GD Culture Group Ltd Income Taxes Disclosure

Note 10 – Taxes

 

Income Tax

 

United States

 

GDC and AIC are corporations organized in the state of Nevada and operated primarily in the state of New York. In December 2025, GDC and AIC moved their office to New Jersey. As a result, they are subject to U.S. federal corporate income tax as well as state and local income taxes in New York and New Jersey.

 

For the years ended December 31, 2025 and 2024, the applicable statutory tax rates were as follows:

 

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Federal corporate income tax rate: 21%;

 

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New York State corporate income tax rate: 6.5%;

 

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New York City business corporation tax rate: 8.85%;

 

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Metropolitan Transportation Business Tax Surcharge (MTA Tax): 30% of the New York State corporate franchise tax liability;

 

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New Jersey State corporate income tax rate: 9%;

 

The Company’s effective tax rate may differ from the statutory rates due to various factors, including non-deductible expenses, tax credits, valuation allowances, and the impact of state and local taxes. Additionally, the Company evaluates uncertain tax positions in accordance with ASC 740, recognizing tax benefits only if it is more likely than not that the position will be sustained upon examination.

  

British Virgin Islands

 

Citi Profit BVI and Pallas are incorporated in the British Virgin Islands and are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.

 

Hong Kong

 

Highlight HK is incorporated in Hong Kong and are subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. Highlight HK is subject to Hong Kong profit tax at a rate of 8.25% for assessable profits on the first HK$2 million and 16.5% for any assessable profits in excess of HK$2 million for years ended December 31, 2025 and 2024. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception.

 

PRC

 

Highlight WFOE and SH Xianzhui are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), qualified small and micro enterprises with annual taxable income not exceeding RMB 3 million are eligible for a preferential corporate income tax rate of 5% until December 31, 2027. This preferential rate is applied in accordance with relevant Chinese tax laws and regulations, and may be adjusted by the authorities from time to time.

 

Pretax Loss from Operations

 

The components of pretax loss from operations are as follows:

 

		Year Ended December 31,
		2025
Domestic		$	(186,931,598	)
Foreign			(102	)
Loss before income taxes		$	(186,931,700	)

Provision (Benefit) for Income Taxes

 

The current and deferred components of income tax expenses from operations appearing in the consolidated statements of operations are as follows:

 

		For the year ended December 31,
		2025				2024
Current tax expenses
Federal		$	(90,000	)		$	(90,000	)
State			12,054				(51,810	)
Total current tax expenses		$	(77,946	)		$	(141,810	)
Deferred tax benefits
Federal		$	132,923			$	173,911
State			-				-
Total deferred tax benefits		$	132,923			$	173,911
Total benefits from income taxes		$	54,977				32,101

 

The Company adopted ASU 2023-09 for the annual period ending December 31, 2025, and elected to apply the amendments on a prospective basis. The following table presents the required disclosure pursuant to ASU 2023-09 and is a reconciliation of the Company's income tax expense at the statutory federal tax rate to the Company's effective tax rate for the year ended December 31, 2025:

 

		For the year ended December 31, 2025
U.S. federal statutory tax rate		$	(39,255,657	)			21.00	%
State income taxes, net of federal effect (*)			(16,151,984	)			8.64	%
Foreign Tax Effects:
People’s Republic of China:
Foreign tax rate differential			21				(0.00	)%
Change in federal valuation allowance			1,885,325				(1.01	)%
Impairment and credit loss			-				-	%
Impairment loss on intangible assets			255,840				(0.14	)%
Unrealized loss on digital assets			53,552,364				(28.64	)%
Other			(340,886	)			0.18	%
Effective Tax Rate		$	(54,977	)			0.03	%

 

*	For the year ended December 31, 2025, state and local income tax in New Jersey comprised the majority of the state and local income taxes, net of federal effect category.

 

The following table presents a reconciliation of the Company's income tax expense at the statutory federal tax rate to the Company's effective tax rate for the year ended December 31, 2024:

 

		December 31, 2024
Statutory tax rate
Federal			21.00	%
State (net of federal effect) *			12.56	%
Foreign tax			(1.21	)%
Provision of credit loss			(7.72	)%
Impairment loss on intangible assets			(5.97	)%
Change in valuation allowance			(19.05	)%
Others			0.16	%
Effective tax rate			(0.23	)%

 

*	For the year ended December 31, 2024, state and local income taxes in New York and New York City comprise the majority of state and local income taxes, net of federal effect category.

 

As of December 31, 2025 and 2024, income tax payable to US tax authorities was $187,995 and $141,810, respectively. As of December 31, 2025 and 2024, no income tax was payable to Chinese tax authorities.

For the year ended December 31, 2025, the Company recorded $90,000 of penalty related to failed filing of tax returns.

 

Income Taxes Paid

 

The following table presents cash paid for income taxes, net of refunds received, by jurisdiction during the year ended December 31, 2025:

 

		December 31,
		2025
Federal		$	-
State
New York			19,660
New York City			8,101
New Jersey			4,000
Total cash paid for income taxes, net of refunds		$	31,761

 

Deferred Tax Assets and Liabilities

 

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The principal components of the Company’s deferred income tax assets and liabilities as of December 31, 2025 and 2024 were as follows:

 

		December 31,				December 31,
		2025				2024
Deferred tax assets
Net operating losses carried forward		$	7,875,558			$	6,105,138
Capitalized R&D			478,350				-
Reserves and Accruals			17,168				-
Provision of credit loss on note receivable and loan receivable			945,000				1,092,011
Impairment loss of intangible assets			987,090				845,008
Lease liability			340,460				605,169
Unrealized loss on digital assets			53,552,364				-
Amortization of intangibles			342,027				-
Total deferred tax assets		$	64,538,017			$	8,647,326
Less: Valuation allowance			(64,261,937	)			(8,020,571	)
Deferred tax assets, net of valuation allowance		$	276,080			$	626,755
Deferred tax liabilities
Right - of - use assets		$	(296,397	)		$	(465,347	)
Fixed assets			(671	)			-
Amortization of intangible assets			-				(315,319	)
Total deferred tax liabilities		$	(297,068	)		$	(780,666	)
Total deferred tax liabilities, net		$	(20,988	)		$	(153,911	)

  

As of December 31, 2025, the Group had tax losses carry forwards of approximately $5.3 million from the entity in the PRC. The tax loss in the PRC can be carried forward for five years to offset future taxable profit and which will expire between 2028 and 2030 if not utilized. As of December 31, 2025, the Group had tax losses carry forwards of approximately $23.5 million from the entities in the U.S. The tax loss in the U.S. can be carried forward indefinitely.

 

The Company is subject to U.S. federal income tax as well as state income tax in certain jurisdictions. The tax years 2023 to 2025 remain open to examination by the major taxing jurisdictions to which the Company is subject. 

 

Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the United States. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management reviews this valuation allowance periodically and makes changes accordingly.