INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

8.INCOME TAXES

Cayman Islands

Under the current laws of the Cayman Islands, the Group is not subject to tax on its income or capital gains.

PRC

Under the PRC Enterprise Income Tax Law (the “EIT Law”), the standard enterprise income tax rate for domestic enterprises and foreign invested enterprises is 25%. In addition, the EIT Law and its implementing rules permit qualified “High and New Technologies Enterprise” (the “HNTE”) to enjoy a reduced 15% EIT income tax rate. The HNTE certificate is effective for a period of three years. Certain PRC subsidiaries, VIEs and VIEs’ subsidiaries, including Beijing U-Tiger Business, Beijing Yixin and Beijing U-Tiger Network, are qualified HNTEs and enjoy a reduced income tax rate of 15% for the three years presented, and Hangzhou U-Tiger, Guangzhou U Tiger and Beijing Xiangshang are qualified HNTEs and enjoy a reduced income tax rate of 15% for the years ended December 31, 2022 and 2023. An entity could re-apply for the HNTE certificate when the prior certificate expires. Historically, all companies successfully re-applied for the certificates when the prior once expired. The Group’s other subsidiaries are subject to income tax rate of 25%, according to EIT Law.

New Zealand

The Group’s subsidiaries, TBNZ and TFNZ are located in New Zealand and are subject to an income tax rate of 28% for taxable income earned in New Zealand.

Hong Kong

The Group’s subsidiaries incorporated in Hong Kong are subject to a profits tax rate of 8.25% on assessable profits up to HK$2,000,000 and 16.5% on any part of assessable profits over HK$2,000,000.

USA

The Group’s subsidiaries incorporated in the USA are subject to a federal income tax rate of 21% for taxable income earned in the USA. Taxable income apportioned to New York, New York City, and New Jersey is also subject to tax at statutory tax rates of 6.5%, 8.85%, and 11.5%, respectively.

Singapore

The Group’s subsidiaries incorporated in Singapore are subject to an income tax rate of 17% for taxable income earned in Singapore.

Australia

The Group’s subsidiaries incorporated in Australia are subject to an income tax rate of 30% for taxable income earned in Australia.

8.INCOME TAXES (Continued)

The components of income before income taxes are as follows:

	For the years ended December 31,
	2021			2022			2023
	US$			US$			US$
The Cayman Islands		2,442,082			(2,399,651	)		(700,677	)
PRC		21,320,470			9,105,225			12,562,152
Other		(4,708,080	)		(4,673,789	)		34,132,262
Total income before income taxes		19,054,472			2,031,785			45,993,737

The current and deferred portions of income tax expense allocated to continuing operations, all of which was incurred outside the Cayman Islands, were as follows:

	For the years ended December 31,
	2021			2022			2023
	US$			US$			US$
Current tax expense		(5,026,081	)		(5,552,745	)		(9,779,815	)
Deferred tax benefit (expense)		662,310			1,264,080			(3,206,495	)
Income tax expense		(4,363,771	)		(4,288,665	)		(12,986,310	)

The enterprise income tax law also imposes a withholding income tax on dividends distributed by a foreign investment enterprise ("FIE") to its immediate holding company outside of the PRC. According to the arrangement between Chinese mainland and HKSAR, dividends paid by an FIE in Chinese mainland to its immediate holding company in HKSAR will be subject to withholding tax at a rate of no more than 5%. Dividends paid from US subsidiaries to their parent company are subject to US withholding tax at a rate of 30%. Cash dividends paid by a New Zealand incorporated company is subject to 5% withholding under the New Zealand-Singapore Double Tax Agreement.

The Company does not intend to have any of its subsidiaries and VIEs located in jurisdictions that would assess a tax on a distribution distributed any accumulated earnings in the foreseeable future, but rather expects that such profits will be indefinitely reinvested by such subsidiaries and VIEs for their respective local operations. Accordingly, no liability for withholding tax was recorded as of December 31, 2022 and 2023. Undistributed earnings of such subsidiaries and VIEs amounted to US$84.1 million and US$141.6 million and the unrecognized deferred tax liability related to such earnings amounted to US$5.5 million and US$12.8 million as of December 31, 2022 and December 31, 2023, respectively.

The Group’s subsidiaries and consolidated VIEs located in the PRC, HKSAR, New Zealand, the USA, Singapore and other jurisdictions are open to tax examination for the period from its inception until the year ended December 31, 2023.

8.INCOME TAXES (Continued)

The significant components of the Group’s deferred tax assets and liabilities were as follows:

	As of December 31,
	2022		2023
	US$		US$
Deferred tax assets
Net operating loss carryforwards		19,642,694		23,177,049
Share-based compensation		1,666,221		2,555,382
Lease liabilities		2,767,408		1,933,001
Withholding tax credit carryforwards		1,072,899		1,042,268
Advertising expense carryforwards		973,640		961,816
Accrued expenses		415,472		479,475
Financial instruments held, at fair value		184,822		425,174
Allowance for doubtful accounts		242,233		331,043
Long-term investments		144,986		140,847
Total deferred tax assets		27,110,375		31,046,055
Less: valuation allowance		11,307,489		18,262,801
Deferred tax assets, net of valuation allowance		15,802,886		12,783,254
Deferred tax liabilities
Intangible assets		1,788,555		1,788,555
Right-of-use assets		2,661,362		1,742,996
Financial instruments held, at fair value		290,445		1,658,536
Total deferred tax liabilities		4,740,362		5,190,087
Deferred tax assets, net		13,122,272		10,990,998
Deferred tax liabilities, net		2,059,748		3,397,831

The movement of the valuation allowance is as follows:

	For the years ended December 31,
	2021			2022			2023
	US$			US$			US$
Balance at the beginning of the year		4,000,159			5,224,095			11,307,489
Additions of valuation allowance		2,814,445			7,192,373			7,372,595
Reversals of valuation allowance		(1,628,176	)		(858,222	)		(187,483	)
Foreign currency translation adjustment		37,667			(250,757	)		(229,800	)
Net change in the valuation allowance		1,223,936			6,083,394			6,955,312
Balance at the end of the year		5,224,095			11,307,489			18,262,801

As of December 31, 2022 and 2023, the Group had net operating loss carryforwards of US$118,085,461 and US$137,570,765, respectively.

8.INCOME TAXES (Continued)

The expiration status of net operating loss carryforwards as of December 31, 2023 is listed below.

Expiration year	US$
2024		2,100,039
2025		1,084,992
2026		6,659,954
2027		7,356,743
2028 through 2033		76,089,768
Indefinitely		44,279,269

As of December 31, 2022 and 2023, the Group had advertising expenses carryforwards of US$3,894,561 and US$3,847,264 respectively, which can be carried forward indefinitely.

As of December 31, 2022 and 2023, the Group had withholding tax credit carryforwards of US$1,072,899 and US$1,042,268, respectively, Among the withholding tax credit carryforwards as of December 31, 2023, US$904,613 will expire by 2025 while US$137,655 will expire in 2026.

Management assessed the positive and negative evidence in certain entities in the PRC, United States, New Zealand and Singapore, and estimated they will have sufficient future taxable income to utilize the existing deferred tax assets. Significant objective positive evidence included the significant growth in customer trading activities in the New Zealand entities where net operating loss carryforwards could be carried forward indefinitely, net operating loss carryforwards in the United States generated after 2017 can be carried forward indefinitely, and net operating loss carryforwards in Singapore can be carried forward indefinitely. Net operating loss carryforwards can be carried forward 5 years in PRC except for a PRC entity qualified as “HNTE” which can be carried forward 10 years. The Group has concluded that deferred tax asset recognized for certain entities in the PRC, United States, New Zealand and Singapore is more likely than not to be realized.

A valuation allowance is provided against deferred tax assets when the Group determines that it is more-likely-than-not that the deferred tax assets will not be realized in the future. The Group considers positive and negative evidence on each individual subsidiary basis to determine whether some portion or all of the deferred tax assets will be more-likely-than-not realized.

The realizability of deferred tax assets requires significant judgment associated with evaluation of past and projected financial performance which incorporates projections of future taxable income, including forecasted revenues and expenses, by tax-paying component. In assessing the realizability of deferred tax assets, management considered the future taxable earnings which consists of forecasted revenue, operating cost and expenses, and the expected timing of the reversal of temporary differences. As of December 31, 2022 and 2023, valuation allowances of US$11,307,489 and US$18,262,801, respectively, were provided against the deferred tax assets that were determined more-likely-than-not will not be realized in the future. Deferred tax assets related to net operating loss carryforwards of US$1,510,584 without a valuation allowance were generated in 2023. Due to changes in judgment about the realizability of deferred tax assets in 2023, valuation allowance increases of US$3,574,020 were recorded in 2023. The Group realized a benefit of utilizing DTAs of US$187,483 in 2023 that were offset with a valuation allowance at the beginning of the year. To the extent that actual experience deviates from the assumptions, the projections would be affected and hence management’s assessment of realizability of deferred tax assets may change.

8.INCOME TAXES (Continued)

Reconciliations between the income tax expense computed by applying the PRC's 25% statutory income tax rate, the standard enterprise income tax rate in the jurisdiction of tax domicile of a significant portion of our business, to income before income taxes and the reported income tax expense were as follows:

	For the years ended December 31,
	2021			2022			2023
	US$			US$			US$
Income before income taxes		19,054,472			2,031,785			45,993,737
PRC statutory income tax rate	25%			25%			25%
Income tax at statutory income tax rate		(4,763,618	)		(507,946	)		(11,498,434	)
Effect of income tax rate difference in other jurisdictions		(596,978	)		(1,118,844	)		23,195
Effect of preferential tax rates		2,345,990			999,270			1,306,561
Remeasurement of deferred taxes for tax rate change		(610,551	)		(1,269,155	)		—
Super deduction of research and development expense		4,476,114			4,725,220			5,509,308
Nondeductible expenses		(4,138,443	)		(4,142,647	)		(1,998,354	)
Non-taxable income		109,984			35,616			194,107
Changes in valuation allowance		(1,186,269	)		(6,334,151	)		(7,185,112	)
Excess tax benefits from share-based compensation	—				1,146,536			662,419
Remeasurement of share-based compensation tax attributes (Note)	—				2,177,436			—
Income tax expense		(4,363,771	)		(4,288,665	)		(12,986,310	)

Note: This income tax benefit of US$2.2 million was related to the expenses being allowed to be deducted on the tax filling for fiscal year 2021 and the recognition of a deferred tax asset for the cumulative compensation costs for share-based compensation awards outstanding as of January 1, 2022 as a result of developments during the year ended December 31, 2022.