HeartCore Enterprises, Inc. Income Taxes Disclosure

NOTE 11 – INCOME TAXES

 

United States

 

HeartCore USA, Sigmaways and HeartCore Financial, incorporated in the United States, are subject to federal income tax at 21% statutory tax rate with respect to the profit generated from the United States.

 

 

Netherlands

 

Sigmaways B.V. is a company incorporated in Netherlands. The first EUR200,000 of taxable income is subject to a statutory tax rate of 19% and the remaining taxable income is subject to a statutory tax rate of 25.80%.

 

Canada

 

Sigmaways Technologies is a company incorporated in British Columbia in Canada. It is subject to income tax on income arising in, or derived from, the tax jurisdiction in British Columbia it operates. The basic federal rate of Part I tax is 38% of taxable income, 28% after federal tax abatement. After the general tax reduction, the net federal tax rate is 15%. The provincial and territorial lower and higher tax rates in British Columbia are 2% and 12%, respectively.

 

Vietnam

 

HeartCore Luvina is a company incorporated in Vietnam. It is subject to standard income tax rate at 20% with respect to the taxable income.

 

Japan

 

HeartCore Financial – Japan and Higgs Field are companies incorporated in Japan. Income taxes in Japan are imposed by the national, prefectural and municipal governments, and in the aggregate result in an effective statutory tax rate of approximately 34.59%.

 

For the years ended December 31, 2025 and 2024, the Company’s income tax expense (benefit) are as follows:

 SCHEDULE OF INCOME TAX EXPENSES

		2025				2024
		For the Years Ended December 31,
		2025				2024
Current		$	35,708			$	934,339
Deferred			9,192				(1,297,495	)
Income tax expense (benefit)		$	44,900			$	(363,156	)

 

After the adoption of ASU No. 2023-09 on a prospective basis, a reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. federal statutory income tax rate to loss from continuing operations before income tax expense (benefit) for the year ended December 31, 2025 is as follows:

 SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

		Amount				Percent
		For the Year Ended December 31, 2025
		Amount				Percent
Tax at U.S. federal statutory rate		$	(869,212	)			21.00	%
State and local income tax, net of federal income tax effect			(284,357	)			6.87	%
Foreign tax effects:
Other foreign jurisdictions			(16,845	)			0.41	%
Effect of expenses not deductible for tax purpose			7,807				(0.19	)%
Change in valuation allowance			1,194,951				(28.87	)%
Other adjustments			12,556				(0.30	)%
Effective income tax rate		$	44,900				(1.08	)%

 

 

For the year ended December 31, 2024, prior to the adoption of ASU No. 2023-09, a reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate is as follows:

 

		For the Year Ended December 31, 2024
Tax at U.S. federal statutory rate			21.00	%
State and local income tax, net of federal income tax effect			6.87	%
Effect of income tax difference under different tax jurisdictions			(0.27	)%
Effect of expenses not deductible for tax purpose			(1.46	)%
Goodwill impairment			(12.48	)%
Change in valuation allowance			(3.87	)%
Other adjustments			(3.20	)%
Effective income tax rate			6.59	%

 

The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2025 and 2024 are presented below:

 SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

		December 31, 2025				December 31, 2024
Deferred tax assets
Revenue adjustments		$	738,020			$	1,112,873
Expense adjustments			59,765				144,165
Lease liabilities			3,373				53,946
Asset retirement obligations			-				25,065
Fair value change on investment securities			130,078				30,509
Net operating losses carried forward			1,815,945				356,464
Others			23,121				-
Total deferred tax assets, gross			2,770,302				1,723,022
Less: valuation allowance			(2,718,880	)			(1,625,379	)
Total deferred tax assets, net		$	51,422			$	97,643
Deferred tax liabilities
Right-of-use assets		$	(2,621	)		$	(52,873	)
Asset retirement costs			-				(13,195	)
Fair value change on derivative liability			(25,680	)			-
Total deferred tax liabilities		$	(28,301	)		$	(66,068	)
Deferred tax assets, net		$	23,121			$	31,575

 

The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability to realize its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, projected future taxable income, and tax planning strategies.

 

The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth. The adjustments of a valuation allowance against deferred tax assets may cause greater volatility in the effective income tax rate in the periods in which the valuation allowance is adjusted.

 

The following table presents income taxes paid, net of refunds:

 SCHEDULE OF INCOME TAXES PAID, NET OF REFUNDS

		For the Year Ended December 31, 2025
Federal			43,260
State and local			-
Foreign:
Japan			118,269
Canada			5,983
Vietnam			22,973
Foreign			22,973
Total			190,485

 

 

Uncertain Tax Positions

 

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2025 and 2024, the management considered the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest or penalties tax for the years ended December 31, 2025 and 2024. The Company does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months from December 31, 2025. The Company files U.S. federal, state and foreign tax returns. The tax years ending from December 31, 2022 through December 31, 2024 generally remain subject to examination by the Internal Revenue Service and various state taxing authorities. The tax years ending from December 31, 2021 through December 31, 2024 generally remain subject to examination by various foreign jurisdictions. The Company is not currently under examination in any jurisdictions.