NOTE 16 - INCOME TAX

Japan

The Company and the Japanese subsidiaries conduct its major businesses in and are subject to tax in this jurisdiction. As a result of its business activities, the Company and the Japanese subsidiaries apply the Japanese Group Relief System and file tax returns that are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company and the Japanese subsidiaries are imposed by the national, prefectural, and municipal governments.

As of March 31, 2025, tax years ended March 31, 2019 to 2025 remain open for the local tax authority audit. The Company has received no notice of audit from the local tax authority for any of the open tax years.

China

Yantai Propolife Wood Industry Co., Ltd. was incorporated under the laws of China. The income tax rate is 25%. As of March 31, 2025, at least over six tax years until the year ended December 31, 2024 remain open for the local tax authority audit. The Company has received no notice of audit from the local tax authority for any of the open tax years.

Vietnam

LogKnot Vietnam Co., Ltd. and Propolife Vietnam Co., Ltd. were incorporated under the laws of Vietnam. The income tax rate is 20%. As of March 31, 2025, at least over six tax years until the year ended December 31, 2024 remain open for the local tax authority audit. The Company has received no notice of audit from the local tax authority for any of the open tax years.

For the years ended March 31, 2025, 2024 and 2023, the Group’s income tax expenses are as follows:

SCHEDULE OF INCOME TAX EXPENSES 

A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of income and comprehensive income to the Japanese statutory tax rate for the years ended March 31, 2025, 2024 and 2023 is as follows:

SCHEDULE OF RECONCILIATION OF THE EFFECTIVE INCOME TAX RATES 

On March 31, 2025, amendments to Japanese tax regulations were enacted into law. As a result, the Japanese statutory tax rate was increased from 34.59 % to 35.43 % from the fiscal year beginning April 1, 2026. The impact of the tax law changes was a net deferred income tax benefit of ¥7,746 thousand for the year ended March 31, 2025.

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

SCHEDULE OF TEMPORARY DIFFERENCE OF DEFERRED INCOME TAX ASSETS AND LIABILITIES 

The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Group regularly assesses the ability to realize its deferred tax assets and establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Group 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 asset 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 Group’s projections for growth. The adjustments of a valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which the valuation allowance is adjusted. Based upon the level of historical taxable profit and projections for future taxable profit over the periods for which the deferred tax assets are deductible, management believes it is more likely than not that the Group will utilize the benefits of these deferred tax assets, net of the valuation allowance, as of March 31, 2025 and 2024. Uncertainty of estimates of future taxable profit could increase due to changes in the economic environment surrounding the Group, effects by market conditions, effects of currency fluctuations or other factors.

The net changes in the total valuation allowance were a decrease of ¥7,320 thousands, a decrease of ¥3,959 thousands and an increase of ¥19,421 thousands for the years ended March 31, 2025, 2024 and 2023, respectively.

As of March 31, 2025, the Group had net operating losses which can be carried forward for income tax purposes of ¥561,277 thousand to reduce future taxable income. Periods available to reduce future taxable income vary in each tax jurisdiction and generally range from four to ten years as follows:

SCHEDULE OF FUTURE TAXABLE INCOME IN TAX JURISDICTION RAGE FROM FOUR TO TEN YEARS 

Uncertain tax positions

The Group 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 March 31, 2025 and 2024, the management considered that the Group did not have any significant unrecognized uncertain tax positions. The Group did not incur any interest or penalties tax for the years ended March 31, 2025 and 2024. The Group does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months from March 31, 2025.