Note 12 - Taxation

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12. Taxation

1) Income tax

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

i). a. 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. Before enactment of the Tax Cuts and Jobs Act (“TCJA” or the “Act”) in December 2017, the Company did 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. On December 22, 2017, the U.S. enacted the Act (which is commonly referred to as “U.S. tax reform”). The Act significantly changes U.S. corporate income tax laws including but not limited to reducing the U.S. corporate income tax rate from 35% to 21% beginning in 2018, imposing a one-time mandatory tax on previously deferred foreign earnings and imposing a new tax on global intangible low-taxed income (“GILTI”) effective for tax years of non-U.S. corporations beginning after December 31, 2017.

i). b. Effective from January 1, 2018, the Company is subject to the new GILTI tax rules. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations. Under U.S. GAAP, the Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”), instead of factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”). For the years ended December 31, 2024 and 2023, no provision for federal corporate income tax has been made in the financial statements as the Company has no aggregated positive tested income.

ii). Under the current law of the BVI, the Company’s subsidiaries being incorporate in the BVI are not subject to tax on income or capital gains. Additionally, upon payments of dividends by these BVI companies to its respective shareholders, no BVI withholding tax will be imposed.

iii). The Company’s subsidiaries being incorporated in Hong Kong are governed by the Hong Kong Inland Revenue Ordinance (the “HK tax laws”). Effective from April 1, 2018, a two-tier corporate income tax system was officially implemented in Hong Kong. The applicable income tax rate is 8.25% for the first HK$2.0 million profits, and the subsequent profits are taxed at 16.5%. Additionally, upon payments of dividends by these Hong Kong subsidiaries to its shareholders, no Hong Kong withholding tax will be imposed.

iv). The Company’s 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.

● The applicable EIT rate for all the Company’s PRC operating entities is 25% for both the years ended December 31, 2024 and 2023.

● Business Opportunity Online’s qualification as a High and New Technology Enterprise expired in November 2021, as a result, the applicable EIT rates of Business Opportunity Online had changed from 15% to 25% since the year ended December 31, 2021, and its net operating losses (NOLs) carryforward period changed to 5 years from 10 years for a High and New Technology Enterprise. The effect on deferred taxes of such changes was recognized in the statement of operations and comprehensive loss for the year ended December 31, 2021.

● Under the current PRC EIT law and related regulations, dividends, interests, rent or royalties payable by a foreign-invested enterprise to its immediate holding company outside China are subject to a 10% withholding tax. 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, subject to certain conditions and requirements.

2) Turnover taxes and the relevant surcharges

Service revenues generated by the Company’s PRC operating subsidiaries and VIEs are subject to Value Added Tax (“VAT”). VAT rate for provision of modern services (other than lease of corporeal movables) is 6%, and for small scale taxpayer, 3%. Therefore, for the years ended December 31, 2024 and 2023, the Company’s service revenues generated in the PRC are subject to VAT at a rate of 6%, after deducting the VAT paid for the resources and services purchased from suppliers, or at a rate of 3% without any deduction of VAT paid for the resources and services purchased from suppliers. The surcharges of the VAT in the aggregate is 12% of the VAT.

As of December 31, 2024, and 2023, taxes payable consists of:

	As of December 31,
	2024		2023
	US$(’000)		US$(’000)
Turnover tax and surcharge payable		1,247		1,264
Enterprise income tax payable		1,905		1,930
Taxes payable		3,152		3,194

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

	Year Ended December 31,
	2024			2023
	US$(’000)			US$(’000)
Pre-tax loss		(3,370	)		(5,976	)
U.S. federal rate		21	%		21	%
Income tax benefit computed at U.S. federal rate		708			1,255
Reconciling items:
Rate differential for foreign earnings		110			(55	)
Tax effect on non-taxable change in fair value of warrant liabilities		-			39
(Provision for) / reversal of valuation allowance on deferred tax assets		(888	)		353
Expired tax attribute carryforwards		(323	)		(1,583	)
Tax effect on other (non-deductible expenses)/non-taxable income		(6	)		(7	)
Effective income tax benefit/(expense)		(399	)		2

For the years ended December 31, 2024 and 2023, the Company’s income tax (benefit)/expense consisted of:

	Year Ended December 31,
	2024			2023
	US$(’000)			US$(’000)
Current		-			-
Deferred		(399	)		2
Income tax benefit/(expense)		(399	)		2

The Company’s deferred tax assets at December 31, 2024 and 2023 were as follows:

	As of December 31,
	2024			2023
	US$(’000)			US$(’000)
Tax effect of net operating losses carried forward		11,035			10,745
Operating lease cost		-			1
Impairment on long-term investments		104			161
Impairment on intangible assets		570			571
Bad debts provision		1,427			1,226
Valuation allowance		(13,136	)		(12,303	)
Deferred tax assets, net		-			401

The U.S. holding company has incurred aggregate net operating losses (NOLs) of approximately US$34.18 million and US$32.70 million at December 31, 2024 and 2023, respectively. The NOLs carryforwards as of December 31, 2017 gradually expire over time, the last of which expires in 2037. NOLs incurred after December 31, 2017 will no longer be available to carry back but can be carried forward indefinitely. Furthermore, the Act imposes an annual limit of 80% on the amount of taxable income that can be offset by NOLs arising in tax years ending after December 31, 2017. The Company maintains a full valuation allowance against its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future earnings to utilize its U.S. deferred tax assets.

The NOLs carried forward incurred by the Company’s PRC subsidiaries and VIEs were approximately US$10.87 million and US$10.60 million at December 31, 2024 and 2023, respectively. The losses carryforwards gradually expire over time, the last of which expires in 2027. 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$13.14 million and US$12.3 million valuation allowance as of December 31, 2024 and 2023, respectively, because it is considered more likely than not that a portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses related.

For the years ended December 31, 2024 and 2023, total net deferred tax assets valuation allowance provided was approximately US$0.89 million and total deferred tax assets valuation allowance provided was approximately US$$0.35 million, respectively.