NOTE 11 - INCOME TAXES
Corporation income tax (CIT)
The Companys operating subsidiary, Changzhou Huayue, is subject to the corporate income tax at a statutory rate of 25%.
For the quarter ended August 31, 2011, Changzhou Huayue recorded $283 income tax provision; for the quarter ended August 31, 2010, Changzhou Huayue recorded $13,845 income tax provision.
Although the Company had a negative income for the fiscal year ended May 31, 2009, the tax losses was immaterial and the Company did not expect such tax losses could be "carry forward" to reduce taxable income in future years. Therefore, the Company did not recognize any deferred tax assets.
Value added tax (VAT)
Enterprises or individuals who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with the PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Companys finished products can be used to offset the VAT due on the sales of the finished products.