Natural Health Trends Corp. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The components of income before income taxes consist of the following (in thousands):



	Year Ended December 31,
	2016			2015			2014
Domestic	$	(3,106	)	$	(7,820	)	$	4,502
Foreign	67,183			55,613			16,134
Income before income taxes	$	64,077		$	47,793		$	20,636

The components of the income tax provision consist of the following (in thousands):



	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	7,151		$	12		$	104
State	(81		)	100			11
Foreign	1,648			456			194
Total current taxes	8,718			568			309
Deferred taxes	273			(16		)	(43		)
Income tax provision	$	8,991		$	552		$	266

A reconciliation of the reported income tax provision to the provision that would result from applying the domestic federal statutory tax rate to pretax income is as follows (in thousands):



	Year Ended December 31,
	2016			2015			2014
Income tax at federal statutory rate	$	22,427		$	16,250		$	7,016
Effect of permanent differences	12,496			370			9
Change in valuation allowance	(3,877		)	2,017			(2,070		)
Foreign rate differential	(21,713		)	(18,099		)	(5,240		)
Other reconciling items	(342		)	14			551
Income tax provision	$	8,991		$	552		$	266

Income before income taxes and the statutory tax rate for each country that materially contributed to the foreign rate differential presented above is as follows (in thousands):



			Year Ended December 31,
	Statutory Tax Rate		2016		2015		2014
Cayman Islands	—	%	$	58,169	$	50,993	$	16,267
Hong Kong	16.5	%	3,992		2,645		1,129
China	25.0	%	3,855		1,493		153

Deferred income taxes consist of the following (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Net operating losses	$	235		$	3,197
Stock-based compensation	623			—
Accrued expenses	3,174			3,367
Tax credits	—			418
Other	—			32
Total deferred tax assets	4,032			7,014
Valuation allowance	(235		)	(4,112		)
Net deferred tax assets	3,797			2,902
Deferred tax liabilities:
Foreign earnings	(3,650		)	(2,789		)
Other	(415		)	(173		)
Total deferred tax liabilities	(4,065		)	(2,962		)
Net deferred tax liability	$	(268	)	$	(60	)

As of December 31, 2016, the Company has released its valuation allowance against its U.S. deferred tax assets. In addition to having a net deferred tax liability and no indefinite lived intangibles, the Company analyzed all sources of available income and determined that they are more likely than not to realize the tax benefits of their deferred assets in future periods or carryback years.

As of December 31, 2016, the Company has a valuation allowance against certain foreign deferred tax assets. The Company is recording a valuation allowance in foreign jurisdictions with an overall deferred tax loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision. As of December 31, 2016, the Company has no U.S. federal net operating loss or credit carryforwards as any remaining attributes are expected to be fully utilized to offset tax in the current year.

At December 31, 2016, the Company has foreign net operating loss carryforwards of approximately $1.3 million in various jurisdictions with various expirations.

As a result of capital return activities approved by the Board of Directors during the first quarter of 2016 and anticipated future capital return activities, the Company determined that a portion of its current undistributed foreign earnings are no longer deemed reinvested indefinitely by its non-U.S. subsidiaries. The Company repatriated $19.8 million to the U.S. during the three months ended March 31, 2016, part of which was offset by U.S. net operating losses. Accordingly, the deferred tax liability previously established for undistributed foreign earnings up to its existing U.S. net operating losses was reduced. The excess amount repatriated during the year ended December 31, 2016 was generated from current foreign earnings. The Company will continue to periodically reassess the needs of its foreign subsidiaries and update its indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable U.S. corporate tax rate. As of December 31, 2016, the Company has recorded a deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of December 31, 2016.

The Company and its subsidiaries file tax returns in the United States, California and Texas and various foreign jurisdictions. For federal income tax purposes, fiscal years 2007 through 2015 remain open for examination by tax authorities as a result of net operating loss carryovers from older years being used to offset income in recent tax years. The Company is no longer subject to state income tax examinations for years prior to 2011. No jurisdictions are currently examining any income tax returns of the Company or its subsidiaries.