NOTE 12- INCOME TAXES

9 Months Ended

Sep. 30, 2012

NOTE 12 – INCOME TAXES

The provision for income tax was $617,359 and $614,304 for the three months ended September 30, 2012 and 2011, respectively, and $1,981,871 and $2,082,023 for the nine months ended September 30, 2012 and 2011, respectively, which arose from foreign income tax incurred and or paid to the Chinese tax agent. The Company’s income tax is assessed at 25% of net income.

Foreign pretax earnings were $2,480,614 and $2,414,876 for the three months ended September 30, 2012 and 2011, respectively, and $7,930,383 and $8,166,731 for the nine months ended September 30, 2012 and 2011, respectively. Pretax earnings of a foreign subsidiary are subject to US taxation when effectively repatriated. The Company provides income taxes on the undistributed earnings of non-US subsidiaries except to the extent such earnings are indefinitely invested outside the US. At September 30, 2012, approximately $25,993,000 of accumulated unadjusted earnings of non-US subsidiaries was indefinitely invested. At the existing US federal income tax rate, additional taxes of approximately $2,339,000 would have to be provided if such earnings were remitted currently.

The Company did not have any significant temporary differences giving rise to deferred tax liabilities as of September 30, 2012 and December 31, 2011 (audited).

Reconciliation of the differences between the statutory US Federal income tax rate and the effective rate was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011

US statutory tax rate		34.0	%		34.0	%		34.0	%		34.0	%
Tax rate difference		(9.0	)%		(9.0	)%		(9.0	)%		(9.0	)%
Changes in valuation allowance		1.7	%		3.7	%		1.9	%		2.1	%
Effective rate		26.7	%		28.7	%		26.9	%		27.1	%

At September 30, 2012, the Company had US net operating loss carry forwards of approximately $1,504,000. A 100% valuation allowance was recorded against their potential tax benefit due to the uncertainty of its realization.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

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+ Details

Asia Carbon Industries, Inc. 10-Q