Income Tax

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

INCOME TAX

NOTE 5 INCOME TAX

The Company's operating subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws ("the Income Tax Laws").

All PRC subsidiaries, except for He Meida, are subject to income tax at the 25% statutory rate.

He Meida incorporated in Xizang (Tibet) Autonomous Region is subject to income tax at 15% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid through December 31, 2020.

Perfect Dream was incorporated in the British Virgin Islands (BVI), and under the current laws of the BVI dividends and capital gains arising from the Company's investments in the BVI are not subject to income taxes.

Ever-Glory HK was incorporated in Samoa, and under the current laws of Samoa has no liabilities for income taxes.

Ever-Glory Supply Chain Service Co., Limited was incorporated in Hongkong, and under the current laws of Hongkong, its income tax rate is 8.25% when its profit is under HKD 2.0 million and its income tax rate is 16.5% when its profit is over HKD 2.0 million.

The PRC's Enterprise Income Tax Law imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise in PRC to its immediate holding company outside China; such distributions were exempted under the previous income tax law and regulations. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. The foreign invested enterprise became subject to the withholding tax starting from January 1, 2008. Given that the undistributed profits of the Company's subsidiaries in China are intended to be retained in China for business development and expansion purposes, no withholding tax accrual has been made.

After the tax liability adjustment resulted from the reevaluation of the Company's tax position (resulting in the company allocating substantially all of the earnings of the Samoan subsidiary to the PRC and reporting such earnings as taxable in the PRC), pre-tax (loss) income for the three and six months ended June 30, 2020 and 2019 was taxable in the following jurisdictions:

	Three months ended					Six months ended
	June 30,					June 30,
	2020			2019		2020			2019
	(In thousands of U.S. Dollars)
PRC	$	(3,531	)	$	3,228	$	(6,000	)	$	3,605
Others		(3	)		-		(5	)		(7	)
	$	(3,534	)	$	3,228	$	(6,005	)	$	3,598

The following table reconciles the PRC statutory rates to the Company's effective tax rate for the three and six months ended June 30, 2020 and 2019:

	Three months ended						Six months ended
	June 30,						June 30,
	2020			2019			2020			2019
PRC statutory rate		25.0	%		25.0	%		25.0	%		25.0	%
Temporary difference between US GAAP and PRC tax accounting		(32.5	)		20.1			(33.2	)		38.4
Effective income tax rate		(7.5	)%		45.1	%		(8.2	)%		63.4	%

Income tax expense for the three and six months ended June 30, 2020 and 2019 is as follows:

	Three months ended					Six months ended
	June 30,					June 30,
	2020		2019			2020		2019
Current	$	195	$	1,785		$	304	$	1,990
Deferred		71		(330	)		189		290
Income tax expense	$	266	$	1,455		$	493	$	2,280

The Company's deferred tax liabilities arise from differences between US GAAP and PRC tax accounting for certain revenue and expense items, including timing of deduction of losses from allowances. 

The Company has not recorded U.S. deferred income taxes on approximately $99.9 million of its non-U.S. subsidiaries' undistributed earnings because such amounts are intended to be reinvested outside the United States indefinitely. On December 22, 2017 the U.S. enacted the "Tax Cuts and Jobs Act" ("U.S. Tax Reform") which made significant changes to corporate income tax law. One significant change was to decrease the general corporate income tax rate from 34% to 21%. This reduction had no effect on the Company's income tax expense as the reduction in deferred tax assets was offset by an equivalent reduction in the valuation allowance. Another significant change resulting from U.S. Tax Reform is that any future remittances to the parent company from business income earned by its subsidiaries outside of the U.S. will no longer to taxable to the Company under U.S. tax law. The Company would be liable for payment of income tax, or reduction of the net operating loss carryover, at a reduced rate for any accumulated earnings and profits of its non-U.S. subsidiaries at December 31, 2017. U.S. Tax Reform includes provisions for Global Intangible Low-Taxed Income ("GILTI") under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax ("BEAT") under which taxes are imposed on certain base eroding payments to affiliated foreign companies. Consistent with accounting guidance, we treat BEAT as a period tax charge in the period the tax is incurred and have made an accounting policy election to treat GILTI taxes in a similar manner. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company's measurement, no deferred tax expense (income) relating to the Tax Act changed for the three and six months ended June 30, 2020.