Company Structure and Operations - HUHUTECH is a holding company with no operations of its own, conducting business through subsidiaries in China and Japan[22]. - As of the date of the report, HUHUTECH has 21,173,413 issued and outstanding Ordinary Shares, with an authorized share capital of US$50,000 divided into 20,000,000,000 Ordinary Shares[24]. - HUHUTECH intends to retain most, if not all, available funds and future earnings to support operations and finance business growth[32]. - HUHUTECH's ability to conduct operations may be materially affected if subsidiaries are unable to pay dividends when needed[31]. - The company relies on dividends from its PRC subsidiaries for cash needs, and any limitations on these dividends could affect its ability to cover expenses[114]. Regulatory Environment - The establishment and operation of companies in China are governed by the PRC Company Law and the PRC Foreign Investment Law, which provides a framework for foreign investments[39][40]. - The Foreign Investment Law prohibits expropriation of foreign investments without fair compensation and mandates that local governments adhere to commitments made to foreign investors[41]. - The 2020 Negative List allows foreign investments in industries not listed, with certain restrictions in place for specific sectors[43]. - The 2021 Negative List continues to open industries for foreign investments while maintaining restrictions in certain areas[44]. - The PRC Foreign Investment Law, effective January 1, 2020, replaced previous laws and aims to unify corporate legal requirements for foreign and domestic enterprises[131]. Financial Regulations and Taxation - Current PRC regulations permit the Company's PRC subsidiaries to pay dividends only out of their accumulated profits, which must be determined in accordance with Chinese accounting standards[35]. - Under the current regulatory regime, foreign investment enterprises in China may pay dividends only out of their retained earnings, with a requirement to set aside at least 10% of after-tax profits until reserves reach 50% of registered capital[75]. - The Enterprise Income Tax Law imposes a uniform corporate income tax rate of 25% on resident enterprises, while non-resident enterprises face a withholding income tax rate of 10% on income sourced from within China if they do not have permanent establishments[77]. - Dividends declared to non-PRC resident investors are subject to a withholding tax rate of 10%[79]. - The PRC government imposes a 10% withholding tax on dividends payable by Chinese companies to non-PRC-resident enterprises, which could limit the company's ability to pay dividends[145]. Intellectual Property and Compliance - The Patent Law protects three types of patents with varying protection periods: 20 years for invention patents, 10 years for utility model patents, and 15 years for design patents[51]. - The Copyright Law provides legal rights to copyright owners, including rights of publication and reproduction, and extends protection to internet activities[54]. - Infringers of copyright may face civil liabilities, including compensation for losses and potential criminal penalties in severe cases[54]. - The company may face challenges in protecting its intellectual property rights, which could impact its competitive advantage[118]. Labor and Employment Regulations - Employers in China are required to provide social insurance benefits covering various insurances, with penalties for non-compliance[85]. - Employers must register and deposit housing funds, contributing no less than 5% of the employee's monthly average salary from the previous year[86]. - Under the Japanese Labor Standards Law, employers must adhere to minimum wage standards and working conditions, with penalties for violations[101]. Currency and Cash Flow Management - The transfer of cash among subsidiaries is subject to PRC regulations, but there are currently no restrictions on transferring cash between subsidiaries[29]. - The PRC government may impose restrictions on foreign currency access for current account transactions, which could impact cash transfers[28]. - Funds or assets in the PRC or Hong Kong may not be available for operations outside these regions due to government restrictions on cash transfers[129]. - The company relies on dividend payments from PRC subsidiaries to fund cash requirements, but must obtain SAFE approval for converting Renminbi into foreign currency for capital expenses[194]. Risks and Uncertainties - The company faces substantial uncertainties regarding the interpretation and implementation of the PRC Foreign Investment Law, which may impact its corporate structure and operations[114]. - The company may encounter difficulties in expanding its business in Japan, which could adversely affect its operational results[118]. - The company has experienced significant disruptions due to the COVID-19 pandemic, which may continue to adversely affect its financial condition[118]. - The evolving regulatory landscape may require the company to enhance internal compliance measures and allocate additional resources to meet new requirements[159]. Compliance and Legal Risks - The company is subject to various laws and regulations in the construction industry in Japan, which may negatively impact its business[118]. - The company may face regulatory actions and legal proceedings that could harm its reputation and adversely affect its financial condition[119]. - The company may face stricter review and approval processes regarding foreign exchange activities, which could adversely affect its financial condition and operations[127]. - Non-compliance with cybersecurity regulations could result in significant financial penalties, operational disruptions, or revocation of business licenses[159]. International Trade and Market Conditions - The current international trade tensions, particularly between the U.S. and China, may adversely impact the company's business and financial condition[214]. - The U.S. government announced a 20% tariff on Chinese imports starting March 4, 2025, which may impact the company's supply chain and cost structure[215]. - Changes in international trade policies could affect demand for the company's services and its competitive position[214].
HUHUTECH(HUHU) - 2024 Q4 - Annual Report