Trade Marketing and Distribution
A high proportion of companies engage in 'trade', that is the process of making or procuring goods or services and selling them onto business or individual customers. If this process takes place internationally, then it is often possible to interpose an offshore company in which part of the profits of the operation can be realized in a low-tax jurisdiction. Even if the process takes place wholly in one high-tax jurisdiction, it may be possible to separate the 'selling on' part of the process from the 'making and procuring' part, and send it offshore, particularly now that e-commerce infrastructure is available in many IOFCs.
The eventual value of having an offshore trading companywill depend on the overall corporate structure, and on the particular country or countries in which the owner resides. To get the best result, it will normally be good for the offshore company not to be a controlled subsidiary of the main company; and it will normally be even better if the main shareholders are not resident in the same country as the main company; but even if these conditions are not fulfilled, there is much that can be achieved.
Here are some examples of business situations in which an offshore trading company can help to reduce or avoid tax:
An EU automotive component company sets up an independent offshore company to purchase cheap Chinese parts and sell them on at a profit to the EU company, which builds them into assemblies, adding further value (which will be taxed in the EU).
A newsletter and magazine publisher in the UK retains his editorial staff there, but sets up a separate offshore sales and distribution company to handle the rest of the process, and make most of the profit offshore.
An international engineering personnel agency gives up its Paris office and moves completely to an offshore jurisdiction which is only slightly less convenient for interviewing people. Its own profits and those of its free-lance staff become untaxed (staff may choose to remain in a high-tax area, but at least now they have a choice!).
Note that the tax saved in most such cases is income (corporation) tax; but in the case of products or services which can be delivered over the Internet, the possibility of avoiding VAT also opens up. See Offshore-E-Com.com for a fuller description of how this can work.
It is worth noting that some IOFCs actively encourage trading operations by offering duty-free zones, or warehousing facilities. This can be particularly important when attempting to avoid the creation of a 'permanent establishment' in the destination country (eg for the storage of goods before delivery) which could compromise a company's offshore status.
Apart from ensuring fiscal suitability and confidentiality, the choice of an offshore jurisdiction for trading purposes will depend on a variety of factors, of which some particularly important ones may be:
- good transport links
- availability of skilled local labour
- ease of obtaining entry and work permits
- proximity to markets
- local cost levels
- effectiveness of local banking and commercial services
- modern telecommunications and e-commerce infrastructure
- availability of duty-free zones
- ease of establishment of offshore entities
Due to the variety of possible trading purposes, it is difficult to recommend suitable IOFCs, but here is a list of some IOFCs with good, broad infrastructure and which meet many of the criteria above:
In the Lowtax.net jurisdictions section, information is given about the business sector for each of the following jurisdictions:
Andorra, Anguilla, Aruba, Bahamas, Barbados, Belize, Bermuda,British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica,Cyprus, Dubai, Gibraltar, Grenada, Guernsey, Hong Kong, Ireland,Isle of Man, Jersey, Labuan, Liechtenstein, Luxembourg, Madeira,Malta, Mauritius, Monaco, The Netherlands Antilles, Panama,Seychelles, Switzerland, Turks & Caicos Islands and Vanuatu.