DATASEA INC. Income Taxes Disclosure

NOTE 11 – INCOME TAXES

 

The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company’s PRC subsidiaries file their income tax returns online with PRC tax authorities. The Company conducts all of its businesses through its subsidiaries and affiliated entities, principally in the PRC.

 

The Company’s U.S. parent company is subject to U.S. income tax rate of 21% and files U.S. federal income tax return.  As of June 30, 2025 and 2024, the U.S. entity had net operating loss (“NOL”) carry forwards for income tax purposes of $9.35 million and $5.60 million. The NOL arising in tax years beginning after 2017 may reduce 80% of a taxpayer’s taxable income, and be carried forward indefinitely. However, the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) passed 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 remains uncertain due to the parent Company’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

The Company’s offshore subsidiary, Shuhai Skill (HK), a HK holding company is subject to 16.5% corporate income tax in HK. Shuhai Beijing received a tax holiday with a 15% corporate income tax rate since it qualified as a high-tech company. Tianjin Information, Xunrui, Guozhong Times, Guozhong Haoze, Guohao Century, Jingwei, Shuhai Nanjing are subject to the regular 25% PRC income tax rate.

 

As of June 30, 2025 and 2024, the Company has approximately $18.08 million and $17.86 million of NOL from its HK holding company, PRC subsidiaries and VIEs that expire in calendar years 2025 through 2029. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the Company’s future generation of taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. 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 and has therefore established a full valuation allowance as of June 30, 2025 and 2024.  

 

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended June 30, 2025 and 2024:

 

		2025				2024
US federal statutory rates			(21.0	)%			(21.0	)%
Tax rate difference – current provision			(2.1	)%			(1.4	)%
Permanent difference			7.9	%			6.8	%
Effect of PRC tax holiday			(1.9	)%			1.3	%
Valuation allowance			17.0	%			14.3	%
Effective tax rate			(0.1	)%			-	%

 

The Company’s net deferred tax assets as of June 30, 2025 and 2024 is as follows:

 

		June 30, 2025				June 30, 2024
Deferred tax asset
Net operating loss		$	5,408,433			$	4,777,372
R&D expense			-				123,750
Depreciation and amortization			236,991				81,079
Bad debt expense			120,987				116,718
Social security and insurance accrual			66,298				56,343
Inventory impairment			38,220				13,402
ROU, net of lease liabilities			(941	)			(951	)
Total			5,869,988				5,167,713
Less: valuation allowance			(5,869,988	)			(5,167,713	)
Net deferred tax asset		$	-			$	-