An offshore 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 freelance 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 of these cases is income (corporation) tax; but in thecase of products or services which can be delivered over the Internet, the possibility of avoiding VAT is also opened up.

Foreign exchange management of an IOC can benefit a group

A large group with many subsidiaries in different countries has substantial costs connected with foreign exchange. Multi-currency treasury management on the basis of a set of independent national treasury operations is virtually the worst possible method, and concentration of all transactions into a flexible central treasury in a jurisdiction without exchange controls or predatory and highly-protected local banks is an obvious solution. Providing that the centralized currency management function is based in an IOC with a good local financial infrastructure, treasury management can proceed to optimize cash flows without concerns about withholding taxes, capital gains, or any of the other unpleasant taxes or regulations often imposed by high-tax governments. Finally, the profits from such an operation, which can be quite substantial in a large group, are made in a low-tax jurisdiction.

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