NOTE 18 – INCOME TAXES

The Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740-10. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

Gulf Resources, Inc. may be subject to the United States of America Tax laws at a tax rate of 21%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the three-month period ended March 31, 2026 and 2025, and management believes that its earnings are permanently invested in the PRC.

Upper Class Group Limited, a subsidiary of Gulf Resources, Inc., was incorporated in the BVI and, under the current laws of the BVI, it is not subject to tax on income or capital gain in the BVI. Upper Class Group Limited did not generate assessable profit for the three-month period ended March 31, 2026 and 2025.

HKJI, a subsidiary of Upper Class Group Limited, was incorporated in Hong Kong and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for income tax has been made as it has no taxable income for the three-month period ended March 31, 2026 and 2025. The applicable statutory tax rates for the three-month period ended March 31, 2026 and 2025 are 16.5%. There is no dividend withholding tax in Hong Kong.

Enterprise income tax (“EIT”) for the subsidiaries in the PRC is charged at 25% of the assessable profits.

SCHC, SYCI, DCHC, and SHSI are a wholly foreign-owned enterprises (“FIE”) incorporated in the PRC. They are subject to the PRC Local Income Tax Law. The PRC tax losses may be carried forward to be utilized against future taxable profit for ten years for High-tech enterprises and small and medium-sized enterprises of science and technology and for five years for other companies. Tax losses of the operating subsidiaries of the Company may be carried forward for five years.

The Company’s income tax returns are subject to the various tax authorities’ examination. The federal, state and local authorities of the United States may examine the Company’s income tax returns filed in the United States for three years from the date of filing. The Company’s US income tax returns since 2016 are currently subject to examination.

Inland Revenue Department of Hong Kong (“IRD”) may examine the Company’s income tax returns filed in Hong Kong for seven years from date of filing. For the years 2012 through 2019, HKJI did not report any taxable income. It did not file any income tax returns during these years except for 2014 and 2018. For companies which do not have taxable income, IRD typically issues notification to companies requiring them to file income tax returns once in every four years. The tax returns for 2014 and 2018 have been examined, and there is no Hong Kong Profits Tax was charged.

The components of the income tax benefit from continuing operations are:

Income Taxes - Schedule of Components of Income Tax Expense Benefit

Significant components of the Company’s deferred tax assets and liabilities at March 31, 2026 and December 31, 2025 are as follows:

Income Taxes - Schedule of Deferred Tax Assets and Liabilities

Deferred tax assets consist of future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing deductible temporary differences. As of March 31, 2026 and 2025, valuation allowances were mainly provided against deferred tax assets caused by exploration costs and net operating loss where it was determined it was more likely than not that the benefits of the deferred tax assets will not be realized due to their continuous losses.

The increase in valuation allowance for the three-month period ended March 31, 2026 is $114,900.

The increase in valuation allowance for the three-month period ended March 31, 2025 is $1,083,817.

There were no unrecognized tax benefits and accrual for uncertain tax positions as of March 31, 2026 and December 31, 2025 and no amounts accrued for penalties and interest for the three months ended March 31, 2026 and 2025.