v3.26.1
Income Taxes
 3 Months Ended
Mar. 31, 2026
Income Taxes [Abstract]  
INCOME TAXES

NOTE 9 — INCOME TAXES

 

Wetouch

 

Wetouch is subject to a tax rate of 21% per 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 shareholders.

 

Hong Kong

 

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

 

PRC

 

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. Sichuan Vtouch is subject to a 25% income tax rate.

 

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 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
Three Months Ended
March 31,		 
PRC income tax  2026   2025 
   (Unaudited) 
Income tax provision  $
1,242,185
   $1,476,488 
Deferred income tax expenses   1,000    (5,382)
Total  $1,243,185   $1,471,106 
           
US   
-
    
-
 
BVI   
-
    
-
 
Hong Kong   
-
    
-
 
Income tax provision  $1,243,185   $1,471,106 

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three months March 31, 2026 and 2025:

 

   For the
Three Months Ended
March 31,		 
   2026   2025 
   (Unaudited)   (Unaudited) 
PRC statutory income tax rate   25.0%   25.0%
Income tax computed at PRC statutory corporate income tax rate of 25%   24.9%   26.1%
Tax rate differential on entities not subject to PRC income   0.1%   (1.1)%
Temporary differences   0.0%   0.1%
Non-deductible expenses   (0.7)%   11.4%
Effective tax rate   24.3%   36.5%

 

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
March 31,
2026		   As of
December 31,
2025		 
         
Deferred tax assets:    
Allowance for credit losses  $3,753   $3,699 
Provision of obsolete inventory   21,751    22,448 
Impairment of construction in progress   45,697    45,076 
Leasing liabilities   92,672    130,363 
Total gross deferred tax assets   163,873    201,586 
Less valuation allowance   
-
    
-
 
Deferred tax assets net of valuation allowance   163,873    201,586 
           
Deferred tax liabilities:          
Right-of-use assets   (92,672)   (130,363)
Deferred tax liabilities   (92,672)   (130,363)
Deferred tax assets, net  $71,201   $71,223 

 

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of March 31, 2026 and December 2025, taxes for Sichuan Vtouch remained open for statutory examination by PRC tax authorities.