Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. Additionally, upon payment of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.

Under the Hong Kong tax laws, subsidiaries in Hong Kong are subject to the Hong Kong profits tax rate at 16.5% and they may be exempted from income tax on their foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

Effective from January 1, 2008, the PRC’s statutory, Enterprise Income Tax (“EIT”) rate is 25%. In accordance with the implementation rules of EIT Law, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15% with HNTE certificate effective for a period of three years and a “Software Enterprise” (“SE”) is entitled to a two-year income tax exemption starting from the first profit making year, followed by a reduction of half the applicable tax rate for the subsequent three years. An entity must file required supporting documents with the tax authority and ensure fulfillment of the relevant HNTE criteria before using the preferential rate. An entity could re-apply for the HNTE certificate when the prior certificate expires. The SE is subject to relevant governmental authorities’ annual assessment based on self-assessment supporting documents filed with the tax authorities each year.

Certain PRC subsidiaries and VIEs, including Beijing QIYI Century, Shanghai Zhong Yuan and Beijing iQIYI are qualified HNTEs and enjoy a reduced tax rate of 15% for the years presented, which will expire in 2021 or 2022. Chengdu Skymoons Interactive Network Game Co.,Ltd, qualified as SEs, is entitled to an exemption from the enterprise income tax for two years beginning from 2017, and a reduced tax rate of 12.5% for the subsequent three years. The qualification as a “SE” is subject to annual evaluation by the relevant authorities in China.

The other PRC subsidiaries and consolidated VIEs and VIE’s subsidiaries are subject to the 25% EIT rate.

According to the current EIT Law and its implementation rules, foreign enterprises, which have no establishment or place in China but derive dividends, interest, rents, royalties and other income (including capital gains) from sources in China or which has an establishment or place in China but the aforementioned incomes are not connected with the establishment or place shall be subject to PRC withholding tax (“WHT”) at 10% (a further reduced WHT rate may be available according to the applicable double tax treaty or arrangement provided that the foreign enterprise is the tax resident of the jurisdiction where it is located and it is the beneficial owner of the dividends, interest and royalties income).

	For the year ended December 31,
	2017			2018			2019			2019
	RMB			RMB			RMB			US$
Non-PRC		99,787			(670,529	)		(1,243,926	)		(178,679	)
PRC		(3,844,284	)		(8,311,901	)		(8,980,961	)		(1,290,035	)
		(3,744,497	)		(8,982,430	)		(10,224,887	)		(1,468,714	)

Income tax (benefit)/expense for the years ended December 31, 2017, 2018 and 2019 consists of:

	For the year ended December 31,
	2017			2018			2019			2019
	RMB			RMB			RMB			US$
Current income tax expense		4,649			123,887			129,164			18,553
Deferred income tax benefit		(12,214	)		(45,086	)		(77,312	)		(11,105	)
		(7,565	)		78,801			51,852			7,448

The reconciliation of total tax expense computed by applying the respective statutory income tax rate to pre-tax loss is as follows:

	For the year ended December 31,
	2017			2018			2019			2019
	RMB			RMB			RMB			US$
Income tax benefit at PRC statutory rate		(936,124	)		(2,245,608	)		(2,556,222	)		(367,178	)
Effect of differing tax rates in different jurisdictions		(35,888	)		172,111			293,976			42,227
Non-deductible expenses		171,784			380,327			436,312			62,672
Research and development super-deduction		(10,746	)		(40,466	)		(66,026	)		(9,484	)
Effect of PRC preferential tax rates and tax holiday		320,114			709,165			707,518			101,629
Other adjustments		10,393			(51,451	)		104,484			15,008
Change in valuation allowance		472,902			1,154,723			1,131,810			162,574
Income tax (benefit)/expense		(7,565	)		78,801			51,852			7,448

The tax effects of temporary differences that give rise to the deferred tax balances at December 31, 2018 and 2019 are as follows:

	As of December 31,
	2018			2019			2019
	RMB			RMB			US$
Deferred tax assets:
Accrued expenses and others		39,933			83,324			11,969
Bad debt provision		26,222			32,654			4,690
Net operating losses carried forward		666,887			801,430			115,118
Recorded cost relating to capitalized assets		1,976,584			2,943,758			422,844
Fixed assets depreciation		14,784			17,967			2,581
Valuation allowance		(2,620,045	)		(3,751,855	)		(538,920	)
Deferred tax assets, net		104,365			127,278			18,282
Deferred tax liabilities:
Long-lived assets arising from acquisitions		176,897			122,498			17,596

	As of December 31,
	2018		2019		2019
	RMB		RMB		US$
Classification in the consolidated balance sheets:
Deferred tax assets, net		23,873		34,916		5,015
Deferred tax liabilities		96,405		30,136		4,329

Valuation allowances have been provided on the net deferred tax assets where, based on all available evidence, it was considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.

Realization of the net deferred tax assets is dependent on factors including future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing deductible temporary differences and tax loss or credit carry forwards. The Group evaluates the potential realization of deferred tax assets on an entity-by-entity basis. As of December 31, 2018 and 2019, valuation allowances were provided against deferred tax assets in entities where it was determined it was more likely than not that the benefits of the deferred tax assets will not be realized.

As of December 31, 2018 and 2019, the Group had tax losses of RMB4,055,310 and RMB4,641,219 (US$666,669) deriving from entities in the PRC and Hong Kong. The tax losses in the PRC can be carried forward for five years to offset future taxable income and the period was extended to ten years for entities qualified as HNTE in 2019 and thereafter. The tax losses in Hong Kong can be carried forward without an expiration date.

The Group did not record any dividend withholding tax, as there were no taxable outside basis differences noted as of the end of the periods presented.

The Group evaluated its income tax uncertainty under ASC 740. ASC 740 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements. The Group elects to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the consolidated statements of comprehensive loss. As of the years ended December 31, 2017, 2018 and 2019, there was no significant impact from tax uncertainties on the Group’s financial position and result of operations. The Group did not record any interest and penalties related to an uncertain tax position for each of the years ended December 31, 2017, 2018 and 2019. The Group does not expect the amount of unrecognized tax benefits would increase significantly in the next 12 months. In general, the PRC tax authorities have up to five years to conduct examinations of the tax filings of the Group’s PRC subsidiaries. Accordingly, the PRC subsidiaries’ tax filings from 2014 through 2019 remain open to examination by the respective tax authorities. The Group may also be subject to the examinations of the tax filings in other jurisdictions, which are not material to the consolidated financial statements.