Jerash Holdings (US), Inc. Income Taxes Disclosure

NOTE 17 – INCOME TAX 

 

Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash the First, MK Garments, and Kawkab Venus are subject to the regulations of the Income Tax Department in Jordan. Effective January 1, 2019, the Jordanian government reclassified the area where Jerash Garments and its subsidiaries are to a Development Zone. In accordance with the Development Zone law, Jerash Garments and its subsidiaries were subject to income tax at an income tax rate of 19% or 20% plus a 1% social contribution between January 1, 2023 and December 31, 2023. Effective January 1, 2024, the income tax rate increased to 20%, plus a 1% social contribution.

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act imposed a tax on previously untaxed accumulated earnings and profits (“E&P”) of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part on the amount of E&P held in cash and other specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue interest. As of March 31, 2025, the Company has one year of installments remaining with total amounting to $417,450. Additionally, under the provisions of the Tax Act, for taxable years beginning after December 31, 2017, the foreign earnings of Jerash Garments and its subsidiaries are subject to U.S. taxation at the Jerash Holdings level under the new Global Intangible Low-Taxed Income (“GILTI”) regime.

The provision for income taxes consisted of the following:

 

		For the fiscal years ended March 31,
		2025				2024
Domestic and foreign components of income (loss) before income taxes
Domestic		$	(1,075,059	)		$	(2,189,825	)
Foreign			1,226,250				820,394
Total		$	151,191			$	(1,369,431	)

 

		For the fiscal years ended March 31,
		2025				2024
Provision (benefit) for income taxes
Current tax:
U.S. federal		$	395,067			$	—
U.S. state and local			750				750
Foreign			436,854				676,201
Total Current Tax			832,671				676,951
Deferred tax:
U.S. federal			158,449				(4,456	)
Total deferred tax			158,449				(4,456	)
Total tax		$	991,120			$	672,495
Effective tax rates			655.5	%			-49.1	%

A reconciliation of the effective tax rate was as follows:

 

		For the fiscal years ended March 31,
		2025				2024
Tax at statutory rate		$	31,750			$	(287,581	)
State tax, net of federal benefit			593				593
Non-deductible expenses			(57,723	)			202,789
Non-taxable income			—				—
Global Intangible Low-Taxed Income, net			—				527,733
Subpart F			549,151				—
Tax Credits			(52,724	)			(274,877	)
Foreign tax rate differential			179,343				503,917
Foreign tax attributes			190,817				(793,383	)
Change in Valuation Allowance			(190,817	)			793,383
Provision to return adjustments			165,440				(79	)
Uncertain Tax Provision: Amended tax returns			175,290				—
Total		$	991,120			$	672,495

 

Schedule of Unrecognized Tax Benefits was as follows:

 

		Fiscal 2025
Beginning balance		$	0
Additions for tax positions of prior years (Subpart F income inclusion on amended federal tax returns)
Fiscal Year(s) Affected: FY 2022			80,048
Fiscal Year(s) Affected: FY 2023			95,242
Reductions for tax positions of prior years			—
Loss before provision for income taxes		$	175,290

 

The Company estimates $241,643 of unrecognized tax provision, including penalties and interest, may be recognized in the next 12 months.

 

The Company’s deferred tax assets and liabilities as of March 31, 2025 and 2024 consisted of the following:

 

Deferred tax assets/ (liabilities)		As of March 31, 2025				As of March 31, 2024
Stock-based compensation		$	—			$	158,557
Deferred tax liabilities			(120	)			(228	)
Net operating losses carried forward			1,975,215				2,166,032
Less: valuation allowance			(1,975,215	)			(2,166,032	)
Deferred tax (liabilities) assets, net		$	(120	)		$	158,329

 

Deferred tax assets are reduced by a valuation allowance when it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. As of March 31, 2025 and 2024, the allowance for deferred tax assets was $1,975,215 and $2,166,032, respectively. The allowance is provided for net operating loss of foreign subsidiaries.

 

As of March 31, 2025, the Company had cumulative book-tax basis differences in its foreign subsidiaries of approximately $17.6 million. The Company has not recorded a U.S. deferred tax liability for the book-tax basis in its foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. The reversal of this temporary difference would occur upon the sale or liquidation of the Company’s foreign subsidiaries, and the estimated impact of the reversal of this temporary difference is approximately $3.6 million. As of March 31, 2025 and 2024, there were $175,290 and $nil uncertain tax positions, respectively.

 

The Company files income tax returns in the U.S. federal, state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to April 1, 2018.