Companies that specialize in international trading and purchasing often engage offshore companies in their business transactions, as doing so ensures that profits arising from transactions involving purchasing goods in one country and selling them in another country are accumulated in the offshore company free from taxation.
Transactions made in the European Union, for example, in Madeira, Cyprus, the Isle of Man, etc. have become very popular as they offer a stable environment for low tax trading activities. VAT (Value-added Tax) registration is compulsory within the EU thus causing questions of minimization of this tax to arise. Therefore the use of, for example, Caribbean-based offshore companies does not offer the opportunity to minimize VAT.
Transferring funds from trading to a low tax jurisdiction may enable a company that resides in a high tax jurisdiction to compensate for trading losses via a company incorporated in a low tax jurisdiction.
Another advantage that offshore companies offer to those engaged in international trading is in cases related to bulk purchasing; a group of associated companies can then take advantage of reduced administrative costs and enjoy an offshore structure that is more tax efficient to their purchasing needs than an onshore entity.