate of

15%

until

November

2018.

Therefore, for the years ended

December

31,

2016

and

2015,

the applicable income tax rate of Business Opportunity Online was

15%

Business Opportunity Online Hubei was approved by the related PRC governmental authorities to be qualified as a software company and was approved by the local tax authorities of Xiaogan City, Hubei province, the PRC, to be entitled to a EIT exemption for fiscal

2012

and a

50%

reduction of its applicable EIT rate from

25%

12.5%

for its taxable income for the succeeding

three

years through fiscal

2015,

as its

first

profitable year was determined as fiscal

2011

instead of fiscal

2012

August

2013

by the local tax authorities of Xiaogan City, Hubei province. Therefore, the applicable income tax rate for Business Opportunity Online Hubei was

25%

for the year ended

December

31,

2016,

and was

12.5%

for the year ended

December

31,

2015.

The applicable income tax rate for other PRC operating entities of the Company is

25%

for the years ended

December

31,

2016

and

2015.

The current EIT law also imposed a

10%

withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a

withholding tax rate.

For the years ended

December

31,

2016

and

2015,

all of the preferential income tax treatments enjoyed by the Company’s PRC subsidiaries and VIEs were based on the current applicable laws and regulations of the PRC and approved by the related government regulatory authorities and local tax authorities where the Company’s respective PRC subsidiaries and VIEs operate in. Business Opportunity Online and Business Opportunity Online Hubei were most affected by these preferential income tax treatments within the structure of the Company. The preferential income tax treatments are subject to change in accordance with the PRC government economic development policies and regulations. These preferential income tax treatments are primarily determined by the regulation and policies of the PRC government in the context of the overall economic policy and strategy. As a result, the uncertainty of theses preferential income tax treatments are subject to, but not limited to, the PRC government policy on supporting any specific industry’s development under the outlook and strategy of overall macroeconomic development.

Turnover taxes and the relevant surcharges

Service revenues provided by the Company’s PRC operating subsidiaries and VIEs were subject to Value Added Tax (“VAT”). VAT rate for provision of modern services (other than lease of corporeal movables) is

and for small scale taxpayer,

3%.

Therefore, for the years ended

December

31,

2016

and

2015,

the Company’s service revenues are subject to VAT at a rate of

6%,

after deducting the VAT paid for the services purchased from suppliers, or at a rate of

without any deduction of VAT paid for the services purchased from suppliers. The surcharges of the VAT is

12%

14%

of the VAT, depending on which tax jurisdiction the Company’s PRC operating subsidiaries and VIE operate in.

As of

December

31,

2016,

and

2015,

taxes payable consists of:

	As of December 31,
	2016		2015
	US$(’000)		US$(’000)

Turnover tax and surcharge payable		1,147		1,272
Enterprise income tax payable		1,763		1,914
Taxes payable		2,910		3,186

For the year ended

December

31,

2016,

taxes payable of approximately

US$0.10

million was decreased due to disposal of Quanzhou Zhi Lang during the year (Note

26).

A reconciliation of the income tax (expense)/benefit determined at the U.S. federal corporate income tax rate to the Company’s effective income tax (expense)/benefit is as follows:

	Year Ended December 31,
	2016			2015
	US$(’000)			US$(’000)

Pre-tax loss		(6,183	)		(9,212	)
U.S. federal rate		35	%		35	%
Income tax benefit computed at U.S. federal rate		2,164			3,224
Reconciling items:
Rate differential for domestic earnings		(354	)		(647	)
Preferential tax treatments and tax holiday effects		(158	)		(16	)
Valuation allowance on deferred tax assets		(1,667	)		(1,057	)
Others		(87	)		(8	)
Effective income tax (expense)/benefit		(102	)		1,496

For the years ended

December

31,

2016

and

2015,

the Company’s income tax (expense)/benefit consisted of:

	Year Ended December 31,
	2016			2015
	US$(’000)			US$(’000)

Current-PRC		-			(4	)
Deferred-PRC		(102	)		1,500
Income tax (expense)/benefit		(102	)		1,496

The Company’s deferred tax liabilities at

December

31,

2016

and changes for the

two

years then ended were as follows:

	Amount
	US$(’000)

Balance as of December 31, 2014		964
Reversal during the year		(790	)
Exchange translation adjustment		(56	)
Balance as of December 31, 2015		118
Reversal during the year		(110	)
Exchange translation adjustment		(8	)
Balance as of December 31, 2016		-

Deferred tax liabilities arose on the recognition of the identifiable intangible assets acquired from acquisition transactions and deconsolidation of subsidiaries consummated in previous years. Reversal for the years ended

December

31,

2016

and

2015

of approximately

US$116,000

and approximately

US$152,000,

respectively, were due to amortization of the acquired intangible assets. Reversal of approximately US$nil and

US$672,000

for the years ended

December

31,

2016

and

2015,

respectively, was related to losses recognized for impairment on intangible assets and equity method investments.

The Company’s deferred tax assets at

December

31,

2016

and

December

31,

2015

were as follows:

	As of December 31,
	2016			2015
	US$(’000)			US$(’000)

Tax effect of net operating losses carried forward		9,345			7,921
Bad debts provision		931			932
Valuation allowance		(8,754	)		(7,303	)
Total deferred tax assets		1,522			1,550

The net operating losses carried forward incurred by the Company (excluding its PRC operating subsidiaries and VIEs) were approximately

US$17,544,000

and

US$14,903,000

December

31,

2016

and

2015,

respectively, which loss carry forwards gradually expire over time, the last of which expires in

2036.

A full valuation allowance has been recorded because it is considered more likely than not that the deferred tax assets will not be realized through sufficient future earnings of the entity to which the operating losses relate.

The net operating losses carried forward (excluding bad debts provision and non-deductible expenses) incurred by the Company’s PRC subsidiaries and VIEs were approximately

US$17,939,000

and

US$15,657,000

December

31,

2016

and

2015,

respectively, which loss carry forwards gradually expire over time, the last of which expires in

2021.

The related deferred tax assets were calculated based on the respective net operating losses incurred by each of the PRC subsidiaries and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized. The Company recorded approximately

US$628,000

and

US$52,000

net valuation allowance for the years ended

December

31,

2016

and

2015,

respectively, because it is considered more likely than not that this portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses relate. The Company also utilized approximately

US$269,000

and US$nil previously recognized deferred tax assets for the year ended

December

31,

2016

and

2015,

respectively, due to earnings generated during the periods.

Full valuation allowance to bad debts provision related deferred tax assets were recorded because it is considered more likely than not that this portion of deferred tax assets will not be realized through bad debts verification by the local tax authorities where the PRC subsidiaries and VIEs operate in.

The Company’s deferred tax assets and deferred tax liabilities were attributable to different tax-paying components of the entity, which were under different tax jurisdictions. Therefore, in accordance with ASC Topic

740

“Income taxes”, the deferred tax assets and deferred tax liabilities were presented separately in the Company’s balance sheets.

The tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises had completed their relevant tax filings, hence the Company’s tax filings

may

not be finalized. It is therefore uncertain as to whether the PRC tax authority

may

take different views about the Company’s tax filings which

may

lead to additional tax liabilities (See Note

(v) for the related provisions in accordance with the PRC Tax Administration and Collection Law).