FiEE, Inc. Income Taxes Disclosure

(13) INCOME TAXES

 

The components of income (loss) before income taxes were as follows:

 

Schedule of provision for income tax
		2025				2024
Domestic		$	(2,209,175	)		$	(4,235,494	)
Foreign			3,729,813				-
Income (loss) before income taxes		$	1,520,638			$	(4,235,494	)

 

Income tax expense (benefit) consisted of:

 

Schedule of income tax expense benefit
		Current				Deferred				Total
Year Ended December 31, 2025:
U.S. Federal		$	-			$	-			$	-
State and local			-				-				-
Foreign			448,204				-				448,204
		$	448,204			$	-			$	448,204
Year Ended December 31, 2024:
U.S. Federal		$	-			$	-			$	-
State and local			(11,216	)			-				(11,216	)
Foreign			-				-				-
		$	(11,216	)		$	-			$	(11,216	)

 

The Company is subject to taxation in certain foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax.

 

Entity incorporated in Hong Kong is subject to Hong Kong Profits Tax at a rate of 8.25% on the first HKD 2 million of assessable profits and at 16.5% thereon. There are no withholding taxes on the payment of dividends by entities incorporated in Hong Kong to their stockholders.

 

Entities incorporated in Japan are subject to Japanese corporate income tax at an effective rate of approximately 37% (including national and local taxes).

 

For the year ended December 31, 2025, the Company recorded an income tax expense of $448,204, consisting primarily of current Hong Kong Profits Tax of $698,799 attributable to the profitable operations of the Hong Kong subsidiary, net of an income tax benefit of $250,595 for the net operating loss incurred by the Japan subsidiary in December 2025. No income tax provision has been made for the U.S. corporation due to the net operating losses carryover, and no income tax benefit related to the net operating losses is recognized, as a full valuation allowance is established for the U.S. corporation.

 

As of December 31, 2025, the balance of income tax payable of the Company was approximately $1.0 million, of which $0.5 million was related to the acquisition of HKG (see Note 4).

 

The Company paid nil for income taxes for each of the year ended December 31, 2025 and 2024.

 

The principal components of deferred tax assets, net, were as follows:

 

Schedule of deferred income tax assets
As of December 31		2025				2024
Deferred income tax assets:
Net operating loss and tax credit carry forwards			14,327,056				14,629,440
Stock compensation			25,762				-
Total deferred income tax assets			14,352,818				14,629,440
Valuation allowance			(14,352,818	)			(14,629,440	)
Net deferred tax assets		$	-			$	-

 

As of December 31, 2025, the Company had Federal net operating loss (“NOL”) carryforwards of approximately 68.2 million, which are available to offset future taxable income. These NOL carryforwards expire in varying amounts beginning in 2026 through 2045. The Company has recorded a full valuation allowance against its deferred tax assets, as management has determined that it is more likely than not that the tax benefits associated with these deferred tax assets will not be realized.

 

The valuation allowance changed by $ 276,622 during the year ended December 31, 2025, primarily due to the expiration of certain net operating loss carryforwards, the utilization of net operating loss carryforwards against taxable income generated during the year, and an increase in deferred tax assets related to share-based compensation recognized during the period. During the year ended December 31, 2024, the change in valuation allowance was primarily attributable to net operating losses incurred during the year and the expiration of certain net operating loss carryforwards.

 

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes reported were as follows:

 

Schedule of reconciliation of federal statutory tax rate
		2025
		$				%
Income before income taxes		$	1,520,638
U.S. Federal Statutory Tax Rate			319,334				21.0	%
Foreign Tax Effects
Hong Kong
Statutory tax rate difference between Hong Kong and United States			(220,262	)			-14.5	%
Japan
Statutory tax rate difference between Japan and United States			(108,220	)			-7.1	%
Other			(6,575	)			-0.4	%
Effect of Cross-Border Tax Laws
Global intangible low-taxed income			917,111				60.3	%
Changes in Valuation Allowances			(276,622	)			-18.2	%
Other Adjustments			(176,562	)			-11.6	%
Effective Tax Rate		$	448,204				29.5	%

 

The material jurisdictions where the Company is subject to potential examination by tax authorities include the U.S., Hong Kong and Japan.

 

Tax years after 2021 remain subject to examination for both U.S. Federal and state tax reporting purposes. For the Company’s Hong Kong subsidiary, which was established in March 2025, all tax years since its incorporation remain subject to examination. For the Company’s Japanese subsidiary, which was established in October 2024 and acquired in November 2025, all tax years since its incorporation remain subject to examination.