12. INCOME TAX

Effective January 1, 2008, the PRC government implemented a new corporate income tax law with a maximum rate of 25%. The Company is governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at 25% (33% prior to 2008) on income reported in the statutory financial statements after appropriate tax adjustments. Under the 2008 Chinese tax law, the tax treatment of finance and sales-type leases is similar to US GAAP. However, the local tax bureau continues to treat CREG sales-type leases as operating leases. Accordingly, the Company recorded deferred income taxes.

The Company’s subsidiaries generate all of their net income from their PRC operations. Shanghai TCH’s effective income tax rates for 2011 and 2010 are 24% and 22%, respectively. Xi’an TCH’s effective income tax rate for 2011 and 2010 is 15% as a result of its high tech enterprise status that was approved by the taxing authority. Xingtai Huaxin’s effective income tax rate for 2011 and 2010 is 25%. Huahong and Erdos TCH’s effective income tax rate for 2011 and 2010 is 25%. Pingshan Shengda’s effective income tax rate for 2011 is 25%. Shanghai TCH, Xi’an TCH, Xingtai Huaxin, Huahong, Pingshan Shengda and Erdos TCH file separate income tax returns. If Xi’an TCH had not been granted high tech enterprise status, income tax expense for the nine months ended September 30, 2011, would have been increased by $1,428,064 and earnings per share would have been reduced by $0.03.

Shanghai TCH, as a business in a Development Zone, was subject to a 15% income tax rate. According to the new income tax law that became effective January 1, 2008, for those enterprises to which the 15% tax rate was previously applicable, the applicable rates shall increase as follows:

Year	Tax Rate
2011		24	%
2012		25	%

There is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to Cayman Islands tax jurisdiction where Sifang Holding is domiciled.

The parent company, China Recycling Energy Corporation, is taxed in the U.S. and has net operating loss carry forwards for income taxes of $6.75 million at September 30, 2011, which may be available to reduce future years’ taxable income as NOLs can be carried forward up to 20 years from the year the loss is incurred. Management believes the realization of benefits from these losses appears uncertain due to the Company’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the nine and three months ended September 30, 2011 and 2010, respectively:

	For the Nine Months						For the Three Months
	2011			2010			2011			2010
U.S. statutory rates		34.0	%		34.0	%		34.0	%		34.0	%
Tax rate difference – current provision		(6.5	)%		(10.3	)%		(5.6	)%		(9.3	)%
Effective tax holiday		(5.2	)%		(9.3	)%		(5.5	)%		(9.2	)%
Non tax-deductible expenses (non-taxable income), net		0.1	%		(1.2	)%		0.7	%		(4.2	)%
Other		2.9	%		4.6	%		6.2	%		5.1	%
Valuation allowance on NOL (utilization of NOL)		(9.4	)%		6.3	%		(13.4	)%		5.0	%
Tax per financial statements		15.9	%		24.1	%		16.4	%		21.4	%

The provision for income tax expenses for the nine and three months ended September 30, 2011 and 2010 consisted of the following:

	For the Nine Months				For the Three Months
	2011		2010		2011		2010
Income tax expense - current	$	2,353,664	$	1,754,734	$	781,613	$	688,913
Income tax benefit - deferred		2,015,593		2,495,828		1,408,013		663,606
Total income tax expenses	$	4,369,257	$	4,250,562	$	2,189,626	$	1,352,519