16.

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

assessable profits for the

six

and

three

months ended

June 30, 2017,

or any prior periods. The Company does

not

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

six

and

three

months ended

June 30, 2017

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

six

and

three

months ended

June 30, 2017

and

2016,

the applicable income tax rate of Business Opportunity Online was

15%

The applicable income tax rate for other PRC subsidiaries and operating entities of the Company was

25%

for the

six

and

three

months ended

June 30, 2017

and

2016.

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

six

and

three

months ended

June 30, 2017

and

2016,

the preferential income tax treatment enjoyed by the Company’s PRC VIE, Business Opportunity Online was based on the current applicable laws and regulations of the PRC and approved by the related government regulatory authorities and local tax authorities where Business Opportunity Online operates in. The preferential income tax treatment is subject to change in accordance with the PRC government economic development policies and regulations. The preferential income tax treatment is 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 the preferential income tax treatment is 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,

Therefore, for the

six

and

three

months ended

June 30, 2017

and

2016,

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

June 30, 2017

and

December 31, 2016,

taxes payable consists of:

	June 30, 2017		December 31, 2016
	US$(’000)		US$(’000)
	(Unaudited)

Turnover tax and surcharge payable		1,187		1,147
Enterprise income tax payable		1,832		1,763
Total taxes payable		3,019		2,910

For the

six

and

three

months ended

June 30, 2017

and

2016,

the Company’s income tax expense consisted of:

	Six Months Ended June 30,						Three Months Ended June 30,
	2017			2016			2017			2016
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Current-PRC		-			-			-			-
Deferred-PRC		(113	)		(152	)		(113	)		(180	)
Income tax expenses		(113	)		(152	)		(113	)		(180	)

The Company’s deferred tax assets at

June 30, 2017

and

December 31, 2016

were as follows:

	June 30, 2017			December 31, 2016
	US$(’000)			US$(’000)
	(Unaudited)

Tax effect of net operating losses carried forward		9,944			9,345
Bad debts provision		946			931
Valuation allowance		(9,446	)		(8,754	)
Total deferred tax assets		1,444			1,522

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

US$17,905,000

and

US$17,544,000

June 30, 2017

and

December 31, 2016,

respectively, which loss is applicable to the Company’s U.S. income tax return and carry forwards gradually expire over time, the last of which expires in

2037.

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$19,314,000

and

US$17,939,000

June 30, 2017

and

December 31, 2016,

respectively, which loss is applicable to the Company’s PRC income tax return and carry forwards gradually expire over time, the last of which expires in

2022.

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$503,000

and

US$297,000

net valuation allowance for the

six

months ended

June 30, 2017

and

2016,

respectively, and approximately

US$270,000

and

US$137,000

net valuation allowance for the

three

months ended

June 30, 2017

and

2016,

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$111,000

and

US$193,000

previously recognized deferred tax assets for the

six

months ended

June 30, 2017

and

2016,

respectively, and approximately

US$99,000

and

US$158,000

previously recognized deferred tax assets for the

three

months ended

June 30, 2017

and

2016,

respectively, due to earnings generated during the respective 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 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.