Wetouch Technology Inc. Income Taxes Disclosure

NOTE 9 — INCOME TAXES

 

Wetouch

 

Wetouch is subject to a tax rate of 21% per year beginning 2018, and files a U.S. federal income tax return.

 

BVI Wetouch

 

Under the current laws of the British Virgin Islands, BVI Wetouch, a wholly owned subsidiary of Wetouch, is not subject to tax on its income or capital gains. In addition, no British Virgin Islands withholding tax will be imposed upon the payment of dividends by the Company to its stockholders.

 

Hong Kong

 

HK Wetouch is subject to profit taxes in Hong Kong at a progressive rate of 16.5%.

 

PRC

 

Sichuan Wetouch and Sichuan Vtouch files income tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income tax rate is 25% according to the Corporate Income Tax (“CIT”) Law which was passed by the National People’s Congress on March 16, 2007.

 

Under PRC CIT Law, domestic enterprises and foreign investment enterprises (the “FIEs”) are usually subject to a unified 25% enterprise income tax rate. The Company’s PRC subsidiary Sichuan Vtouch is subject to a 25% income tax rate.

 

The CIT Law and its implementation rules impose a withholding income tax at 10%, unless reduced by a tax treaty or arrangement, on the amount of dividends distributed by a PRC-resident enterprise to its immediate holding company outside the PRC that are related to earnings accumulated beginning on January 1, 2008. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding income tax.

The Company’s provision for income taxes expenses consisted of:

 

		For the Years Ended June 30,
		2025				2024
PRC tax provision
Income tax provision		$	3,025,605			$	2,699,683
Deferred income tax expenses			(27,255	)			(41,993	)
Subtotal			2,998,350				2,657,690
United States			-				-
British Virgin Islands			-				-
Hong Kong			-				-
Total income tax provision		$	2,998,350			$	2,657,690

 

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the years ended December 31, 2025 and 2024:

 

		For the Years Ended December 31,
		2025				2024
PRC statutory income tax rate			25.0	%			25.0	%
Income tax computed at PRC statutory corporate income tax rate of 25%			29.0	%			32.9	%
Tax rate differential on entities not subject to PRC income			(0.6	)%			(1.3	)%
Change in valuation allowance			0.0	%			(0.9	)%
Temporary differences			0.6	%			0.3	%
Non-deductible expenses			0.5	%			(0.4	)%
Effective tax rate			29.5	%			30.6	%

 

A reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company’s income taxes is as follows:

 

		For the Years Ended December 31,
		2025				2024
Income before income taxes		$	10,158,860			$	8,688,848
Income tax computed at PRC statutory corporate income tax rate of 25%			2,949,888				2,861,613
Reconciling items:
Tax rate differential on entities not subject to PRC income tax			(65,628	)			(110,304	)
Change in valuation allowance			-				(79,458	)
Temporary differences			64,473				24,934
Non-deductible expenses			49,617				(39,095	)
Income tax provision		$	2,998,350			$	2,657,690

 

The Company follows ASC 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company’s deferred tax assets consisted of the following components:

 

		As of December 31, 2025				As of December 31, 2024
Deferred tax assets:
Allowance for credit losses		$	3,699			$	11,056
Provision of obsolete inventory			22,448				30,607
Impairment of construction in progress			45,076				-
Leasing liabilities			130,363				263,536
Total gross deferred tax assets			201,586				305,199
Less valuation allowance			-				-
Deferred tax assets net of valuation allowance			201,586				305,199
Deferred tax liabilities:
Right-of-use assets			(130,363	)			(263,802	)
Deferred tax liabilities			(130,363	)			(263,802	)
Deferred tax assets, net		$	71,223			$	41,397

 

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of December 31, 2025 and December 31, 2024, taxes for Sichuan Vtouch remained open for statutory examination by PRC tax authorities.