Taxes

6 Months Ended

Jun. 30, 2023

Taxes [Abstract]

Taxes

9. Taxes

(a) Corporate Income Taxes (“CIT”)

Cayman Islands

Under the current tax laws of Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, the Company’s subsidiary incorporated in Hong Kong is subject to 16.5% on its taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiary incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax. The Company did not make any provision for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception.

PRC

The Company’s PRC subsidiaries, the VIE and the VIE’s subsidiaries are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis. The total impact of preferential tax rates amounted to approximately $0.5 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively and the impact to EPS is not significant for the six months ended June 30, 2023 and 2022.

Beijing Shengfeng Supply Chain Management Co., Ltd. and Guangdong Shengfeng Logistics Co., Ltd. were qualified as High and New Technology Enterprise (“HNTE”) and are eligible to enjoy a preferential tax rate of 15% from 2020 to 2022 to the extent they have taxable income under the Enterprise Income Tax (“EIT”) Law, as long as they maintain the HNTE qualification and duly conducts relevant EIT filing procedures with the relevant tax authority. The Company is renewing the HNTEs. Beijing Tianyushengfeng e-commerce Technology Co. Ltd. has been qualified as HNTE and is eligible to enjoy a preferential tax rate of 15% from 2021 to 2023 to the extent it has taxable income under the Enterprise Income Tax Law. Shengfeng Supply Chain Management Co. Ltd. is eligible to enjoy a preferential tax rate of 15% from 2020 to 2022 and further extended to 2025 to the extent it has taxable income under the Enterprise Income Tax (“EIT”) Law due to the local preferential tax policy.

Several VIE’s subsidiaries, including Chengdu Shengfeng Supply Chain Management Co., Ltd., Shengfeng Logistics (Liaoning) Co., Ltd., Sichuan Shengfeng Logistics Co., Ltd., Shengfeng Logistics (Guangxi) Co., Ltd., etc., are qualified as small and micro enterprises, thus the preferential effective tax rates of 2.5% to 5% are applied to these entities.

i) The components of income before income taxes are as follows:

	Six months ended June 30,
	2023			2022
Non-PRC	$	(252	)	$	-
PRC		8,124			2,826
Total	$	7,872		$	2,826

ii) The components of the income tax provision are as follows:

	Six months ended June 30,
	2023		2022
Current	$	709	$	484
Deferred		700		(113	)
Total	$	1,409	$	371

iii) The following table reconciles PRC statutory rates to the Company’s effective tax rate:

The following table reconciles the China statutory rates to the Company’s effective tax rate for the six months ended June 30, 2023 and 2022:

	Six months ended June 30,
	2023			2022
PRC statutory income tax rate		25.0	%		25.0	%
Effect of preferential tax rates (1)		(5.7	)%		(6.9	)%
Eligible additional deduction		(2.9	)%		(5.5	)%
Impact of different tax rates in other jurisdictions		0.8	%		-	%
Non-taxable and exemptions		(0.5	)%		-	%
Permanent differences (2)		1.2	%		0.5	%
Effective income tax rate		17.9	%		13.1	%

(1) Preferential tax rates for small and micro enterprises and high-tech entities.

(2) Permanent differences mainly consisted of non-deductible meal and entertainment fees in PRC tax returns.

iv) The following table summarizes deferred tax assets and liabilities resulting from differences between financial accounting basis and tax basis of assets and liabilities:

	As of June 30, 2023		As of December 31, 2022
Deferred tax assets:
Net operating losses carryforward	$	1,573	$	2,300
Allowance for doubtful accounts		793		874
Deferred income (a)		266		279
Intangible assets (b)		137		134
Subtotal		2,769		3,587
Less: valuation allowance		-		-
Deferred tax assets	$	2,769	$	3,587

(a)	Deferred income represents the assets related government subsidies, which will amortize on a straight-line basis within the useful life of related assets. The tax basis is recognized when the Company received the subsidies.
(b)	Intangible asset represents the amortization temporary difference of licensed software. Management uses 10 years useful life as the tax basis, which is different from the 5 years useful life in accounting basis.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the cumulative earnings and projected future taxable income in making this assessment. Recovery of substantially all of the Company’s deferred tax assets is dependent upon the generation of future income, exclusive of reversing taxable temporary differences. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are recoverable, valuation allowances of nil were provided for the Company’s certain subsidiaries with continuous losses as of June 30, 2023 and December 31, 2022. As of June 30, 2023 and December 31, 2022, there were approximately $6.6 million and $9.5 million net operating loss carryforwards in certain subsidiaries, respectively. The net operating tax loss carryforwards will expire from 2024 to 2028.

Uncertain tax positions

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of June 30, 2023 and December 31, 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur interests and penalties tax for the six months ended June 30, 2023 and 2022.

(b) Tax payable

Tax payable consisted of the following:

	As of June 30, 2023		As of December 31, 2022
Value-added tax payable	$	2,487	$	1,828
Income tax payable		568		185
Other taxes payable		147		194
Total	$	3,202	$	2,207