International trading and purchasing companies often involve offshore companies in their trading transactions, because profits arising out of transactions involving purchasing goods in one country and selling them in another accumulate in the offshore company free from taxation.
For European Union transactions, for example, the Isle of Man, Madeira, Cyprus etc. have become very popular locations for low tax trading activities. VAT registration is compulsory within the EU. In this connection the question of minimization of this tax arises. The use of Caribbean companies does not grant this opportunity. That is why the most popular jurisdictions for this purpose are the Isle of Man, Madeira and Cyprus.
Transferring funds to a low tax jurisdiction may enable a company resident in a high tax jurisdiction to compensate for trading losses through a company incorporated in a low tax jurisdiction.
Offshore structures may be very useful in the case of bulk purchasing: a group of associated companies can benefit from reduced administrative costs, and an offshore structure is more tax efficient than an onshore entity.