Smart Powerr Corp. Income Taxes Disclosure

13. INCOME TAX

 

The Company’s Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Under 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 the Company’s sales-type leases as operating leases. Accordingly, the Company recorded deferred income taxes.

 

The Company’s subsidiaries generate all of their income from their PRC operations. All of the Company’s Chinese subsidiaries’ effective income tax rate for 2024 and 2023 was 25%. Yinghua, Shanghai TCH, Xi’an TCH, Huahong, Zhonghong and Erdos TCH file separate income tax returns.

 

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

 

The US parent company, SPC is taxed in the US and, as of December 31, 2025, had net operating loss (“NOL”) carry forwards for income taxes of $5.17 million; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer’s taxable income, and may be carried forward indefinitely. However, the coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) issued in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. Management believes the realization of benefits from these losses uncertain due to the US parent company’s continuing operating losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

 

As of December 31, 2025, the Company’s PRC subsidiaries had $608.79 thousand NOL that can be carried forward to offset future taxable income for five years from the year the loss is incurred. The NOL was mostly from Erdos TCH and Zhonghong. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets due to the recurring losses from operations of these entities, accordingly, the Company recorded a 100% deferred tax valuation allowance for the PRC NOL.

 

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2025 and 2024:

 

		2025				2024
U.S. statutory rates benefit			(21	)%			(21.0	)%
Tax rate difference – current provision			0.4	%			3.1	%
Permanent differences			(3.1	)%			2.7	%
Change in valuation allowance			26.10	%			15.2	%
Tax expense per financial statements			2.4	%			0	%

  

The provision for income tax expense (benefit) for the years ended December 31, 2025 and 2024 consisted of the following:

 

		2025				2024
Income tax expense – current		$	40,536			$	13,997
Total income tax expense		$	40,536			$	13,997