12. INCOME TAXES

United States of America

As of September 30, 2016 and December 31, 2015, the Company in the United States had $2,676,324 and $900,301 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward twenty years.

The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at US. Accordingly, the Company has no net deferred tax assets under the US entity.

Hong Kong

The provision for current income taxes of the subsidiary operating in Hong Kong has been calculated by applying the current rate of taxation of 16.5%, if applicable.

PRC

In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries that are not entitled to any tax holiday were subject to income taxes at a rate of 25%.

The income tax expenses were $596,732 and $343,512 for the three months ended September 30, 2016 and 2015, respectively, and $1,377,078 and $480,414 for the nine months ended September 30, 2016 and 2015, respectively.

The income tax provision consists of the following components:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Current	$	684,801	$	349,513	$	1,561,728	$	495,730
Deferred		(88,069)		(6,001)		(184,650)		(15,316)

TOTAL PROVISION FOR INCOME TAXES	$	596,732	$	343,512	$	1,377,078	$	480,414

A reconciliation between the Company’s effective tax rate and the expected statutory rate is as follow:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Income before income tax expense	$	3,048,470	$	1,487,585	$	6,041,711	$	2,195,758

Provision for taxes at respective statutory tax rate		478,492		190,106		740,488		299,344
Tax effect of non-deductible expenses		11,117		38,260		32,742		51,138
Changes in valuation allowance		107,123		115,146		603,848		129,932

TOTAL PROVISION FOR INCOME TAXES	$	596,732	$	343,512	$	1,377,078	$	480,414

The Company's effective tax rate was 19.6% and 23.1% for the three months ended September 30, 2016 and 2015, respectively, and 22.8% and 21.9% for the nine months ended September 30, 2016 and 2015, respectively.

The approximate tax effects of temporary differences, which give rise to the deferred tax assets and liabilities, are as follows:

	September 30,		December 31,
	2016		2015
	(Unaudited)
Deferred tax assets:
Net operating losses	$	975,244	$	306,102
Excess advertising expense		126,080		-
Total deferred tax assets		1,101,324		306,102
Valuation allowance		(909,950)		(306,102)
Deferred tax asset, net of valuation allowance		191,374		-

Deferred tax liabilities
Property, plant and equipment, principally due to differences in depreciation		54,361		45,037
Deferred tax liability	$	54,361	$	45,037