NOTE 18. INCOME TAX

Cayman Islands

Under the current laws of the Cayman Islands, the Group is not subject to tax on income or capital gains. Additionally, upon payments of dividends to the shareholders, no withholding tax will be imposed.

British Virgin Islands

Under the current laws of the BVI, an entity incorporated in the BVI is not subject to tax on income or capital gains.

Hong Kong

In accordance with the relevant tax laws and regulations in Hong Kong, a company with trading activities in Hong Kong is subject to Profits Tax within Hong Kong at the applicable tax rate on its assessable profits. In March 2018, the Hong Kong government introduced a two-tiered Profits Tax rate regime by enacting the Inland Revenue (Amendment) (No.3) Ordinance 2018 (the “Ordinance”). Under the two-tiered Profits Tax rate regime, the first HK$2.0 million of assessable profits of qualifying entity is taxed at 8.25% and the remaining assessable profits at 16.5%. The Ordinance is effective from the year of assessment 2018/19. According to the relevant policy, if no election of the qualifying entity has been made, the whole of the taxpaying entity’s assessable profits will be chargeable to the Profits Tax at the rate of 16.5%. The Group had elected Shine Union to have its qualifying profits of HK$2.0 million charged at half rate. Under the current laws of Hong Kong, payments of dividends are not subject to withholding tax.

Income tax expenses consisted of the following:

Schedule of income tax expenses

Income (Loss) before income tax expenses for the years ended September 30, 2024 and 2025 is attributable to the following geographic locations:

Schedule of income before income tax expenses attributable to geographic locations

The tax on the Group’s income before income tax expenses (benefits) differs from the theoretical amount that would arise using the enacted tax rate of the companies comprising the Group can be reconciled as follows:

Schedule of income before income tax expenses differs from the theoretical amount

Deferred tax assets and liabilities, net consisted of the following:

Schedule of deferred tax assets and liabilities, net

The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, the Group’s experience with tax attributes expiring unused, tax planning alternatives, reversal of existing taxable temporary differences, the taxable income generated in prior years, and the projected future taxable income. Valuation allowances are established for deferred tax assets when it is not more likely than not that they will be realized.

As of September 30, 2024 and 2025, the Group did not recognize a valuation allowance against its deferred tax assets because the Group believes it is more likely than not that the deferred tax assets will be realized. The taxable temporary differences mainly comprise of (i) the provision for allowance for credit losses of HK$1,126,455 and HK$1,519,650; and (ii) lease liabilities of HK$770,659 and HK$896,536, as of September 30, 2024 and 2025, respectively, which are expected to be reversed upon receipt of outstanding receivables, the taxable income in future periods for the operating entities, and the settlement of operating lease payments. The deferred tax assets relate mainly to temporary differences that are expected to reverse within the next 3 years.

Although the Group recorded a net loss of HK$18.5 million for the fiscal year ended September 30, 2025, management considers that this loss does not outweigh the abovementioned expected recovery of deferred tax assets because the loss arose principally from non-operational and non-recurring items such as inventory write-downs and investor-searching activities, rather than from a sustained deterioration in the Group’s underlying operating performance or future taxable income-generating capacity.

Uncertain tax positions

The Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of September 30, 2024 and 2025, the Group did not have any significant unrecognized uncertain tax positions and the Group does not believe that its unrecognized tax benefits will change over the next twelve months. For the years ended September 30, 2024 and 2025, the Group did not have any significant interest or penalties related to potential underpaid income tax expenses. The Group’s major tax jurisdiction is Hong Kong. Under relevant Hong Kong tax laws, tax case is normally subject to investigation by the tax authority for up to 6 years of assessment prior to the current year of assessment, if in a case of fraud or willful evasion, then the investigation can be extended to cover 10 years of assessment.